The payroll industry has undergone an immense amount of FinTech innovation in recent years.
From digitizing and automating workflows, to embracing new avenues to connect professionals to wages, to considering alternative models beyond the bi-weekly pay period, payroll is in the midst of an evolution.
Those changes will have knock-on effects in other areas of corporate finance. The digitization of payroll data has the potential to optimize existing workflows and promote the development of new ones, with the Paycheck Protection Program (PPP) just one example of the value of such data.
Indeed, payroll information was key to administering PPP loans to small- to medium-sized businesses (SMBs), and according to Finch Co-Founder and CEO Jeremy Zhang, it won’t be the last time payroll data is used to optimize SMB lending. Nor, he told PYMNTS, will SMB lending be the only use case that emerges from unlocking payroll data.
Zhang and his co-founder, Ansel Parikh, had been developing Finch initially as a way to integrate consumer lending products within online marketplaces and other businesses, unlocking those firms’ customer data to underwrite financing. But when the pandemic hit, they had to pivot, and it was when one of Finch’s initial customer prospects requested a way to integrate a way to facilitate PPP lending into their own platform that the new focus of Finch emerged.
“We went back and spoke with payroll providers and HR systems, and realized how difficult it was to pull data out of these systems, especially in a standardized fashion,” said Zhang. “It requires a lot of technical integration effort.”
But rather than developing a single solution to unlock payroll data for the sole purpose of facilitating PPP loans, Zhang said it was clear there were other unexplored use cases for this information. The result is the launch of Finch as tool for third-party developers, empowering them with payroll data via application programming interface (API).
Today, he said he sees three key categories of use cases for this information. The first is focused on corporate financial management as more finance and accounting softwares look to loop into payroll systems to obtain a more holistic view of business financials. This can also mean supporting accounting and payroll reconciliation, or even using payroll information to determine the eligibility of a business for an array of government tax credits.
The second surrounds lending and insurance, with financiers taking lessons learned from the PPP initiative to understand the potential value of payroll information (a trend that could potentially lead to Finch working directly with banks and other lenders in the future).
“People are starting to realize that HR data is really valuable in terms of underwriting,” said Zhang, who added that payroll data is also key to underwriting insurance products like workers compensation.
Finally, the third category of use cases focuses on the HR department itself and employee benefits as more providers shift away from direct-to-consumer strategies and more toward working with employers themselves to procure an array of benefit products for their workers.
More use cases are sure to emerge as developers get creative with the information, which was once siloed away but is now at their fingertips. According to Zhang, acceleration of payroll technology innovation and development has meant digitization of payroll data, but also the emergence of fragmentation in the market. In addition to some of the biggest players in payroll and HR, there are “thousands” of smaller FinTechs operating in the space, creating an ecosystem that lacks data standardization. Solving for that to unlock payroll data in a consumable way is key to empowering developers, he said.
It’s a business model that reflects the opportunity for FinTech innovation to be driven by industry collaboration and cooperation.
“That’s a mindset we have, to build the best interface and infrastructure and allow the best capabilities on our API,” noted Zhang. “We depend on the creativity of the developers, of our customers, to build world-changing products for employers.”