Gusto: Rise of Embedded Fintech to Drive Differentiation

We speak to Yi Liu, GM of Embedded Payroll at Gusto, on the rise of embedded fintech partnerships in fintech and the use of data for differentiation

Over the last few years, more and more businesses have started to offer embedded fintech options to their customers, freeing time to focus on their strengths and partner with others in the space and offer more specialised solutions.

Embedded technologies are in the mainstream today, with increasingly easy-to-use API offerings leading to way to embedded adoption. 

Now, we speak to Yi Liu, General Manager of Embedded Payroll at Gusto, on how embedded fintech can reach small businesses and the value it can add, freeing up time for the things that matter to SMEs.

Liu says: “Small businesses are looking for more ‘all-in-one’ solutions to simplify their workflows and back-office overhead. For partners, these ‘all-in-one’ solutions create a valuable way to grow average revenue and retain their customers. 

“In order to meet their customers where they are, partners recognise and want to capitalise on the unique value that comes with offering a holistic array of fintech services. 

“However, they aren’t interested in becoming experts in compliance and risk. That’s why embedded fintech services are a great, low-risk way to enter the space and meet customer expectations and desires without having to build up entire compliance teams or payment infrastructure to meet requirements.

“These trends, combined with a tighter funding environment and business leaders searching for new revenue streams to maintain growth, have created the environment for products that include embedded finance options to grow and thrive.”

Banks, fintechs: Capitalising on business demand for embedded technology

With demand for embedded technologies high at businesses, to help them achieve sustainable growth, banks and fintechs have been capitalising on the needs of businesses by providing them with such technology through newly created partnerships. 

“While recession fears may have lessened, economic uncertainty and investor demands for sustainable growth remain,” says Liu. 

“This means that companies cannot overextend themselves when borrowing costs are higher and there’s a greater focus on ROI. So we’ll see platforms doing the ‘build/partner/buy’ analysis and quickly come to realise that partnering is the best option. 

“The unique part of building with embedded fintech applications is that it allows you to offload the costs, burdens, and risks of these products in order to focus resources on customising the frontend user experience for your customers. 

“That is, from a customer POV, the new capability is your product, not just another integration partnership. 

“From a financial risk perspective, digital platforms and financial services providers will look for partners who can offer embedded fintech services and who have a deep understanding of the risks of specific products and services.”

And, when it comes to business risk, Liu adds that “banks and platforms looking to develop new lines of business can partner with embedded fintech providers who credibly mitigate the risks associated with business processes like go-to-market, customer acquisition, and customer support over the long term”.

Fintech businesses: Leveraging partnerships to create differentiation

Now, fintech/business partnerships are seeing addition benefits of their collaboration by leveraging the additional data that surfaces to create differentiation. 

As Liu puts it: “The role of data will only grow. By adding additional embedded solutions, businesses will have greater visibility into the end-to-end cash flow of their SMB customers, enabling them to offer more tailored solutions and custom insights. 

“Notably, it will also help feed new AI-powered features that make up the backend of an all-in-one solution that can be of interest to resource-strapped SMBs.

“From a risk perspective, data will need to be shared among the banks, embedded fintech service providers, and platforms to collectively manage fraud and other losses. The more data available to a segment, the more it will help identify risk and fraud by specific industries and types of customers.”

While this is an emerging benefit for fintech and business partnerships today, Liu thinks the nature of these relationships is set to evolve again. 

“Banks are going to pursue partnerships that provide value-added solutions. In past years, fintech partnerships in the financial services industry have been driven by growth teams,” she says.

“With regulators also cracking down, banks are becoming more cautious and pulling back on these partnerships, leading banks and fintechs to double down on revenue growth through their existing customer bases by offering value-added solutions. 

“Partners are looking to own these solutions rather than working through referrals or integration partnerships because it makes more economic sense and results in more seamless customer experiences.”

The competitive landscape for fintech businesses in the year ahead

Below, Liu runs through what Gusto is focusing on in the year ahead in the fintech business landscape:

“At Gusto, we’re really focused on small and medium businesses, and the financial services sector for that audience is incredibly diverse, serving customers across every imaginable industry. 

“We’re talking about players in business banking, dedicated lenders, merchant solutions, and SaaS tools that provide embedded finance offerings. Because it’s so varied, partners tell us it’s hard to track – much less attribute – competitive losses to the rise of embedded fintech solutions.

“Regardless, we’re seeing remarkable growth in vertical SaaS solutions offering embedded fintech products (with less churn and higher attach rates than their standalone counterparts), and I think we’re just at the beginning. 

“It’s all about adapting to the times, and customers increasingly expect to be able to access and use seamless, simple fintech services from wherever they are. 

“This growth trend for embedded fintech, and financial services providers adding more value-added partnerships as I mentioned earlier, will result in a power shift in the industry: embedded fintech providers will likely cut into the customer bases of more established financial services players like regional banks.”

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