Chances are you know people involved in the gig economy, or have experience of being a part-time or full-time worker yourself. Uber drivers, delivery men and women, designers, Airbnb hosts, consultants, comedians, babysitters – these are just some of the jobs the workers hold. The growth of the gig economy in recent years has become an opportunity for many fintech companies that recognize gig workers as high-potential customers.
The increase in the number of gig workers in need of financial products
First of all, working outside the traditional job is indeed gaining popularity every year. According to a Mastercard to research, the global concert economy will generate a gross volume of approximately $455 billion by 2023, twice as much as in 2018. The pandemic, however, may have accelerated the growth of the concert economy due the fact that many people had lost their full-time jobs and had to become self-employed. Upworks 2020 study says 36% of the total US workforce is self-employed and earns $1.2 billion a year.
Also, nowadays, digital platforms make it easy for gig workers to find jobs within hours with just a smartphone. Pew Research Center reports that in 2021, 16% of American adults have already made money from an online concert platform. The rise of the gig economy is also spurred by the popularity of the work-life balance philosophy, which has people seeking more flexible hours. Exponential growth, however, has its downsides and leaves a lot of gaps. One is that traditional financial services are not geared to the needs of gig workers.
Financial gaps in the current market
Gig workers can be good earners, but their earnings are often erratic, sometimes paychecks differ from month to month. As a result, they have problems accessing investment accounts, loans, insurance and other financial products. This means they are likely to experience difficulty paying bills for unexpected emergencies, such as medical treatment. This negatively impacts the financial well-being of gig workers and their families.
Traditional banks are unwilling to address these issues as they focus on the most premium audience and have little interest in those earning around $2,000-3,000 per month with their peak income yet to come. In addition, traditional financial institutions do not have access to data on the financial behaviors of gig workers, who often must keep their financial activity unrecorded. The lack of information does not help to fill the gaps in the financial sector. And, anyway, traditional banks are too slow and too complex in their structure to act quickly. Fintech startups are more suited to this profession.
What Fintech can change for gig workers
What fintech companies see in the gig economy is the ever-growing number of financially reliable potential customers who are underserved by traditional banks. In other words, it’s the lack of competition mixed with the ability to help millions of people achieve a better life and earn money doing it. This is why fintech startups choose this direction. They attract customers with flexible payment solutions, low fees, fast operation and the convenience of a carefully designed interface.
Companies such as B9, Chime, Earnin and Brigit are able to calculate risk using AI at incredible speed. They use it to provide construction workers with quick access to paycheck advances at no cost. This is crucial for the financial viability of gig workers, so that in an emergency they don’t have to go to shady microcredit organizations and pay annual interest on money borrowed from about 500 to 700%. Sometimes circumstances don’t give people any other options. Unbanked and underbanked communities are often targeted by predatory lenders, perpetuating patterns of inequity. Digital banks are keen to make the financial environment safer and more convenient for those involved in the gig economy.
Having lots of customer data under their belt, these companies are able to target narrow segments of gig workers and create more personalized offers. At the same time, they don’t have to spend too much effort and money on user acquisition, because their customers are happy enough to share information about them with friends and acquaintances.