Embedded finance partnerships with banks may be turning a corner. At least that’s the consensus from thought leaders in the embedded finance space following our September 2023 announcement that Chase Payment Solutions had selected Gusto as their embedded payroll partner.
Embedded finance has become synonymous with innovation, particularly for financial institutions offering SMBs seamless and integrated operational and financial solutions. CNBC covered the announcement and Closing Bell anchor Jon Fortt also interviewed Gusto’s CEO Josh Reeves (watch the full interview here). The partnership between Chase Payment Solutions and Gusto Embedded underscores this trend of fintech—finserv partnerships but several commentators have opined that we’ve reached an inflection point for financial services sector.
What the embedded finance experts are saying
The decision by Chase Payment Solutions to select Gusto Embedded as its payroll partner has triggered insightful analyses within the fintech community about the future of embedded fintech partnerships with banks.
Simon Taylor, Head of Strategy at Sardine, discussed this collaboration in his post titled The Frontier of Embedded Finance. In the post he highlights the upward trajectory of embedded finance on the complexity curve, unlocking astonishing product innovations. This move is seen as a testament to the vast opportunities for growth when established banks partner with enterprise-ready fintech companies, as noted by Taylor.
“Banks have so much more opportunity to partner for growth. This is a new case study example of a bank with amazing distribution partnering with a Fintech company that can deliver enterprise-ready services… Enterprise-ready Fintech companies can help you cross-sell to your existing client base, reduce costs, or get more operationally secure.”
The sentiment is echoed in the A16Z newsletter by Joe Schmidt of Andreessen Horowitz, who suggests a potential turning point:
“Despite the last few years of startup activity accelerating financial services infrastructure… incumbents have largely remained on the sidelines when it comes to embedded fintech experiences. J.P. Morgan Chase’s recent partnership with Gusto, however, may be a sign that embedded fintech—the idea that a company with sizable distribution offers additional financial services products to its existing customers—has finally arrived for larger incumbents.
This partnership is a great example of the win/win/win scenario promised by embedded fintech.”
Alex Johnson, the founder of Fintech Takes, discussed the announcement in the context of the SMB sector, stating that the trend toward rebundling might be more relevant in small business banking, where owners seek simplicity and efficiency.
“I’m impressed that Gusto landed JPMC as a partner. Chase buys fintech companies. It doesn’t often partner with them…
We talk a lot about rebundling in the consumer banking space, but it might be an even more relevant trend in the small business banking space. Small business owners are some of the busiest and most stressed people that you can find. They don’t have time to cut the cord and manage a bunch of streaming apps. They want to pay for cable.”
Finally, Sara Khari at Tearsheet pointed out that what makes an embedded payroll partnership different from, say fintech innovation in payments and card issuing, revolves around the high compliance requirements that are core to withholding calculations, tax filings, and tax notice resolution.
“Platforms like Gusto can make a difference by helping their clients simplify the process of running payroll, generating pay stubs, calculating withholding taxes, and filing the right documentation with the respective agencies… The amount of intricacies and technicalities involved in this process is what likely led Chase Payments to partner with Gusto to provide the underlying technology for the new payroll feature – and save business owners time to focus on their core business.”
Additional Commentary on the Evolution of Embedded Finance Partnerships with Banks
- Chase Payment Solutions Partners With Gusto to Add Payroll – PYMNTS
- JPMorgan partners with Gusto on payroll for SMBs – Fintech Nexus
- JPMorgan taps Gusto to offer embedded payroll services – Banking Dive
The Future of Fintech-Bank Collaborations
Sara Khari from Tearsheet also noted the evolving competition between established SMB banks and newer non-bank competitors:
“The lack of flexibility and adaptability in legacy banking infrastructure has provided fintechs and payment processors such as Square, PayPal, and Stripe with the opportunity to better address the payment needs of SMBs… In a move to compete with non-bank players, JPMC’s Chase Payment Solutions has forged a partnership with Gusto…”
By partnering with Gusto, Chase Payment Solutions has positioned itself to offer a broader, more integrated offering for small business owners. As small businesses increasingly rely on technology, they simultaneously struggle with disconnected systems and limited resources for integration.
In recent years, commentators have asked: who will dominate the financial technology landscape in the future, fintech companies or traditional banks? However, partnerships like the one between Gusto and Chase Payment Solutions show that this question about innovation is not a binary outcome. As Gusto CEO Josh Reeves pointed out in his interview with Jon Fortt:
“The partnership between Gusto and Chase Payment Solutions will offer small businesses more choices and easier access to modern payroll services…
I think it’s about giving ultimately the business owner choice… The good news is there are companies like Gusto and others really focused on wanting to work with banking partners of all sizes in order to better serve SMBs.”
Learn more about Gusto Embedded’s solutions for banks and fintechs here.