The way people access financial services is changing. Increasingly, consumers and businesses are conducting their financial activities through digital platforms and the brands they already use on a day-to-day basis.

Companies such as Shopify, Uber, and Gusto, have launched embedded finance products, creating new revenue streams for their businesses and providing additional value for their customers.

Financial products embedded into software platforms accounted for $2.6 trillion in transactions in 2021, which is poised to increase to $7 trillion by 2026. One category of companies that is rapidly increasing their adoption of embedded finance are payroll and HR providers. 

In this guide we dive into the revenue potential of embedded finance for payroll providers, what the common use cases are, and provide examples of these products in the market. 

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The Power of Embedded Finance for Payroll

Embedded finance enables payroll providers to manage and distribute compensation more seamlessly, offering faster access to wages, instant payouts for hourly or tipped workers, and easier ways to spend.

Embedding products like bank accounts, payments, cards, lending, and earned wage access (EWA) directly into payroll platforms provides both employers and employees with unique benefits. 

Employees gain access to financial wellness tools, instant payouts, and personalized financial services, all seamlessly integrated with their payroll services. Employers can boost employee retention by improving the way their employees get paid. 

Additionally, embedded finance opens new revenue streams for payroll providers through interchange on card spend, payments monetization, and more. 

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Expanding Payroll Services with Embedded Finance

Several leading payroll providers are offering innovative embedded finance products for both employers and employees. These solutions primarily fall into one of three key categories: Financial Wellness, Access to Wages, and Global Payroll.

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Financial Wellness

As payroll companies expand their offerings beyond traditional payroll services, they increasingly tap into ancillary products that assist employers in attracting and retaining talent, such as employment benefits. 

With employee financial wellness becoming more top of mind for employers, a benefit that has recently been gaining momentum is an employer-matched emergency savings account (ESA). ESAs help employers ease financial stress among employees, improving the well-being of a company’s workforce.

Starbucks recently launched an ESA benefit for their employees called My Starbucks Savings. Emergency savings accounts are expected to continue gaining in popularity, with a recent study from T. Rowe Price finding that 73% of employees wanted an ESA as an employee benefit. 

Payroll companies can capitalize on this trend by enabling their business customers to offer this benefit to their employees.

Employees would open an account through the payroll provider. Then, on a monthly basis, contributions can be made to the account with the amount automatically deducted from payroll and transferred to the account. Just as any other bank account, the account can receive interest to further help employees achieve their savings goals. 

Additionally, employees would be able to receive a card attached to the account to easily spend when emergencies arise. 

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Access to Wages

In recent years, the gig economy and flexible work arrangements have reshaped the workforce. To remain competitive, employers must provide solutions that facilitate quick and easy access to employee earnings. Through embedded finance, payroll companies can provide faster wage access through two key products:

1. Instant Payouts: Employers can immediately disburse earned wages to gig workers (ex: courier drivers) or tips to service workers (ex: restaurant employees). Instant payouts are increasingly utilized by employers with hourly workers in various industries, including retail and healthcare, to attract and retain top talent.
2. Earned Wage Access: EWA helps employees manage unexpected expenses and avoid overdraft fees by granting them access to a portion of their accrued wages before payday. For instance, an employee who has completed half of their pay period can access half of their earnings early. EWA can be delivered through a secured charge or prepaid card and integrates smoothly with existing payroll systems, ensuring no disruption to the employer's payroll processes.

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Global Payroll

As emerging economies present new opportunities for employers to establish global workforces, there has been a surge in demand for effective global payroll solutions. 

For US businesses, paying international employees requires careful consideration of currency conversion to ensure they receive their wages in local currency. This often involves collaborating with currency exchange services or banks that specialize in cross-border payments, which can necessitate the establishment of compliant payment channels in each country.

Payroll companies can simplify this process by enabling international workers to open USD accounts, facilitating seamless money movement for both the employer and employee.

US employers would be able to transfer payroll to a contractor's USD bank account (locally in the US).  No need for delayed processing or currency conversion.  Individuals are able to hold USD in their deposit accounts, spend funds from a connected debit card, or transfer the funds to an account in their home country.

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How Leading Payroll Providers Use Embedded Finance

Gusto

Gusto, an online payroll and benefits platform serving over 300,000 businesses, offers Gusto Wallet. 

Gusto Wallet provides employees a wide variety of unique benefits tied to their payroll including budgeting tools, savings automations, and faster access to wages.

Paycor

Paycor, a payroll and human capital management software provider, offers an earned wage access product through Paycor Wallet.

When employees open a Paycor Wallet account, it enables employers to give them up to 50% money they’ve earned prior to payday. Then, through a card linked to the account employees can easily spend or access cash through an ATM. 

Paycor Wallet also has a variety of added financial wellness features to help employees better manage their money.

ADP

ADP, a leading payroll and human capital management provider, offers Wisely, which allows employees to get paid faster, earn unique rewards, and access tools to manage their finances.  

When employees open an account with Wisely they are able to access:

• Early direct deposit
• A debit card with cash back rewards
• Automated savings tools
• Financial wellness resources

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Generating Revenue through Embedded Finance

Launching embedded finance products goes beyond boosting customer retention, it also opens up a variety of new revenue streams. Below are the most common revenue sources for companies launching embedded finance products. For more detail, check out Synctera’s Guide to Projecting Revenue from Embedded Banking Products.

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Marketing incentive for deposits

Sponsor banks will typically offer a ‘marketing incentive’ for bringing end-user deposits into the bank. Companies work directly with their sponsor bank to determine the rate. The amount offered can range dramatically based on projections and a company’s overall revenue model.

Companies can recognize this as revenue or pass along a portion of the funds to end-users.

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Card Interchange

Interchange is the fee paid to the issuing bank every time an end-user transacts using their debit or credit card and can be a significant driver of revenue. Typically, interchange is split between the company offering the embedded finance product, the sponsor bank, and the technology partner. 

Many factors affect a transaction’s interchange rate, such as card type, customer type, payment processing method, merchant category, and more. However, typically this ranges from 1% - 2.5% of the total transaction amount. Read more about interchange rates and distribution in our interchange guide.

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Payment Income

Beyond just cards, there are a variety of other payment methods that companies can offer end-users. This includes ACH, wires, or instant payments, and more. For each of these payment methods payroll providers can charge a set fee or a fee based on the transaction amount.  

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Building the Future of Payroll

Embedded finance is revolutionizing payroll, offering a powerful way for payroll providers to enhance their core offerings, create new revenue streams, and foster stronger customer relationships.

With financial wellness now a priority for both employers and employees, payroll providers that adopt embedded finance are well-positioned to deliver meaningful value, support employee retention, and secure a competitive edge in the evolving market.

Synctera provides everything payroll companies need to launch and operate embedded finance products including earned wage access, accounts, cards, money movement, and more. Reach out to Synctera to learn more about how your payroll business can benefit from embedded finance.