The Rise of Embedded Fintech: A Path to Differentiation

Over the past few years, businesses have increasingly adopted embedded fintech options, allowing them to focus on their core strengths while offering specialized solutions through partnerships, as stated in FinTech Magazine. Embedded technologies have become mainstream, with user-friendly API offerings facilitating their adoption.

Yi Liu, General Manager of Embedded Payroll at Gusto, highlights the value that embedded fintech can add to small businesses, enabling them to simplify workflows and back-office operations. Liu notes that partners recognize the unique value of offering a holistic array of fintech services but are not interested in becoming experts in compliance and risk. Embedded fintech services provide a low-risk way for partners to enter the space and meet customer expectations without the need to build entire compliance teams or payment infrastructures.

The demand for embedded technologies among businesses has led banks and fintechs to capitalize on partnerships, providing businesses with the technology needed for sustainable growth. Liu emphasizes that partnering allows companies to focus resources on customizing the frontend user experience for customers, offloading costs, burdens, and risks associated with the products.

Furthermore, Liu discusses the role of data in creating differentiation through fintech/business partnerships. By leveraging additional data, businesses can gain greater visibility into the end-to-end cash flow of their SMB customers, offering more tailored solutions and custom insights. This data can also help identify and manage fraud and other risks associated with specific industries and types of customers.

Looking ahead, Gusto is focusing on small and medium businesses, aiming to offer value-added solutions in the financial services sector. Liu predicts that the growth trend for embedded fintech will result in a power shift in the industry, with embedded fintech providers potentially cutting into the customer bases of more established financial services players like regional banks.

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