3 trends driving fragmentation in the 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.
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.
A heavily fragmented market
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.
1. SMBs typically pick a payroll provider based on their demographics.
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:
Number of employees: As an organization grows, it encounters a broader and more complex range of compliance requirements and payroll schedules.
Industry: Different industries hire different types of workers (e.g., seasonal, temp, salaried, hourly, apprentice, and interns), each with its own HR workflows.
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.
2. World events are reshaping SMB purchasing decisions.
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:
The competitive labor market, which has made it difficult for SMB employers to attract and keep high-performing employees. Some providers offer a suite of recruiting and retention tools like pay analytics and talent sourcing services to help hire in a tough environment.
Hybrid work models, which are becoming common, especially in white-collar industries where being on-site is less essential to productivity. Some payroll providers offer a range of remote workforce management solutions to onboard and oversee dispersed employees.
New regulations that are emerging to protect employee and contractor rights and bolster workplace safety requirements. Some payroll providers build compliance tools into their platforms, so employers can easily adapt to new rules and avoid hefty penalties.
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.
3. White-labeled and embedded solutions are powering new, tech-forward platforms.
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.
White-labeled platforms like iSolved and PrismHR allow HR systems, service bureaus, and professional employment organizations (PEOs) to keep their current branding and service models while providing the underlying infrastructure to power a range of human capital management (HCM) solutions.
Embedded payroll platforms—such as Gusto, Check, Zeal, and Salsa—use an API to embed a payroll application into an existing product. While still nascent, this market has the potential to expand across vertical SaaS, the gig economy, HR tech, and fintech.
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.
The problem with payroll fragmentation
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.
How Finch can help
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.
Build vs. Buy: Leveraging Employment Data Via HRIS and Payroll Integrations
July 27, 2022
0 min read
We’re excited to announce our latest whitepaper, Build vs. Buy to address the question:
Should I build employment integrations in-house or outsource them?
If you’re asking yourself this question, you already know that data connectivity has the power to transform every industry in the world—and few businesses are in the dark when it comes to understanding the importance of breaking down the data silos currently impeding their productivity and innovation. In turn, B2B applications are hurrying to bridge the chasms between the systems in their customers’ tech stack. Their goal? To create superior user experiences and unlock automation and insights that set them apart from their competitors.
Increasingly, the basis of those bridges is API integrations, and one of the most important datasets to access is housed in employment systems like HRIS and payroll. Determining how to approach employment system integrations is a critical decision for any business, and different business scenarios dictate different considerations as you explore your integration options.
Maybe you’re at one of the following stages:
Launch — You are starting from ground zero and need to decide whether to buy or build in the first place.
Scale — You already built a few key integrations in-house and are trying to determine if outsourcing remaining integrations and their maintenance would be a more prudent next move.
Status Quo — You already have an adequate data sync solution, fueled by a flat-file feed and hodgepodge of APIs, that meets your basic needs and are wondering why you should entertain the idea of outsourcing integrations at all. Or perhaps you even recognize that digital transformation is ultimately necessary but wonder if it’s an initiative you can keep internal.
In Finch’s latest whitepaper, Build vs. Buy we explore all of the considerations at each stage and more to help you arrive at the best integration approach for your B2B application.
Team up with Finch
Finch does the hard work of integrating with HRIS and payroll providers to facilitate the secure, permissioned flow of critical business data. Our dynamic, unified API offers read-and-write access and abstracts away inconsistencies across systems for optimal usability no matter the source.
Finch is quickly becoming the API of choice for employment system integrations because we are:
Developer-friendly: We focus on developers and empower them to create world-class solutions.
Reliable: Our API does the best job of interacting with and maintaining connectivity with employment systems.
Secure: Finch is a pass-through system, and is SOC2 Type 2, CCPA, and GDPR compliant.
Efficient: Finch connects you with 150+ HRIS and payroll systems through one API, 4x more than any other platform.
Enterprise-ready: Our technology is built for large-scale synchronization with thousands of employers.
Reach out to our team to explore ways to access employment data with our unified API by contacting us here.
We’re excited to announce the beta launch of our new unified ATS API! Applicant tracking systems (ATS) capture the candidate lifecycle, starting at the first email interaction all the way through the offer process. The new API supports the candidate, applications, jobs, and offers data models.
Today we’re going live with our first ATS integration, Lever, a platform trusted by 5,000+ employers around the world, with additional integrations planned in the near future. The ATS API launch is one of many steps towards Finch’s ultimate goal to power talent and employment innovation via an open ecosystem.
ATS houses the process and insights into an organization’s recruiting pipeline. For applications that help organizations find, hire, and close candidates, having seamless access to the data housed in ATS is core to delivering a high-impact product experience. Over the last several months, our customers have repeatedly requested access to ATS integrations as they look to expand their products to encompass the candidate lifecycle.
Finch’s ATS API provides a comprehensive view of the entire recruiting funnel broken down into four data models:
Candidates — Gather basic candidate information like name and contact information.
Applications — Get more detailed information about the applications a candidate has, such as the position they are applying to and the current stage of the application process.
Jobs — Pull all of the job posting details an employer manages, including the associated departments and applications.
Offers — View current and past offers initiated and managed through the ATS.
Unlock high-impact use cases
HRIS, Payroll, and ATS platforms capture a large portion of the employee lifecycle and are core sources of truth for people and talent teams. ATS data access unlocks deep insights into the hiring process and the upcoming changes to a growing organization.
We’re excited to support a wide range of use cases across the following categories, and more:
Compensation management platforms can pull jobs and offers data to provide hiring managers and talent members key insights into compensation expectations.
Candidate sourcing products that focus on driving top-of-funnel volume can track candidates through various phases of the interview process to calibrate the relevance of sourced leads.
DEI solutions that help employers build more diverse and inclusive teams can capture candidate data to identify biases in the hiring process.
Background check providers can track candidates at the final stage and initiate checks as soon as an offer is issued.
Job boards can automatically post new jobs as they’re created and track candidates that apply through the entire process.
ATS can also be paired with Finch’s HRIS and Payroll API to track a candidate’s progression through the interview process and trajectory within the company once they start. Best of all, it’s now all available under Finch’s unified API for employment data.
SFTP vs API: Which integration method is best for employment data?
November 9, 2022
0 min read
In our latest whitepaper, we explore SFTP vs API integrations and discuss which is right for your business.
It’s no secret that data connectivity has changed the way businesses operate. It seems that every week, there is a new app that plugs into the systems businesses use every day. These innovations have changed the game for users, making interoperability between systems a need-to-have. For software providers, flexible and plentiful integrations are more essential than ever.
Why Employment Data Transfer and Integration Methods Matter
Employee and HR data has traditionally been one of most challenging use cases for data transfer. Employment data, the bulk of which is usually stored in HRIS and payroll systems, must be handled carefully and securely in order to abide by compliance rules and regulations protecting the collection, storage, and usage of sensitive, personal data.
So what is considered employment data? Employment data is any information about a company and the individuals within it. More specifically information about the company itself (EIN, legal name, HQ address), the company org chart (employee count, managers, departments), or about individuals (preferred name, contact information, employment status, income and pay history, benefits data, etc.).
Businesses rely on employment data to manage their workforce effectively. It’s essential for them to keep this data up-to-date and organized throughout all of the systems they use each day. Any software providers that want to sell to businesses must think strategically about how to collect this employment data from various sources of truth in an organization. While the majority of this data is housed in HRIS and payroll systems, there are thousands of potential systems to consider. There is also no standard way of categorizing or sharing data between systems, which means the transfer of this data is usually (at least partially) manual.
B2B applications looking to leverage the power of this employment data often consider two integration approaches—SFTP vs API. While SFTP has been more ubiquitous historically, an increasing number of platforms are looking to APIs for their scalability, security, and speed.
SFTP vs API vs Integration: Which is Right for You?
SFTP and API are two possible methods of integration between systems. Before diving into the benefits of an SFTP integration vs an API integration, let’s quickly define each method.
What is SFTP?
In order to understand SFTP, you need to understand what FTP is. FTP stands for a file transfer protocol, which supports the transfer of files between a client and a server. SFTP, or Secure File Transfer Protocol, is a process that uses shell encryption to allow businesses to send and receive sensitive information such as employment data in confidence. SFTP emerged in 1997 as a way of transferring data between parties securely. It requires data to be updated manually (via flat file, CSV, JSON, etc.), encoded, then transmitted through a secure channel between two platforms. You receive an email notification when the file is ready to download.
Because an SFTP integration is convenient for processing many files quickly, it’s often used for bulk file transfers. It also allows businesses to send and receive a wide variety of files. SFTP integrations only need a single connection to initiate the file transfer, and an internet connection is unnecessary.
However, SFTP has its downsides. First, it relies on manual data entry, which must be constantly validated to avoid errors. This is a tedious process that wastes time and resources. Additionally, SFTP doesn’t allow for the transfer of data in real time. The moment a file is uploaded to the server, it is theoretically out of date. Depending on the use case, this can limit the usefulness of data sharing altogether. If accuracy, timeliness, and speed are essential, SFTP falls short.
What is an API ?
APIs, or Application Programming Interfaces, are ways for two applications to communicate with each other. APIs standardize a communication pathway between software to exchange data and other information regardless of the underlying programming languages they are built on. APIs make it easy to push and request data instantly, providing real-time visibility into data shared between systems. Once an API is implemented, there is no manual download, restructuring, or error checking that needs to be done. If implemented correctly, the data flows seamlessly between systems.
The Downsides of SFTP vs API Integrations
So why API vs SFTP for the transfer of data? We outline just a few reasons below. For the full explanation, make sure to download our whitepaper.
SFTPs and APIs both make it possible to transfer data between systems securely, however, APIs have a few key strengths over SFTP, especially when used to transfer employment data. Here are 3 reasons to consider API vs SFTP:
1. Improve data security
Even SFTP lacks security controls to handle today’s cyber threats. Recent research reveals that more than 400 million files from FTP servers are publicly available online, and the average cost per lost or stolen record is $146 USD. When files are exposed, SFTP does not log security violations or authenticate users – basic capabilities you need to help detect and stop breaches. Encryption is also an afterthought requiring extra steps and IT expertise, making it difficult, expensive and time-consuming to send files safely.
2. Gain real-time access to employment data
With APIs, you can get instant access to all the information you need. A live and continuous connection means that your application can constantly refresh the sync, meaning that you will always be working with the most recent version of your data. This way different teams within your company can collaborate effectively since they have access to the same set of information.
3. Improve the customer experience and reduce errors
One of the key downsides of SFTP is the need for employees to manage sensitive data manually. When downloading, updating, and re-uploading data files, there are many opportunities for errors to be introduced to the system. SFTP then allows crucial issues to perpetuate. When and if errors are found, they require several calls and emails with multiple parties to correct. This is not only frustrating for customers, it drains your HR administrators time and resources, and introduces errors that can wreak havoc on your systems.
Which Method is Best for You?
Download our SFTP vs API whitepaper for details on which method is best for you based on your unique business needs.
In it, you’ll find:
The differences between SFTP integrations and API integrations
Pros and cons of implementing each
Ideal scenarios for implementing SFTP integrations
Examples of innovative use cases powered by APIs
How Finch can help
If you’re interested in exploring an API integration for your application, Finch’s dynamic, unified API offers read-and-write access and abstracts away inconsistencies across systems for optimal usability no matter the source. We also handle routine maintenance, bug fixes, and the hard work of keeping up to date with the latest HRIS and payroll platforms, allowing your engineering team to focus on developing the differentiating features that set your application apart from the competition.
Finch is the API of choice for employment system integrations because we are:
Comprehensive: Finch integrates with over 200 employment systems (more than 4x the competition)
Developer-friendly: We focus on developers and empower them to create world-class solutions.
Reliable: The Finch API does the best job of interacting with and maintaining connectivity with employment systems.
Secure: Finch is a pass-through system, and is SOC2 Type 2, CCPA, and GDPR compliant.
Efficient: Finch connects you with 180+ HRIS and payroll systems through one API—4x more than any other platform.
Enterprise-ready: Our technology is built for large-scale synchronization with thousands of businesses.