Payroll Gears Up To Leapfrog Into APIs, Faster Payments

Centuries-old banks have been operating on decades-old infrastructure, leaving many traditional financial institutions (FIs) to stand idle and offer little in the way of digital-native products and services. That is, until FinTechs and challenger banks stepped onto the scene, jumpstarting financial services innovation in a whole new way.

As this evolution continues to unfold, neo-banks have demonstrated the value of entering into a market as a latecomer. The challenge of overhauling and upgrading legacy back-end operations has been, for many institutions, insurmountable. FinTechs, on the other hand, have leapfrogged over legacy technologies to form digital-native companies.

There is a similar shift occurring in another area of financial services, says Stuart Hall from PayRun.io, which was recently acquired by U.K.-based Payescape.

“These small banks, these new guys on the street, have started to shake up the banking world,” he told PYMNTS in a recent interview. “In the same way, that’s started to happen in payroll.”

Particularly in the U.K. market, he said, corporates have been slow to embrace the cloud, leaving many payroll behemoths stuck in patterns of siloed, manual operations. As traditional players make gradual shifts to modernize, new FinTechs are stepping in with payroll technology that’s ready-built to offer agile, automated functionality.

This has major implications for human resources departments that rely on multiple software solutions to operate.

“In the past, there has been a situation where these software solutions are separate,” he said. “Unless you’re a large firm that can interlink them together, these products never talked to each other. For a long time here in the U.K., we’ve had payroll software that is old. It’s creaking. It’s desktop, built for a time when most people had just one payroll to do.”

An API-First Strategy

While the U.K. may have been slow to embrace the cloud, in a way the market has itself leapfrogged over others around the globe through its open banking regulations, which opened the door for challenger banks and agile FinTechs to launch and loop into bank account data.

Application programming interfaces (APIs) have been instrumental in propelling emerging payroll technology companies to compete with incumbents, said Hall, pointing to PayRun.io as a company “built with API as the starting point,” making it an attractive acquisition target for Payescape.

With data integration capabilities, newer payroll solutions can support the cross-platform connectivity that payroll and HR departments need, whether organizations run payroll in-house or outsource it to a third-party service provider. The API technology that enables this connectivity also enables payroll FinTechs to connect with banks to automatically retrieve data for accounting and reconciliation purposes, for example.

At the same time, the challenger banks that have leapfrogged into the banking sector are also opening up the opportunity for emerging payroll FinTechs to take advantage of digital-first banking and payment solutions. Among the most valuable for the payroll arena is faster payments, said Hall, noting that in the wake of the pandemic, payroll teams have come to the forefront of the small business recovery effort with initiatives designed to ensure professionals are paid quickly.

Pushing Past Aversion To Change

For legacy banks and payroll behemoths alike, the challenge of upgrading outdated infrastructure is a massive hurdle — though it’s not entirely impossible. Indeed, the emergence of digital-native FinTechs has forced the incumbents to embrace digitization in order to continue competing.

But beyond the logistics of revamping internal technology, Hall highlighted that the legacy ways of operating payroll and other financial services have remained simply as a result of reluctance to change. By its nature, the payroll profession has historically been quite repetitive, he noted, and routines are difficult to break. Further, an embrace of the cloud and automation has raised anxieties among some payroll professionals about the future security of their careers.

On the contrary, noted Hall, a digital-native, API-first approach to payroll has presented an opportunity for payroll technology providers as well as payroll experts to elevate their status within their organizations. Rather than crunching numbers, payroll professionals can now analyze and present trends and actionable insights to their firms, for instance.

As the role of the payroll professional continues to elevate due to the ongoing coronavirus crisis, Hall said that now more than ever, organizations must arm payroll teams with technology that can adequately elevate the status of professionals to add value to their firms.

“Payroll people need to grasp ahold of this opportunity,” he said. “But the sad thing is, the software has let them down significantly.”

With open banking, data integrations, faster payments and cloud technology now being the standard for many FinTechs, payroll experts have the chance to be empowered, not hampered, by payroll technology.