November 30, 2022

Opportunities in Embedded Finance for PEOs

Improve your PEO value proposition with embedded funding. Here’s how it works.

New opportunities in embedded finance for professional employer organizations (PEOs)

Over the years, professional employer organizations have evolved from human resource managers and co-employers into strategic business partners for their clients. This evolution is driven mainly by tough competition in the labor industry and new trends in labor management.

With over 2,600 PEOs registered in the U.S., offering basic HR services is nowhere near enough to stand out as a PEO brand. The demand for managed HR is soaring. But still, the mounting competition, particularly from international labor outsourcing companies, is hogging huge market shares from local PEOs trying to make and keep a name for themselves.

So, what does it take to make a significant dent in the PEO market? Like in many businesses, the simple answer is value. Increasing the value customers see in your brand earns you customer loyalty and additional leads — two key elements of market dominance.

Brand value can mean many different things depending on your business model and target market. But let's focus on embedded finance, a proven value-add strategy that works with any business and doesn’t require massive investments.

Embedded finance for PEOs

Embedded finance is a business strategy where non-financial institutions integrate financial services, such as credit options, insurance, debit accounts, and payment systems into their offering. Any business, from department stores and online shops to contractors, can offer financial solutions to its customers through one form of embedded finance or another.

More and more businesses are adopting financial offerings into their portfolio as a means to boost business revenue and brand value. Bain & Company calculates that in 2021, embedded transactions in the U.S. totaled $2.6 trillion and could reach $7 trillion by 2026. Jeff Tijssen, Bain’s fintech head, adds, “For businesses, this shift is an enormous opportunity. There will be no shortage of growth finance for the sector as platforms experiment with integrating everything from tax to payroll services in the years to come.”

PEOs are perfectly positioned to offer commercial funding products to their clients. Doing so will help PEO businesses solve their customers' most pressing financial challenges such as payroll funding and all other business-related expenses, significantly elevating the PEO's brand value and market standing. For instance, if any of your customers need to hire more workers, equip their workplace, or expand their business office, they can come to your PEO for financial support since it already handles their HR, accounting, and payroll processes.

Images by Loanspark

Why embedded finance?

Embedded finance is a straightforward, sustainable, and highly rewarding strategy for improving a PEO's brand value. Here are four reasons why you should consider adding a new business funding product to your PEO offering:

Boost earnings through a new revenue stream

Revenue generation is one of the most attractive benefits of business lending. Lending money to your business customers can be a great way to earn extra business income and diversify your revenue streams. This works because you'll receive a fee every time one of your customers gets funded.

So, how much money can you actually earn this way? Well, embedded finance is truly a gold mine. Take Amazon, for example. In 2021, the e-commerce giant launched Amazon Community Lending, a funding program that supports SMBs selling in Amazon stores. In just one year, the program had loaned over $35 million to 800+ businesses. Given that the APR on these loans is between 8% and 9.9%, the interest earnings alone in that first year amounts to millions.

This demonstrates the incredible earning potential in embedded finance. You just need to poise your brand as a dependable financial partner to its clients.

Become part of the SMB funding solution

The SMB failure rate in the U.S. is appalling. According to the latest statistics, nearly a quarter of all new businesses fail in their first year, with half of them never making it past five years. Most of these failures can be traced back to financial hardships. Sadly, too many promising small businesses close shop after running out of capital.

This happens partly because the SMB funding space is “messy,” to put it in one word. For one thing, small businesses and start-ups have very limited funding options. Additionally, most commercial lenders, particularly big banks and credit unions, have strict qualifying requirements that many small businesses cannot meet. According to commercial lending figures, the SMB bank loan approval rate is rising, but it’s still pitifully low in large banks at 14.9%. SMBs have much better chances of obtaining capital from non-bank lenders, which is where your PEO business comes in.

Your company can become an essential alternative lender to its customers through embedded finance. Offering accessible funding solutions is always a welcome effort toward bridging the SMB financing gap. It makes you part of the solution to one of the thorniest issues facing small businesses, increasing your company’s brand value within its business communities and beyond.

Build lasting relationships with clients

Most B2B businesses rely heavily on returning customers for growth. But obtaining customer renewals requires strong customer loyalty built upon meaningful business relationships. This couldn’t be truer in the professional employer business, where clients require continuous long-term HR and accounting support.

Think of funding solutions as a form of loyalty program that binds customers closer to your brand. It works by increasing customer touchpoints and deepening customer engagement with your company, ultimately strengthening long-term B2B relationships.

It stands to reason that a client would most likely stick with a PEO that provides financial support in addition to HR and accounting management services. This is because it’s easier for entrepreneurs to borrow capital from an institution they trust and regard as a business partner.

Images by Loanspark

Keep up with current trends and competitors

Embedded finance is a powerful value proposition and selling point in any industry. As such, more and more companies are keen on incorporating business funding products into their offering to maintain a competitive edge in various markets.

A survey involving 1,000 business leaders found that 84% of U.S. non-financial companies believe offering financial services is critical to their future success. Moreover, 85% of the respondents said their funding programs were successful at helping them acquire and attract new customers.

PEOs are starting to invest in embedded finance too. A good example of this is Paychex, one of the leading professional employer organizations in the country. Paychex partnered with Biz2Credit to develop the Paychex Small Business Loan, a fast-approval SMB loan program with a simple application process. On top of that, Paychex dabbles in business insurance and payment processing.

And it's not just Paychex doing this; embedded finance is a rapidly growing trend that’s quickly redefining the lending industry and the meaning of brand value. It’s time you integrated financial services into your PEO ecosystem to stay ahead of competitors and market disruptors.

Leverage embedded finance with Loanspark

Are you sold on embedded finance? You must be — the rewards are simply irresistible. But with zero experience in the financial industry, how do you even start lending money to your clients? Well, that’s where a co-branded partnership with Loanspark comes into play.

Loanspark is a Business Lending as a Service (BLaaS) provider that empowers businesses like yours to offer SMB loan products quickly and cost-effectively. We use our financial expertise and digital resources to help companies create funding solutions that matter to their customers. Our goal is to position B2B businesses as essential alternative lenders in the otherwise murky SMB financing landscape. And since you get to market the offering as your own, this makes you a hero to your customers.

Let Loanspark worry about the logistics, paperwork, and security of this invaluable new offering for your organization while you focus on running the PEO side of the business. Then sit back and enjoy the endless opportunities and rewards of embedded finance while also helping your customers grow. Reach out today to start your B2B funding venture.

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