Learn more about the three shocking trends which are driving the fragmentation of the heavily fragmented SMB payroll market.
To best serve their SMB customers, technology-first companies are looking to leverage the power of payroll and HR data—but with nearly 6K payroll systems on the market, that can mean building out many tedious integrations. Fortunately, there’s a better way.
After the unprecedented challenges wrought by the global pandemic, many SMBs are bouncing back—and many others are first opening their doors—to a dramatically different landscape.
Most notable is the seismic shift in focus from productivity to people as employers look to recruit and retain talent amid the Great Resignation, strengthen their work culture and benefits, and foster better relationships with their employees. For innovative companies serving SMBs, meeting these needs requires careful analysis and considerable support from the data tied up in SMBs’ payroll systems.
Unfortunately, comprehensive payroll data is getting harder and harder to access. There are almost 6,000 payroll providers in the U.S. alone, and recent trends are causing that number to grow.
For SMB-focused companies to keep up, they need to understand what the current payroll market looks like, which factors are driving diversification, and how using APIs that span multiple systems can help them access more data, build smarter and faster solutions for SMB customers, and ultimately boost their business. In this post, we break it all down.
The latest data indicates there are approximately 5,700 payroll providers in the U.S., with a combined annual revenue of around $48 billion.
The top three payroll providers—Intuit Quickbooks, ADP Run, and Paycheck Flex—cover almost half (45%) of SMB employers nationwide. But extending to the top 10 only increases that coverage to 55%. For comparison, the top 10 accounting systems collectively cover 95% of the SMB market.
What’s more, beyond the top three, all other payroll providers each have less than 4% of the total market share, with coverage quickly tapering off. A number of these are newer platforms—like Gusto, Zenefits, and Rippling—that have appeared over the last decade to satisfy evolving SMB needs and a growing demand for self-serve products with transparent pricing.
That means we can expect the industry to grow even more fractured in the coming years, as innovators continue to emerge and respond to changing market conditions.
In particular, there are three trends to watch that are spurring fragmentation in the U.S. payroll market. Let’s take a closer look at each.
A business’s payroll system plays a critical role in its operations, and switching platforms comes at a high cost—so picking the right provider is essential. Still, SMBs often select a payroll provider based solely on demographics, including factors like:
Only secondarily will SMBs look to the core capabilities and key features of the platform itself—such as options for customization, time tracking, benefits, insurance, and customer support. That means SMBs may not look for the best provider overall, but the best fit for their business.
External circumstances—above all, the lingering effects of the pandemic—also impact how SMBs think about payroll and the support they need from their payroll providers.
Some of the most pressing considerations include:
Industries that have their own regulatory bodies and in-person staffing needs—like food service, hospitality, construction, and agriculture—are particularly vulnerable to shifting conditions and face an even more complex decision when choosing a provider to accom modate them.
White-labeled and embedded solutions allow other companies to build payroll capabilities into their existing systems—essentially enabling any platform to become a payroll provider.
As this technology advances, it’s becoming easier for new companies to add payroll to their list of services and capabilities—and harder for a single provider to win a market majority.
Market fragmentation means businesses serving SMBs have to integrate and coordinate with multiple payroll providers to cover a sufficient swath of their customers. It’s hard enough to build and maintain an integration with one platform—let alone hundreds or thousands.
Integrating with the top one, three, or ten payroll providers might allow a company to cover half of their customer base. But to efficiently serve the other half—or tap into new regions and industries—would require many incremental builds, draining time and resources.
To tackle this coverage issue, many fintechs, benefits platforms, and other B2B companies are turning to digital solutions that take a more comprehensive approach to payroll data and roll hundreds of payroll integrations into a single platform. That’s where Finch comes in.
Finch’s universal API connects to an extensive network of payroll systems, and we are continually adding new integrations. Right now, we have compatibility with over 150 systems, and that number is always growing.
That means, with Finch, product teams designing solutions for SMBs don’t have to worry about building any integrations in house or reconciling inconsistent data outputs from different systems—they get secure, standardized, and effortlessly scalable access to the fragmented payroll market right out of the box.
To start building with Finch, click or tap “Get API keys” on our homepage.