Processing the Vertical Software & Payments Landscape in Europe

At Lazard, we often spend time analyzing business model formation in vertical software markets. Many characteristics appear consistent, such as establishing an operating model around a key control point – other areas are more varied, including the inter-section of vertical software with financial services, notably payment processing.

In this report, we outline how independent software vendors (ISVs) have integrated payments within their product offering, and analyze how merchant acquirers and payment service providers (PSPs) have re-focused their strategic initiatives. Our key takeaways are included below.

Since the advent of the iPhone and cloud computing, three growth vectors have driven the evolution of payment processing in vertical software markets over the last decade, in our view: (i) increasing digitization, (ii) growth in ecommerce penetration, and (iii) the democratization of software to SMBs.

Many incumbent merchant acquirers who historically held and benefited from direct merchant relationships have experienced increasing competitive pressures and risk of disintermediation. There have been two main disruptors. First, from payment service providers, like Stripe. Second, from independent software vendors who supplement their vertically-focused platforms with payment processing capabilities, like Toast.

Our bottom-up analysis suggests there is a wide dispersion of payment enablement among ISVs and across verticals. For example, hospitality (inc. hotels, restaurants, and wellness) has been the most payment-enabled to-date, compared to vendors within more complex industries which focus on software, such as energy and construction. Moreover, Europe, seems earlier in the growth cycle compared to the US, where some venture-backed ISVs have listed on the public markets.

In the final section, we screen ten verticals and highlight some interesting ISVs we have come across in Europe.

To read more, download the PDF report