Embedded Finance News: JP Morgan and Gusto, Marqeta Survey - The Takeaway
Every month we compile some of the most important and interesting embedded finance and fintech news stories and tell you why they matter. Find last month’s issue of The Takeaway here.
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1. JPMorgan Chase and Gusto partner to offer embedded payroll services
JPMorgan Chase is working with cloud-based payroll company Gusto to offer embedded payroll services to its small and medium-sized business clients. Chase Payment Solutions will use Gusto’s underlying technology — an API that can be customized to business software platforms — to combine banking, payments, and payroll on its platform through a single sign-in. Business clients will be able to run payroll, calculate and withhold taxes, file with the correct agencies, and create employee paystubs, all from chase.com.
“If you’re a customer of Chase payments solutions, you can go to payroll from the same exact place you do banking,” Reeves said. “It’s the same experience, with the same login and credentialing; all that stuff becomes easier when it’s in a one-stop shop-type environment,” Gusto CEO Josh Reeves told CNBC.
The Takeaway: Embedded finance helps banks compete in the marketplace.
One of the major benefits of embedded finance partnerships for banks is a shortened time to market. Rather than build out its own technology, which can be time and labor-intensive, JPMorgan opted to partner with software startup Gusto. Having this capability helps Chase become more competitive with fintechs like Square and PayPal which have developed robust financial services.
Chase is using embedded finance to target small business needs directly – in this instance, streamlining complex payroll and tax compliance. As a result, SMEs gain access to convenient in-demand tools which save time and money.
For banks and fintechs, embedded finance creates a financial ecosystem for users, which makes their products stickier, lowers customer acquisition costs, boosts loyalty, and expands their customer base. It’s not just the big banks who are entering into fintech partnerships. Many regional banks are partnering with embedded finance software companies such as Treasury Prime so that they can gain access to the technology to work with a multitude of innovative fintechs and grow low-cost deposits.
How can banks get ready to launch embedded finance initiatives using banking as a service? Access to our on-demand webinar to hear from other banks that have done it.
2. Marqeta survey finds that consumers are turning toward embedded finance offerings
Card issuing platform Marqeta released the Q3 2023 Consumer Pulse Report that found that consumers are turning more toward embedded finance offerings to get paid faster. The report found that consumers in the U.S. and U.K. are still concerned about a looming recession and are adjusting their behavior accordingly. Along with cutting their spending, consumers are also showing interest in embedded finance offerings like accelerated wage access, which lets workers draw down cash they’ve earned in real time, to help them manage their finances better. In the United States, 21% of respondents indicated that they would be willing to forgo a full week of paid time off (PTO) in exchange for the opportunity to receive their paychecks on a daily basis.
The report also revealed that a seamless checkout and payment experience plays a top role in consumer purchase decisions.
The Takeaway: Embedded finance creates consumer loyalty by providing faster access to payments.
Although the threat of an economic recession in the next 12 months has been downgraded to a 20% likelihood, consumers are still wary. The combination of layoffs and rising living costs has led to consumers’ rising interest in tools that give them greater financial ease and convenience in an otherwise difficult time.
Cash-strapped consumers are showing more interest in embedded finance offerings, like accelerated wage access (also known as earned wage access), that give them immediate access to their earnings. Instead of having to wait two weeks for their next payday, consumers can simply draw from their earned wages as needed to meet their expenses.
Embedded finance is also a useful tool to boost customer loyalty. Given the cutback in consumer spending, increasing customer loyalty is especially important for businesses. The Marqeta survey found that 72% of consumers are more likely to be brand loyal if they have a seamless purchasing experience, including fast checkout, mobile payments, and reward programs. 85% of consumers prioritize the checkout and payment experience over a company's corporate values or social stances when making brand-related decisions.
Read about how one embedded finance company is offering earned wage access through a partnership with Treasury Prime.
3. Morgan Stanley launches generative AI assistant for financial advisors
Morgan Stanley becomes the first Wall Street bank to fully launch a generative AI tool for their employees’ use. Called AI @ Morgan Stanley Assistant — which it created with OpenAI’s generative AI software — the tool is supposed to give financial advisors and customer service employees easy access to the bank’s database of about 100,000 research reports and other “intellectual capital” and help them to quickly answer questions about markets, recommendations, and internal processes.
The bank is also reportedly testing another AI tool called Debrief that automatically summarizes client meetings and uses the content to generate follow-up emails.
The Takeaway: Generative AI has potential to improve customer service.
Generative AI can be a useful tool for the financial industry, and Morgan Stanley is using it as a way to enhance person-to-person interaction. As an investment bank, Morgan Stanley’s bread and butter is essentially customer service. By leveraging generative AI to streamline employee workflow, their financial advisors can be freed up to then engage more with their clients.
Generative AI’s biggest immediate application is as a tool that can be used in conjunction with others, including assisting employees with their day-to-day activities. Financial institutions are still researching best use cases for generative AI, but, depending on how they implement it, that could mean developing new compliance and governance frameworks to account for any risks.
Want to learn more about how AI is changing the banking industry? Listen to Treasury Prime CEO Chris Dean and Cable CEO Natasha Vernier discuss it on our fintech podcast ChatTPE.
4. Mastercard deepens cross-border payments partnership
Mastercard and Paysend announced they are expanding their cross-border payments partnership with a solution called the Open Payment Network. The network will facilitate end-to-end payment flows and near real-time payments so that businesses can send money across the globe quickly and safely.
The Open Payment Network is aimed at streamlining cross-border payments for small and medium-sized enterprises. In Mastercard’s 2022 Borderless Payments Report, 39% of SMEs surveyed said that complex cross-border payment processes create delays in their supply chain. Additionally, a quarter cited instances where suppliers declined collaboration due to the unpredictability of payments.
The Takeaway: B2B payments remain a growth opportunity for embedded finance companies.
Cross-border payments have historically been expensive and slow. With globalization and digitization, SMEs now have to work with international vendors, and losing out on vendors because of payments issues undoubtedly has a negative effect on SME operations. Improved digital payment solutions such as the Open Payment Network can help remove some of those roadblocks. Other efforts include the recent embedded banking partnership between HSBC and trade platform Tradeshift — which we covered in the last Takeaway.
Learn more about Treasury Prime's new international features to expand your customer base.