In this post I continue the fintech market map deep dive video series. In part 7, I explore another infrastructure segment - income verification & payroll. I try to highlight some of the nuances and exciting trends in this space. Click on the video for the full take and check out the highlights below.
What is it?
Income verification and payroll infrastructure includes companies that interact with payroll data, either as in the case of companies like Pinwheel or Atomic, as a data layer that enables its partners to verify income information of its customers by connecting into existing payroll providers. Or, in the case of companies like Check or Salsa, by providing an end to end embedded payroll solution.
A hot take
I've often heard people question the size of this market, particularly on the verification front. I think it's a huge market if I think beyond just what the existing use cases are today and imagine the wide variety of things that would spring up if it were easier or less friction-ful to pull a consumer's income data directly from their employer's payroll provider. Today, it's a trade off between conversion and underwriting, and income often falls out of the equation because of how hard it is to get. Just imagine as a provider, you could pull income data as part of a personal loan or auto loan verification and approval process instead of just relying on user inputted data.
Prediction for the winner in the space
The winner needs breadth and depth in their connections with their data sources. Otherwise, the user experience is going to suffer, like with banking data. Some companies in the sector have built direct connections with payroll providers, but the vast majority have not either because of the time investment required or because these vendors don't want to allow it. It means there's often a fair amount of screen scraping and other “automagical” activity happening behind the scenes to successfully retrieve the data. If these connections break frequently or the companies don't have broad coverage of providers, it's likely not worth using. I think this is particularly hard in payroll, where most employees don't actually know who their payroll provider is, whereas most employees do know who their bank is. This adds another level of friction in getting a user from the top of the funnel to the bottom.
Companies on the rise
I think Clair, making direct connections with payroll and time and attendance platforms to build early wage access, is super interesting and valuable for its customers. Plaid is also an important company to watch given their scale and breath as they've been building payroll connections over time and will be cross-selling them to their existing customer base as well as to new ones.
What am I most excited about?
I think these companies are going to move from read only access to read and write. We're seeing some of this already. The idea of affecting direct deposit or paying bills or loans directly from a paycheck is so enticing because it will meaningfully drive LTV and repay rates for the companies that utilize it.
What do you want to see?
Similar to the broader data aggregation category, I believe more payroll providers need to enable direct connections to their APIs. Easier access and better data helps everyone and in many ways even drives relevance and stickiness for these providers because it should enable more revenue streams, even more stickiness than they are already, which is pretty sticky.
Check out the previous episodes if you haven’t yet:
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Income Verification & Payroll Infrastructure (Video Series Part 7)