Why embedded fintech will help small businesses grow

In today’s unpredictable economy, more small and mid-sized businesses (SMBs) are feeling tight on time, resources, and bandwidth. Having the right tech in place can help; the past decade has seen an explosion of technology helping small businesses.

The downside is that small businesses often need to juggle their data and attention between multiple apps, which is frustrating and expensive. Recent studies show 70% prefer comprehensive, all-in-one solutions that keep everything in one place. But where are these all-in-ones?

Software companies have been struggling to create the ambitious “all-in-one” package because of the costs of building and supporting different types of software (e.g. invoicing, bill pay, accepting payments, accounting, customer marketing, payroll, and more).

That’s where the embedded fintech model comes in. More tech companies are now working together to build better experiences, rather than going it alone. With embedded fintech, platforms can embed their tech into software and customize it to fit their audience. Embedded solutions often include APIs and customizable user flows, but also support and go-to-market components. As a result, platforms can launch new products and businesses, backed by the deep expertise of their embedded partners.

The embedded fintech opportunity

The embedded finance market is booming, currently valued at $185 billion and projected to reach $320 billion by 2030, with SMBs accounting for half of that growth. More than 60% of SMBs want embedded financial services that simplify payment processes; 50% of these businesses believe the solutions can provide valuable payment data and insights to improve their operations. Tech companies that successfully partner with others to offer SMBs tailored, embedded fintech options are tapping into a significant and often overlooked market.

Over the past few years, we’ve partnered with dozens of tech companies like Xero, Lattice, and Collective, and financial institutions, like Chase Payment Solutions and U.S. Bank. Through the technology on our platform, Gusto Embedded, we help them offer payroll directly within their own platforms to their SMB customers. This gives SMBs the chance to access more of their operations on one platform, so they can handle their finances and run payroll all in the same place, using just one login.

Five things to consider

By helping partners build customizable payroll solutions, we’ve learned a lot about how to make embedded fintech solutions truly work for SMBs’ needs. For tech companies seeking to dive into embedded fintech to better serve SMBs, here are five key things to consider:

• Assess when to partner, and when to build it yourself: You should invest your R&D resources on your core differentiation and what makes you special in the eyes of your customers. Outside of this, consider testing demand with qualitative and quantitative user research as well as a referral partnership. When demand is sufficiently validated, focus on owning the user experience pieces that are unique to your platform, and outsource the rest to a partner. Another approach is a crawl-walk-run approach, where you start with a referral partnership and a light integration before “graduating” to an embedded or a white-label solution.

• Align leadership for success: If you decide to pursue an embedded partnership, ensure that your business and product leaders are on the same page with your partner’s leaders.  Ensure everyone has bought into the product development process, the launch strategy, and customer support for the new product. This is vital for a successful rollout and for the best possible experience for your customers.

• Customization is key: Tailor embedded fintech experiences to be fit-for-purpose rather than relying on generic features. A recent example of this was our partnership with Vagaro. We worked closely with Vagaro to develop an embedded payroll solution catering to the complex wage structures of its customers—primarily salon, spa, and fitness businesses. Taking this approach cut the time spent on payroll processing in half and significantly increased user adoption.

• Take a thoughtful approach to rollout: Avoid the “build it and they will come” mentality. A lot of tech companies fall into the trap of building great software, while neglecting to create a strategic go-to-market approach. Ask potential partners how they can assist in promoting the solution to your mutual customers. Do they understand your customers’ needs? How can you work together to clearly communicate and educate customers on the new product?

• Build trust before launching: The pressure to quickly introduce new products can be intense, but it’s essential to innovate responsibly. Ensure the end-to-end experience is polished for your initial customers before expanding to a broader audience. In the fintech industry, trust is paramount, and a poor experience can jeopardize customer relationships.

For SMBs, the path to growth in an increasingly complex and competitive landscape lies in embracing new technology, particularly through embedded fintech. It will be essential for tech companies to listen closely to the needs of small businesses and develop tailored products that address their most pressing concerns.

Partnering with others can speed up that process and help meet SMBs’ needs faster. When your SMB clients succeed, you can unlock new growth opportunities, while helping SMBs thrive in a digital economy demanding constant agility and adaptability.

Tomer London is cofounder and chief product officer at Gusto.