The Rise of the Open Employment Ecosystem

Sitting at the intersection of payroll, HR, benefits, and fintech is the employment ecosystem: the collection of B2B software applications that employers use to manage their workforce. Combined, the billions of employee records and data points within these systems power nearly every digital interaction between employers and the employees they serve: onboarding, day-to-day communications, job performance, compensation, healthcare, and more.

But the employment ecosystem of today is deeply fragmented across more than 20,000 software systems—6,000 of those in payroll alone. These distinct systems are siloed, leaving critical employee data scattered across various systems in differing formats. 

At Finch, we believe employment technology is on the precipice of a new era—one in which the tools in employers’ tech stacks are connected by a robust foundational infrastructure that makes access to employment data secure and programmable. We call this the Open Employment Ecosystem.

Introducing the Open Employment Ecosystem Market Map: our visual representation of the technologies that sit at the intersection of HR tech, benefits, and fintech. Get your copy → 

The problem with the disconnected employment ecosystem

The employment ecosystem consists of two primary types of technology: systems of record like HRIS and payroll that act as employers’ source of truth, and point solutions, which we refer to simply as “applications”—the standalone human resource, benefits, and financial tools that rely on employment data to function.

The ecosystem’s lack of a common infrastructure presents two major problems. The first is that it’s incredibly challenging to derive and act on insights from disparate data sources. The second is that any change made to one system needs to be manually changed in every other system—creating a poor user experience that can lead to customer churn for applications. 

This lack of connectivity stifles innovation and creates an onerous, unavoidable administrative burden for HR departments: 64% of HR leaders report wasting up to nine hours every week on manual data entry, where the average cost of a single point of data entry is a whopping $4.78. 

To effectively serve employers—and by extension, their employees—we need standard rules, processes, and procedures for sharing data between systems of record and applications. This dynamic has paved the way for the gradual but undeniable emergence of the Open Employment Ecosystem. 

What is the Open Employment Ecosystem?

More than 150 million employment records are exchanged via CSV upload, SFTP, and manual operations every year. The world no longer works this way, but the employment sector still does because until now, there’s been no alternative. 

As the source of truth for employers, systems of record like HRIS and payroll are the gatekeepers of this mission-critical employee data, but they lack the infrastructure that would allow point solutions to easily integrate with their technology. Building 1:1 integrations between every system of record and point solution is an impossible task, the collective cost of which would reach into the billions. Too few of these integrations exist today because of the risks associated with such a large resource investment. 

The Open Employment Ecosystem will enable employers to share mission-critical employment data efficiently, reliably, and automatically through a shared infrastructure built on API integrations. That data flow has enormous potential to unlock new innovation in employment tech and deliver vast improvements to how employers can attract, serve, and support employees.

The first step in achieving this Open Employment Ecosystem is building the open, programmable infrastructure that helps all of these technologies—systems of record and point solutions—to integrate with one another. Similar to the way Plaid introduced the era of Open Finance through its financial API, Finch aims to create the Open Employment Ecosystem through our Unified Employment API. 

Our mission is to empower innovators with democratized access to global employment systems. With security and compliance as the backbone of our infrastructure, Finch will ultimately build the connection between all of these platforms and empower a new wave of innovators to create a better future of work.

The inevitability of the Open Employment Ecosystem 

The movement toward openness, connectivity, and programmability within the employment ecosystem is driven by three key trends: the proliferation of point solutions, a growing demand for interoperability, and the emergence of unified APIs.

More point solutions and a growing need for connectivity

Since the turn of the century, there's been a shift from do-it-all tech to specialized, best-of-breed software that excels at one thing, leading to a surge in tool usage—the average large company now leverages 80+ employee-facing systems. 

Each of these tools hold employment records that regularly need to be updated, ideally all at once, which means employers don’t have the bandwidth to continue adopting point solutions that operate in a silo. That leaves two options: relying on monolithic, closed systems with native connectivity (similar to the legacy systems that dominated the industry before the cloud), or creating an interconnected ecosystem in which all applications, regardless of their parent company or backend data model, can communicate seamlessly. 

We at Finch believe that the second approach is a better fit for the employment sector because of the inherent nuance in employment. For example, a construction company will have far different needs for managing their employees as compared to an advertising firm. By creating the Open Employment Ecosystem, employers will have the freedom to choose the best solution for their unique needs while still enjoying the benefits of an integrated system.

Emergence of unified APIs

Application programming interfaces (APIs) are widely adopted today, but they aren’t standardized—they operate on different backend data models, which can make it difficult to teach two systems to “talk” to each other.

This challenge has fueled the emergence of unified APIs. They act as an abstraction layer, managing the complexities of communicating with many APIs on their customer’s behalf. Companies need only build one integration to the API provider to unlock two-way communication with dozens or hundreds of applications. 

Plaid is one of the most widely recognized unified APIs. By creating a standardized data bridge in the financial industry—infamous for being antiquated, heavily regulated, and slow—Plaid unlocked unprecedented innovation in fintech. The employment industry, which is even more deeply fragmented than finance used to be, is primed to benefit from the same kind of unified, standardized connectivity model. 

Why everyone wins with an Open Employment Ecosystem 

When employment data is free to securely flow between systems of record and applications, everyone wins. Systems of record can freely integrate with more applications, furthering their product stickiness; applications are able to access the employee data they need to function while lessening the administrative burden on their customers; and employers are afforded the freedom to use the tools best suited for their workforce, unencumbered by system incompatibility.

Benefits for HRIS and payroll providers

Systems of record recognize the value of the data they hold, so it may seem at first that they’d have something to lose in an open ecosystem. In reality, they have much to gain by simplifying their customers’ data sharing experience: the more applications that can easily plug in to their databases, the more these systems will be able to stabilize and expand their footing as the primary source of truth for employment data for each customer. 

Integrating with more applications also allows HRIS and payroll systems to attract new customers by selling a product that will give employers the freedom and flexibility to use whatever supplemental point solutions they choose.

The Open Employment Ecosystem will benefit both large- and small-scale providers by lowering the costs associated with opening their APIs. Enterprise-focused providers will be encouraged to tap into SMB markets, where the investment risk has traditionally been considered too high. Meanwhile, SMB-focused providers will be empowered to compete with larger incumbents that have traditionally had a leg up given their larger pool of resources.

Benefits for applications 

The lack of integrations with existing HR systems, particularly HRIS and payroll tools, is often a deal breaker for employers in the market for new point solutions. In order to grow their business, these applications need native integrations with employers’ sources of truth or risk a poor user experience and reduced product functionality.

The challenge is that it’s incredibly expensive to build and maintain these integrations, as every system of record has varying infrastructure, data formats, and governance. Many also require formal partnerships or other barriers to entry. In an Open Employment Ecosystem, these applications would be able to spin up integrations much faster, via API, and deliver greater value by eliminating manual administrative work for their customers. The applications can also focus their engineering teams on core or innovative product improvements, rather than building and maintaining integrations.

Benefits for employers

Today, many employers choose software based on compatibility with existing systems like HRIS and payroll or opt for all-in-one solutions instead of cherry-picking the tools that would best serve them. In fact, 97% of HR administrators say it's important for their employment systems of record to integrate with other tools in their tech stacks, and 84% say this connectivity is very or extremely important.

But with the connectivity enabled through an Open Employment Ecosystem, employers will be able to opt for the best rates, the lowest fees, the most impressive features, and the best user experience. And with the security, reliability, and automation of API integrations, HR admins will be freed from the administrative burden of manually sharing employee data with their service providers and updating records across disparate systems.

Moreover, this newfound choice and control over what employment data is shared and who gets access to it will enable employers to simplify onboarding, offer enticing benefits, protect sensitive information, and craft the best-in-class experience for their employees.

How Finch is building the Open Employment Ecosystem

The concept of the Open Employment Ecosystem hinges on the shared infrastructure that connects all employment systems. At Finch, we’re building the foundation of that infrastructure. 

Our Unified Employment API bridges the gap between systems of record and applications on behalf of employers. We’ve built integrations with hundreds of HRIS and payroll systems that use data standardization and clear rules of engagement for seamless syncing, so employee data is securely delivered to applications in a standardized format, regardless of its origin system.

The point solutions that use Finch’s product need only build one integration—to us—to unlock access to all of our HRIS and payroll connections. The systems of record that partner with Finch similarly benefit from access to pre-built integrations with Finch customers when both parties share a common employer. 

When an application integrates with an HRIS or payroll system through Finch’s unified API, they get streamlined, permissioned access to the data they need, explicitly authorized by the employer. This eliminates the need for manual data entry, offering a more accurate, secure exchange of data for all parties—the employer, application, and system of record. 

The rise of the Open Employment Ecosystem is the inflection point that will finally allow the employment sector to operate like other tech-forward industries. The benefits are too numerous to list, but they include easier access to employee benefits, greater insights into workforce trends, increased innovation, and far greater data security. 

The road ahead

We believe the Open Employment Ecosystem is inevitable. The world is shifting towards standardized, open, and interconnected data systems. Employers and developers are prioritizing tools that offer greater flexibility and interoperability. 

At Finch, we're leading the charge into this era of open and programmable employment. We kick-started this revolution with HRIS and payroll integrations; but to truly transform the employment landscape, we must extend beyond these core systems and integrate with new segments to unite the entire spectrum of employment tools.

Just as Twilio revolutionized communication and Plaid transformed finance, Finch is committed to reshaping employment by connecting the world of closed, complex, and archaic employment systems. 

Learn more about the companies that make up the Open Employment Ecosystem by exploring our Market Map.