Why fintech products are the future of benefits and compensation

Across industries like banking, retail, trading, and insurance, more companies are leveraging fintech to deliver financial services and perform transactions with greater efficiency and scalability.

One industry that hasn’t been transformed by fintech? Corporate compensation. But with fintech modernizing all forms of money movement, it’s the next frontier.

Consider the current state of compensation: employees receive a salary that’s negotiated once and viewed as transactional, while HR administrators have struggled to use legacy payroll tools that weren’t built for the new normal of global hiring. Disruptive new players like Rippling and Deel are creating solutions for global payroll that overcome multi-currency and regulatory hurdles.

Then you have benefits like flexible spending accounts (FSAs), health savings accounts (HSAs), commuter benefits, wellness stipends, family support, or professional development that are traditionally provided through fragmented, one-size-fits-all solutions which are fully disconnected from salary. The result is that employees aren’t even aware of all their benefits or opt out of most of them because they don’t fit their personal preferences, leading to wasted spend.

We’ve seen the trend in retirement benefits already of moving from defined benefits (e.g. pensions) to defined contributions (e.g. 401(k) match) to enable flexibility. But many other non-salary forms of compensation need a modern upgrade.

Employers care about talent attraction and retention, and they spend money to achieve those goals. The question is, are companies providing compensation in a way that yields the most value for their investment?

This value is determined by what the employee thinks their compensation is worth, not what the employer spends. Many methods for distributing compensation and benefits are outdated and incapable of providing the level of flexibility that employees desire. For example, a company may pay $100k a year for company-wide gym memberships that employees never use – a clear lose-lose for both the company and employees.

Another example of this is US pre-tax benefits. The systems used to administer these accounts often predate the internet and are so ossified that it’s challenging for employees to do simple things such as checking their balance or understanding why their card just got declined at the pharmacy. Traditional administrators have outsourced their core financial capabilities to a handful of legacy software providers, with special-purpose ledgers that have a limited capacity for customization and modernization.

Fintech-enabled compensation looks much more modern and flexible. Fintech is the foundation that enables customized, unified product experiences that match a company’s specific needs.

In the future, corporate compensation will increasingly move through fintech rails. Because fintech enables us to build the customized product experiences that companies and employees seek, it’s uniquely positioned to meet modern needs.

Today’s workforce is diverse, global, and multi-generational. Companies are being scrutinized for their inclusivity, and that trend will only continue. A recent survey found that 78% of employees said it’s important to work at a company that prioritizes diversity and inclusion, and 53% said it was “very important.”

Fintech products are flexible at their core, making it easier to offer benefits that support all employees regardless of their individual preferences and needs. Fintech also makes it easier to provide a global workforce with equitable benefits that adapt to multiple currencies and allow employees to move around the world while maintaining equal access to their compensation.

With fintech products, companies can design programmes around any set of boundaries that they like. Within these parameters, however, employees have more freedom than ever before. Instead of being limited to a single gym, they can spend their benefits on a yoga class, Peloton, or a meditation app – whatever best supports their well-being.

The advantages of this modern user experience also extend to traditional US pre-tax benefits, which haven’t been improved in decades. For example, fintech allows employees to spend their FSA at digital pharmacies or use mobile tap-to-pay on the subway from their commuter account.

Another problem is that traditional enterprise HR software systems haven’t integrated deeply with other tools, leaving data siloed and preventing comprehensive analysis. This problem is magnified when compensation teams stitch together dozens of disparate point solutions. It can be impossible to answer even simple questions like, “What is employee engagement for this benefit?” or “How much are we spending in total?”

By rebuilding compensation systems on integrated backends, companies can extract valuable insights from their data for the first time, enabling iteration and continuous improvement.

Employers spend a lot of time managing benefits. Siloed data has prevented automation, forcing administrators to manage the complexity of their compensation programmes by hand. Industry metrics indicate that finance teams spend up to 38 minutes and $110 processing an expense report, not to mention the lost productivity from employees filling out those reports.

Modern compensation tools are designed from the beginning to ingest data from other enterprise systems like human resources information systems (HRIS) and payroll, making it possible to both customize and automate at scale. And the underlying infrastructure of fintech products can instantly validate spending, allowing companies to bypass the manual process of reviewing receipts and reimbursing employees through payroll. This potent combination allows companies to consolidate point solutions, dramatically reducing administrative overhead.

Data insights and customization capabilities also make fintech products scalable. As companies grow, their needs change and they must adjust their compensation approach. Fintech products allow companies to leverage data insights to modify programmes, easily spin up new accounts, or expand the flexibility of existing ones. Companies can efficiently track their spending and scale programmes – a common example is rewards and recognition or incentive programmes that are traditionally difficult to administer and monitor through spot bonuses or gift cards.

Compensation should also adapt to ever-changing needs and world events. At Benepass, we’ve seen companies create new spending categories to help employees pay for transportation as inflation spiked gas prices or to allow employees to donate to charities as war broke out in Ukraine. This is possible because modern fintech software is natively global and can be instantly updated to accommodate these ever-changing needs.

We’re only just beginning to see what’s possible with fintech-enabled corporate compensation. In the coming years, fintech will continue to be a driver in our collective reimagining of compensation and the relationship between employer and employee. Eventually, we’ll see more immersive, engaging, and integrated product experiences that make compensation a truly delightful and bidirectional experience for both employers and the people they serve.