Fintech Record Keepers Bet Big on Payroll Integration
As internet start-ups threatened to disrupt brick and mortar companies like Amazon did to bookstores in the late 1990s and early 2000s, three venture back firms announced the end of traditional 401(k) record keepers. Emplanet, GoldK and ExpertPlan, like most of the internet-based start-ups, failed miserably and did not survive the crash of internet stocks, though many of the traditional record keepers moved quickly to adopt and incorporate the new technology.
Today there are five major fintech record keepers that have raised billions in capital and manage over 150,000 of the over 800,000 DC plans. Human Interest, which claims to be going public “imminently,” raised $100 million in 2025 and $789 million to date at a stunning $3 billion valuation, while Vestwell recently raised $385 million at a $2 billion valuation to buy the 27,000 plans not using-Gusto’s payroll services, swelling their count to over 60,000. Betterment, which has raised $435 million in total, started as a robo advisor and morphed into a trust and custody platform for investors and eventually RIAs, built a record keeper early on, while the latest, 401Go, just raised $33 million.
Will these fintechs suffer the same fate as the internet record keepers or, if they are different, why?
In “The Graduate”, Mr. McGuire pulls aside Dustin Hoffman’s character Benjamin Braddock and confidently advises where the future lies—“plastics.”
For the defined contribution industry that one word is “payroll.” Not only do payroll companies have clients and distribution, but payroll integration is the key to streamlined straight-through processing implementing auto features.
While tech is critical in the DC world and only getting more important with increased cyber threats and artificial intelligence expected to change everything from process to advice, most important is distribution. Building that network can take decades and hundreds of millions of dollars.
Cutting costs for traditional providers using archaic record keeping systems—some still relying on Common Business-Oriented Language or COBOL—is cumbersome. Though FIS is launching cloud-based Omni and Relius, it will take time before providers adopt it and change processes and personnel to fully leverage its capabilities.
Fintechs, on the other hand, have built native systems using new technology focused on cutting costs and streamlined processing. “We use technology to do administration better,” stated Rakesh Mahajan at the recent RPA Record Keeper Roundtable. He compared the shift in DC record keeping to the change from wired phones to mobile. Rakesh spent years at T-Mobile which, while the largest wireless provider, now competes with AT&T and Verizon, both traditional phone companies.
Guideline built their business relaying on payrolls, especially Gusto which integrated the record keeper into their offering. Both Human Interest and Vestwell also partner with payrolls, with the latter recently announcing a deeper, integrated partnership with Paylocity and expected to deepen relationship with former Guideline payroll partners as well as Quicken.
Though it seems like they have been around from the start, ADP started its 401(k) program in 1999 while Paychex launched in 2002 with 250,000 plans combined, though very few outside of their payroll footprint. It certainly got the attention of other payroll companies, which decided to partner rather than build.
Human Interest is doubling its sales force and is currently adding 1,500 plans each month, according to Mahajan. Along with a robust, but much smaller sales force, Vestwell partners with Morgan Stanley, JPMorgan Chase, Manulife John Hancock and Amazon, along with being the dominant state plan and ABLE provider.
The explosion of plan formation, which could be super-sized if the federal government creates a national auto IRA mandate following 17 states, is both an opportunity and challenge. Traditional record keepers who rely on ancillary, investment revenue with a handful like Fidelity, Vanguard, Schwab and Empower able to offer participants wealth services, struggle to make money on smaller plans, many of which are sold or go out of business before they become profitable.
On the other hand, payrolls and fintechs make money almost immediately with high margins. “No one likes or care about record keeping,” quipped Vestwell CEO Aaron Schumm at a past RPA Roundtable. He tried to avoid building one partnering with LT Trust initially but eventually realized he needed to control the entire ecosystem.
Because they do not depend on revenue from investments or wealth services, these fintechs must be cost efficient, relying on tech and AI to take friction out of the system, eliminating manual processing as much as possible.
But tech alone is not going to win the day. Its distribution coupled with tech that reduces inherent friction that traditional record keepers struggle to overcome while hiring and training the next generation who will be focused on clients, sales and service enabled by tech able to do more, not administrators culling through census data.
Payroll is the key along with other distribution partners, which already have related clients. Fintechs are better positioned than traditional record keepers, who do not have wealth capabilities or want to partner with advisors to leverage participants which requires data management, tech and the next generation of financial coaches.
There’s a reason these fintechs are getting multibillion valuations while OneAmerica sold their record keeper to Voya for $50 million up front with a backend that may not have materialized. Private equity and venture capital firms are not right on every investment they make but they are rarely wrong about an industry.