Most money is connected to a payroll system. Thus, payroll systems probably have a lot of information - from paycheck information to income information to employment information, to more. This data is the key to understanding how everyone's financial wellbeings are.

Owning this data and building a better financial system is the key - but there is no current easy and efficient way of accessing this information. Thus, enter payroll APIs! An easy way to connect payroll accounts to an app, aka package antiquated infrastructure into something hip and modern.

So besides:

• Obviously building a more equitable financial system,

• Perhaps one day providing financial wellness benefits to employees,

• Creating another marketplace and generation of payroll data-driven fintechs,

• And just the fact that access to information in a clean and easy way should be something standard at this point in our lives,

Why is this important?

Main use cases include:

1. Income and employment verification

   • Usually for bigger loans like mortgages but not for unsecured ones like personal loans

   • Inform the underwriting model

2. Lending products

   • Being able to verify income and employment will help lenders more quickly underwriting consumers

   • Payroll attached lending: Pulling repayments directly out of a consumer's paycheck

     • Reduces loan risk as the consumer's paycheck becomes collateral

     • CFPB Opinion on Earned Wage Access helps payroll attached lending not be considered credit (sad for fintechs that pull repayments out of customers' bank accounts!)

   • Lenders can service more customers, customers can access fairer rates

   • Overall, informing the underwriting model

3. Direct deposit switching

   • Currently very difficult to switch which bank you are receiving a direct deposit from

   • The bank you take direct deposits with is probably your primary bank (see tweet below and article in the thread!)

   • Making this process easier can help the company own more of the customer relationship, and thus translate into more spend and LTV

   • Being the primary bank for a consumer has huge advantages in engagement and retention especially during these pandemic times...

4. B2B opportunity

   • SMB to huge enterprises

   • HR applications e.g. payroll - accounting connectivity

5. Remote work

   • Now that many companies are adjusting pay based on work location...

There are some concerns...

• Switching costs between providers is high. While this is good if you are the provider that has the TAM, it's not that great if you aren't.

• As fintechs rebundle, prices for a platform provider may be driven down further. A moat that is solely price based isn't sustainable either - you don't want customers to think what you have is low value. Capturing the network is critical.

So this all hinges on:

• How many payroll providers, employers, and employees the API platform is connected to.

  • Building this network is critical, and most likely through screen scraping and direct integrations. As shown with Plaid's success, and how much Equifax makes per year, the TAM is there. Capturing it will be key.

• Finding a sticky and recurring need to use the product

  • Just like how Plaid was able to scale due to how difficult it was for companies to ask customers to re-verify data and lose access to historical data.

• Helpful regulations

  • Thankfully, the CFPB seems to be recently publishing more on increasing customers' access to financial data, which will help create momentum in this space for banks to release data to consumers perhaps via third parties.

• In general, payroll information is absolutely critical yet extremely clunky and inundated with friction, as most financial systems are. The company that can create momentum in the space by building the fastest, most secure, cleanest, and widest network, will win!

Consumer access to payroll data and bank account information is improving every day. Regulations across our states and from bodies like the CFPB are helping create an open banking world. Utilizing payroll data will help launch the next wave of innovation within fintechs just as access to bank account information drove fintech innovation over the last decade.

Players in the space:

• Finch (recent collab with MainStreet!)

• Pinwheel (recent collab with Wix)

• Argyle

• Atomic

• Verix

• Plaid has a payroll product in beta

• Truework (collab with Gusto)