The Role of Fintech in the Global Gig Economy
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Starting in 2020, shutdowns and closures stemming from the COVID-19 pandemic resulted in thousands being laid off for months or let go permanently. Many of these displaced workers turned to freelance work to pay the bills. As the pandemic continued, many gig workers made their freelance status permanent. Companies and organizations also benefit from taking on contractors on an as-needed basis or seeking out the best candidates from a national or international talent pool. Savvy fintech companies must adapt to meet the needs of various types of gig workers.
Gig Economy Growth Projections
In 2020, freelancers made up 36 percent of the US workforce, earning $1.2 trillion annually. The global gig economy is expected to generate $455 billion by 2023. Gig economy platforms help these freelancers manage and get paid for their work. The most popular platforms for gig workers are shared ride providers like Lyft and Uber, delivery services like Instacart and GrubHub, Etsy for independent creators, and platforms like Upwork and Freelancer for various services. These platforms make it easy to connect with freelancers and pay for those services through the platform. Many gig workers also use Paypal and Stripe to manage payments.
Gig workers face many unique financial and banking challenges compared to conventional workers. They need online solutions that allow them to collect funds and make online transactions simple and reliable. Here are some of the difficulties gig workers face in the financial market.
Ability to Access Financing and Capital
Earnings for gig workers are often erratic, with a feast or famine cycle that makes budgeting a challenge. Gig workers are also often inadequately banked or unbanked – their average earnings of $2000 to $3000 per month are too low to attract the interest of many traditional financial institutions.
On the other hand, mainline banks and financial institutions often cannot collect valuable data on gig workers, many of whom keep their earnings unregistered. As a result, gig workers are vulnerable to undesirable and sometimes unethical financial entities such as currency exchanges that charge high fees for simple services such as check cashing and payday loan companies that impose interest rates of 500% to 700% or more for loans.
Unique Approaches to Credit Evaluations
Many financial institutions focus on credit scores when making decisions about financing. But credit scores alone don’t tell the whole story, especially for gig workers.
Financial solutions that include employment and income verification when making decisions can make credit evaluation more equitable for gig workers.
Cross-Border Payment Options
The gig economy means freelancers can now work for clients in other countries. But many fintech options don’t allow for cross-border payments, making it difficult to receive payments from clients in different countries. Many companies that offer cross-border payment options charge a cross-border fee of 2% – 4 %. This means gig workers either need to absorb that fee or increase their rates to cover it. New fintech options make cross-border transactions seamless with minimal or no cost.
Open Finance Model
One innovation with great promise for gig workers is the Open Finance model. This is a model where users can voluntarily share banking data with third parties and multiple entities to allow for related products and services, such as processing rideshare payments or direct deposits for online-only banks. Fintech companies can use that data to create new financial products or services tailored to users’ needs and linked to their bank accounts. It’s one of the innovative ways companies are stepping in to fill the gap left by traditional banks to capitalize on gig economy growth trends.
Understanding the global gig economy and its growth trends is essential to continued innovation for established fintech companies and startups. Meeting the need for frictionless financial transaction tools for gig workers is key to generating future opportunities in this growing group. PayTech Trust can help. Contact us through our website for more information.
PayTech Trust offers secure merchant accounts and online credit card processing for businesses of all sizes. With our collaborative suite of services and best practices to integrate new payment trends, PayTech Trust has the experience and the expertise your business needs.