SaaS Leaders’ Perspectives on Embedded Finance and Payroll for 2023

Behind the Paycheck
Learnings from SaaS leaders on embedded payroll

Insights into Embedded Payroll Benefits, Adoption Rates, and Revenue Growth

Innovation is the driving force behind maintaining a competitive edge in the dynamic realm of Software-as-a-Service (SaaS). Industry leaders recognize embedded fintech, a defining feature of SaaS 3.0, as the next wave of groundbreaking innovation. Embedded payroll, seamlessly integrating payroll features into SaaS applications, advances many SaaS leaders’ embedded finance offering and opens the door to more and more features for employee management that any all-in-one solution needs.

This blog post delves into the world of SaaS 3.0 and embedded payroll specifically, drawing insights from a survey of 1,600 SaaS leaders. The survey data reveals the remarkable benefits, increasing adoption rates, and strategic significance of embedded payroll as one of the many embedded finance products that SaaS companies can add to their platforms. The 2023 Embedded Finance Survey Report showcases how SaaS companies prioritize embedded finance as a vital component for revenue growth. 

Based on the survey results, payroll is a significant area of focus in the embedded finance landscape.

  • Customer stickiness is a top reason for adding payroll services.
  • Larger SaaS providers are approximately twice as likely to offer payroll services currently.
  • Payroll demonstrates the highest average adoption rate among all embedded fintech categories.
  • Payroll generates the highest reported revenue lift of all embedded finance categories.
  • Payroll is at the top most respondents embedded services roadmap beyond 12 months.

Prioritizing Embedded Payroll

Embedded payroll is taking center stage as the top priority in embedded finance. While lending and payments lead when it comes to embedded finance priorities in the short term (<12 months), SaaS providers recognize embedded payroll’s tremendous growth potential. As a result, SaaS companies are placing great importance on incorporating payroll functionality directly into their platforms to enhance customer experience and operational efficiency. Customer stickiness is a significant reason for adopting payroll services, and it demonstrates the highest adoption rate among all embedded finance categories, generating substantial revenue lift.

The Connection to Reduced Churn

Payroll was one of only two embedded finance products where respondents listed customer stickiness as a top motivation to offer that product. SaaS companies can create a cohesive and streamlined customer experience by seamlessly integrating payroll features into their applications. This eliminates the need for customers to rely on separate payroll application, remembering log-ins for software tools and switching between different tabs, and doing post-processing calculations to make sure the data match. In sum, reducing friction and errors while enhancing convenience.

While the survey did not ask for respondents’ current churn, the high adoption rate of embedded payroll points to its value for customer stickiness. First, it is often costly and time-consuming to switch payroll providers at certain times of the year because of the data transfer requirements to correctly calculate go-forward taxes. Second, an integrated payroll solution saves customers time and effort, which fosters a deeper sense of trust and loyalty. In terms of customer lifetime value (LTV), a 5% reduction in churn can increase profits 25% to 95%.

Driving Revenue Growth

Like nearly all embedded finance products, revenue growth is the top priority for offering embedded payroll, with 42% respondents listing it as the primary benefit of offering embedded payroll.

42% of respondents prioritize revenue growth as the top reason for embracing embedded payroll.

Impressive Adoption Rates and Value

The adoption of embedded payroll in SaaS applications is remarkable, with respondents reporting that nearly three-quarters of customers embrace it to some extent. The average adoption rate for payroll features among SaaS companies stands at 71%, with a median rate of 51%, highlighting widespread and active usage of these services. The average adoption rate of across all embedded finance products was 45%, which underscores the unique benefits and dynamics of embedded payroll.

Nearly 75% of customers have already embraced payroll, the highest rate of all embedded finance categories.

Unlocking Revenue Generation Potential

Embedded payroll also proves itself a lucrative addition to SaaS applications, generating significant revenue growth. The report analysis reveals an average revenue lift per customer of 48% in terms of Annual Contract Value (ACV). B2B SaaS respondents (those reporting >50% of customers are other businesses) indicated a slightly higher average revenue lift of 58% among customers that adopt in-app payroll.

Payroll respondents report an average revenue lift of 48% per customer. 

Choosing the Right Partner

With the rise of embedded finance in the SaaS industry, finding a reliable and innovative payroll solution has become a priority. The right partner can streamline payroll processes, improve the user experience, and contribute to customer stickiness and long-term business success. 

Selecting the right payroll service provider is crucial for successfully implementing embedded payroll. Many SaaS leaders look for scaled payroll expertise (particularly compliance), agile API options (including pre-built front-end resources), and a holistic approach to partnership that includes go-to-market strategies, risk and compliance dialogue and controls, and enablement for customer support and success experience. Context and industry-specific features also play a vital role in meeting customer needs effectively. 

During the SaaS 3.0 Summit, where these data were presented, Yi Liu — General Manager of Gusto Embedded — spoke with Doron Friedman, the co-founder and Chief Innovation Officer of SpotOn, a point of sale platform, who highlighted:

  1. Improve the user experience by streamlining processes, reducing errors, and providing a comprehensive performance dashboard. An embedded solution eliminates the need for multiple logins and data copying, fulfilling the desires of merchants and enhancing their overall satisfaction.
  2. Make your platform stickier by addressing customer needs within one application solving customer pain points, increasing satisfaction, and reducing churn rates.
  3. Grow your service mentality so customers know they have a trusted partner to handle complex aspects like payroll compliance and customer support.

Benefits for Employers and Employees

Embedded payroll offers numerous benefits for both employers and employees. It enhances engagement, increases retention rates, and boosts productivity for employers. In addition, employers can alleviate financial strain on employees by embedding innovative payroll solutions and financial wellness benefits, leading to higher job satisfaction and longer tenures.

“Partnering with a Payroll service provider involves finding a company specializing in Payroll services to provide the software and support needed. This option benefits companies that need more resources or expertise than they have to build and maintain a Payroll system in-house.”

SaaS 3.0 Embedded Finance Survey Participant

Embedded payroll is an important part of SaaS 3.0 that streamlines payroll processes, drives revenue growth, and differentiates SaaS solutions in a competitive market. With high adoption rates and significant revenue generation potential, integrating payroll services into SaaS applications is crucial for optimizing efficiency and delivering exceptional user experiences. By partnering with reputable payroll service providers like Gusto to help speed time to market and reduce the technical overhead of building a payroll solution in-house, SaaS providers can grow revenue and create a customer experience that helps them manage payroll without ever leaving their application.

 Watch the full replay of the SaaS 3.0 Summit and download the report.

Updated: August 30, 2023

Brian Busch Brian is currently Head of Marketing at Gusto Embedded; the only payroll API with 10 years of experience and actionable data behind it. Before joining Gusto, Brian held leadership positions at Cloud Elements, Kapost, and Captricity. He holds a BS in finance and a BA in philosophy from Boston College and an MBA from the Cal Berkeley Haas School of Business.
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