How Unlocking Payroll Data Can Accelerate Fintech Innovation
Innovation in the fintech space is at an all-time high, as consumers increasingly demand better solutions for managing and improving their financial lives. According to a recent Prosper Insights & Analytics Survey, over two thirds of Americans rely on mobile payments apps today, and that only continues to grow. The survey also showed that a quarter of people have used a “buy now, pay later” solution and a third of people use mobile apps for trading stocks.
As usage of fintech apps grows, Pinwheel solves a major pain point that many players in the space face. In order to build new products or enhance existing ones, they need access to better income and employment data and direct deposits that historically have been locked away in payroll systems. Pinwheel connects to the sprawling ecosystem of payroll and HRIS providers to enable market-leading fintech’s, like Square Cash App, to easily access the payroll data and update direct deposits of more than 100 million Americans.
To learn more, we recently spoke with Kurtis Lin, the co-founder & CEO of Pinwheel, about the infrastructure supporting the fintech boom and what they expect to come next.
Gary Drenik: Explain how Pinwheel works and how you came up with the concept for the technology.
Kurtis Lin: My co-founders and I were previously working on an automated healthcare savings account (HSA) app that would make it effortless to get the tax savings on medical expenses. We hit a roadblock when we realized there was no easy way to connect to the payroll systems, we relied on to power our product. After talking to many other fintech companies, it became clear that we weren’t the only ones that needed access to the large and fragmented ecosystem of payroll providers. To enable other companies like ourselves to build the next generation of financial apps and improve consumer’s financial lives, we focused all of our attention on building a solution.
Pinwheel is the market leading payroll API, trusted by the biggest names in fintech. Our product makes it possible for everyone from startups to financial institutions to access the data and controls within payroll systems to capture direct deposits, streamline income and employment verification, improve underwriting, power earned wage access, and build innovative new products. We’re seeing incredible reception in the market and we’re only just getting started!
Drenik: How do you think about security and compliance for a tool like this?
Lin: Given that we handle sensitive customer information, security is something our team cares about deeply. We made it a point to secure SOC2 Type 2 certification very early on in our journey and firmly believe that strong security practices are not only a competitive differentiator but also what separates the good from the great companies in fintech. We know that our customers rely on us to have a secure solution and we take that responsibility very seriously.
We also recently announced that Pinwheel is a Consumer Reporting Agency (CRA). This means we can provide income and employment data to our clients while ensuring that consumers are protected under the Fair Credit Reporting Act (FCRA). This is an unusual step for a data aggregator as almost everyone in the market has pushed back against the regulations. We believe compliance, especially for the benefits of consumers, is the best path forward in building and maintaining the trust of both the businesses we work with and their customers. Given our founding mission to build a fairer financial system, we’re proud to be the white hat in a sea of grey and black hats that make up the world of data aggregation.
Drenik: Where are the largest gaps in our banking systems today?
Lin: While technology has accelerated innovation in just about every other industry, the banking system has remained largely the same compared to previous eras. Antiquated practices like charging fees for overdrafts or minimum balances are still pervasive, and most banking products still lack the personalization and automation that we’ve come to expect in our daily lives.
So why hasn’t more progress been made? A large part of it is because there haven’t been the necessary tools available to enable this type of innovation. If you want to build a more personalized banking solution, you need better data around who your customer is, how much they make, and where they work. If you want to offer an instant pay or earned wage access feature, you need access to direct deposits and time and attendance data. In other words, building better banking products requires access to better building blocks and Pinwheel is excited to be at the forefront of innovation in the banking space by providing one of the key building blocks.
Drenik: Where do you see banking innovators, from Square to Affirm, headed in the future? What larger problems are they solving?
Lin: There’s a few trends we’ve been tracking that we’re excited about. One is specialization. A great example of this is all the neobanks tailored towards specific demographic segments (Cheese, Daylight, Greenwood) or career models (Lili, Oxygen, Karat). Another is simplification. While the idea of credit has existed for a long time, the wide-reaching success of buy-now-pay-later (BNPL) solutions provided by the likes of Affirm, Afterpay, and Sezzle simplified the idea so it was easily understandable and surfaced it at the point of highest intent and convenience. A final one is automation. Self-driving money has long been a dream that, while often discussed in fintech circles, has yet to really come to fruition. We’re excited to be partnering with fintech’s to actually bring this to life by automatically routing direct deposits to pay back loans, purchase crypto, or invest.
Ultimately, the innovation that’s ongoing can all be tied back to one simple thing: improving the experience and outcomes of consumers’ financial lives. We’re excited to be supporting these companies by providing the tools they need to realize their visions.
Drenik: What’s the long-term vision for what unlocking payroll data can do to benefit consumers?
Lin: Our lives revolve around credit. Whether it’s renting an apartment, buying a car or home, or applying for a credit card, having good credit is a requirement for a better financial future. Yet, more than half of all Americans have a low score or no score at all.
The truth is the credit system as it’s designed today just doesn’t work for the majority of Americans. While your credit score does include several data points, there’s one that’s missing: your income. Outside of the bank that receives your direct deposit, no other lender can automatically use your income in their underwriting process. Lenders have to resort to approximation models based on piecing together imperfect demographic data. They’re essentially making a best guess to determine important financial decisions.
Pinwheel has the potential to change this by providing payroll data to provide a more complete financial picture of an individual, so smarter, fairer, and more informed decisions. With this data, banks can provide lower interest rates with confidence or even provide loans that otherwise wouldn’t be offered because they can see that the individual is able to repay.
Drenik: Where do you see the biggest opportunities for other fintech or banking APIs? Any examples to share?
Lin: When the first APIs for fintech were introduced, they transformed how virtually every industry does business. In fact, the fintech API market has already yielded the most valuable startup in the world with Stripe, mapping a clear blueprint for others to follow. We’ve seen other new players like Persona, Codat, and Orum also address the massive pain points within the financial services industry by offering connectivity to other tools and services. All of the companies in our broader space are thriving but still only serve a small sliver of the addressable market. We anticipate this to change dramatically over the coming years and are excited to see others enable innovation in the financial space by building the infrastructure of the future!
Drenik: Thanks for taking the time to share more about what you’re working on and your perspective on the space more broadly. It’s undoubtedly an area where we’ll see more investment and growth in the coming years, so we’re looking forward to seeing what’s ahead for Pinwheel and the space.