In recent years, an increasing number of companies have begun to provide their clients with embedded fintech choices, freeing up time for them to concentrate on their areas of expertise, form alliances with other companies in the industry, and provide more specialized solutions.

Nowadays, embedded technologies are widely used, thanks to the acceptance of increasingly user-friendly API offers.

We now have a conversation with Yi Liu, General Manager of Embedded Payroll at Gusto, regarding embedded fintech's potential to benefit small businesses by allowing them to focus on other important matters.

According to Liu, small companies are searching for more 'all-in-one' solutions to streamline their back-office operations and workflows. These "all-in-one" solutions give partners a useful way to increase average revenue and keep clients.

Partners recognize and want to capitalize on the distinct value that comes with providing a comprehensive array of fintech services in order to meet their clients where they are.

They have no desire to become authorities on risk and compliance, though. Because of this, using embedded fintech services is a fantastic, low-risk approach to get into the market and satisfy client demands without having to establish large compliance teams or payment infrastructure in order to comply with regulations.

"Products that include embedded finance options can grow and thrive because of these trends, as well as the tighter funding environment and business leaders' search for new revenue streams to sustain growth."

Banks and fintechs: Profiting from the need for integrated technology in business
Businesses are in high demand for embedded technologies to help them achieve sustainable growth. Banks and fintechs have been taking advantage of this need by supplying these technologies to businesses through recently formed partnerships.

According to Liu, "economic uncertainty and investor demands for sustainable growth remain, even though recession fears may have diminished."

This implies that when borrowing costs are higher and return on investment is more important, businesses cannot overextend themselves. Thus, we'll observe platforms performing the "build/partner/buy" analysis and rapidly concluding that partnering is the optimal course of action.

Building with embedded fintech apps is special because it relieves you of the expenses, liabilities, and dangers associated with these products, freeing up resources to customize the front end user experience for your clients.

In other words, the new capacity is your product—not just another integration partnership—from the perspective of the consumer.

"Digital platforms and financial services providers will look for partners who can offer embedded fintech services and who have a deep understanding of the risks associated with specific products and services, from the perspective of financial risk."

Liu also says that "banks and platforms looking to develop new lines of business can partner with embedded fintech providers who credibly mitigate the risks associated with business processes like go-to-market, customer acquisition, and customer support over the long term" in reference to business risk.

Fintech companies: Using alliances to set themselves apart

Fintech and business collaborations are currently reaping additional benefits from their cooperation by using the surfaced new data to make a difference.

The importance of data will only increase, in Liu's words. Businesses can offer more specialized solutions and unique insights to their SMB customers by expanding their integrated solution portfolio. This will give them more visibility into the end-to-end cash flow of their clients.

Notably, it will also support the development of fresh AI-powered features for an all-in-one solution that resource-constrained SMBs may find appealing.

In order to handle fraud and other losses as a group, banks, embedded fintech service providers, and platforms will need to share data. A segment will be better equipped to identify risk and fraud by particular industries and client types the more data it has at its disposal.

Although this is a new benefit for fintech and corporate ties, according to Liu, these kinds of interactions are about to change once more.

"Banks will look for alliances that offer solutions with additional value. Growth teams have historically been the driving force behind fintech alliances in the financial services sector, according to her.

Due to banks' increased caution and withdrawal from these collaborations as a result of regulators' crackdown, banks and fintechs are double down on revenue development through value-added services provided to their current clientele.

"Instead of relying on integration partnerships or referrals, partners are aiming to acquire these solutions as it makes more financial sense and leads to smoother customer experiences."

The environment of competition facing fintech companies in the upcoming year

Liu outlines Gusto's priorities for the upcoming year in the fintech industry below:

"At Gusto, our primary focus is on small and medium-sized enterprises, and the financial services industry caters to a highly diverse clientele from every conceivable industry."

We are discussing players in merchant solutions, business banking, specialized lending, and SaaS tools with embedded finance products. Partners tell us it's difficult to measure, much less attribute, competitive losses to the rise of embedded fintech solutions since it's so different.

In any case, I believe we're just getting started with the incredible rise of vertical SaaS solutions that offer embedded fintech products (which have greater attach rates and lower churn than standalone counterparts).

It all comes down to changing with the times. Consumers want simple, frictionless fintech services that they can use from anywhere at any time.

"A power shift in the industry will result from this growth trend for embedded fintech and the addition of more value-added partnerships by financial services providers, as I mentioned earlier: embedded fintech providers will likely cut into the customer bases of more established financial services players like regional banks."