How Faster Payments And Faster Data Drive Payroll Innovation

Shifting employee landscapes, changes in workers’ demands over how and when they get paid, and technological innovation have combined to open the floodgates for payroll FinTech. However, a rise in new service providers has added opportunity for industry consolidation, with payroll companies finding acquisitions a strategic way to augment their offerings, and keep pace with evolving needs among businesses and their employees.

U.K.-based The Access Group recently drove market consolidation with two takeovers, announced last month: that of human resources (HR) solutions provider People HR, and of payroll technology company the Payroll Service Company. In a statement at the time, the firm’s CEO Chris Bayne said the deals would strengthen the company’s ability to promote efficiency in payroll departments, particularly for small and medium-sized business (SMB) customers.

In a recent interview with PYMNTS, The Access Group’s Head of Access Payroll Services Vicky Smith discussed some of the strongest market forces placing pressure on service providers to remain agile.

Speeding Up Wages

Among the largest, she said, is an accelerating pay cycle. Unlike the U.S., the U.K. has only a minimal reliance on paper paychecks, with direct deposit via the nation’s Bacs payment service commonplace. However, the tradition of weekly payroll remains in place, with the payroll schedule of paying workers on a monthly basis becoming more commonplace — which can present cash-flow issues for professionals with irregular work patterns.

“The ability to get paid as soon as you have worked will definitely impact the traditional payroll service over the coming years,” she said, “but this will be a great thing, in my opinion. The traditional three-day Bacs will no doubt change over the coming years, with same-day payments becoming the norm, I hope.”

Going a step further, in addition to wielding faster payment rails to ensure money lands in workers’ accounts on time, Smith noted that she has seen an increased demand for on-demand pay — and for payroll service providers to meet that demand through features like early-wage-access programs.

In a June report, Pay Advances: The Gig Economy’s New Normal, a collaboration with Mastercard, PYMNTS found that a significant portion of gig workers are willing to pay a fee to receive advance payment on earned wages, with analysts and service providers also finding opportunity for the workforce outside of the gig economy to embrace on-demand wages.

Anticipating Globalization

The growth in the gig worker population has undoubtedly driven the effort toward same-day and real-time wage payouts, particularly as gig workers and contractors struggle to manage cash-flow gaps and inconsistencies while employers rely on monthly payroll schedules.

However, the employee population is shifting in other ways, too, particularly as access to an international workforce becomes easier for SMBs. Smith noted that the demand for cross-border payroll services in the U.K. is not necessarily high today, but it is a trend she predicted will emerge moving forward.

“There will, no doubt, be more of a requirement for cross-border payroll services over the coming years, as employers look to expand their businesses or look for cheaper workforces outside of the U.K.,” she said, noting that Brexit has brought an additional layer of uncertainty. “This will be tough for U.K.-based payroll providers, as the legislation for each country will be different, but it will be something we have to learn and adapt to.”

Growing availability of real-time cross-border B2B payment services will also support businesses’ ability to initiate payments internationally to workers, regardless of market, while still meeting their need for same-day and instant payouts.

A Higher Technological Standard

Employees and talent aren’t the only drivers of change in the payroll sector.

Businesses have been bogged down by legacy processes for years, with the status quo of weekly or monthly payouts largely reliant on in-house talent and lackluster tools that run the risk of errors. Furthermore, human-driven payroll operations mean businesses can struggle if their in-house payroll experts are sick, on leave or exit a company.

“It can hit an organization hard,” said Smith, “and could lead to employees not being paid correctly or even at all, which can be a serious issue.”

The burden of back-office payroll processes is driving the embrace of automation, she added, while business clients are also demanding payroll technologies that can integrate with the rest of their back-end operations. That integration capability today is “critical,” she noted, enabling businesses to not only accelerate the pace at which funds land in employee bank accounts, but the pace at which that payroll data is automatically entered into their accounting and other financial management systems.

“Gone are the days of paper pay slips to your door,” she said. “Technology and apps are the way forward.”