Gig economy banking presents financial institutions with a growing opportunity as more consumers earn income outside traditional employer-employee relationships. Freelancers, independent contractors, and workers using digital platforms may have many of the same financial needs as traditionally employed customers, but their income patterns and banking requirements can look significantly different.
As independent work expands, banks and credit unions must consider how well existing products, underwriting practices, and financial services accommodate consumers with multiple or irregular income streams. Understanding those differences could help financial institutions develop stronger relationships with a segment that nontraditional financial providers are already beginning to serve.
Banking Exchange published an article on the “hot” topic of the freelance or gig economy workers and implications for the financial sector. The percentage of the population in the U.S. that relies on this type of work as opposed to more traditional employer – employee relationships is growing. There are many who are augmenting traditional jobs with consistent or occasional work assignments to increase personal earnings:
According to a study by the McKinsey Global Institute, Independent Work: Choice, Necessity, and the Gig Economy, 20%-30% of working-age population in the U.S. engages in independent work.
Of those, 72% do so by choice, the other 28% out of necessity. Additionally, 47% of youths (under the age of 25) and 44% of seniors (over the age of 65) participate in independent work.
This could be a sign that the gig economy is providing more opportunities to those who may otherwise be unable to participate in traditional employment. Proponents of the gig economy maintain that gigs allow workers to have a better work-life balance and smooth their income when other sources are unreliable.
Are Banks Meeting the Needs of Gig Workers?
The article takes aim at banks and credit unions for not sufficiently supporting the banking needs of these individuals:
Uber Expands Into Financial Services
Uber drivers need bank accounts to be paid and auto loans to obtain cars to drive. Because few banks have taken on the challenge of marketing services specifically to gig economy workers, Uber the transportation disrupter is becoming a financial disrupter.
Uber is doing it themselves, a trend that we may see take off in other segments of the gig economy.
Uber has partnered with GoBank to offer drivers bank accounts, debit cards, and Instant Pay services. Other services include ordering checks, making ACH money transfers, and depositing cash at participating stores, including CVS, Walgreens, Walmart, etc.
Fintechs Step In to Serve Gig Workers
This is not necessarily a bad thing. Inventive organizations like GoBank (Green Dot Bank), Hyperwallet, Payoneer, Tipalti and others are creating ways to serve this market and shouldering the risks associated with a forming market. If traditional FIs want to take a wait and see approach, that’s fine. There are actions that FIs should consider now, however, which is to understand the unique needs of this market. For example, banks should recognize individuals’ income is not entirely captured by standard payroll transactions. Failing to acknowledge revenue from freelance activities may provide an incomplete picture of consumers’ financial health and therefore missed opportunities.
The growth of independent work creates financial needs that may not fit neatly within banking models designed around traditional employment. Gig workers still require fundamental financial products, including deposit accounts, debit cards, payments, loans, and money transfer capabilities, but their income may arrive from multiple sources and on less predictable schedules.
Companies such as Uber are already recognizing these needs and partnering with financial providers to give workers easier access to banking and payment services. Meanwhile, organizations such as GoBank, Hyperwallet, Payoneer, and Tipalti are developing products and services specifically suited to this emerging market.
Traditional banks and credit unions do not necessarily need to rush into an unfamiliar segment before they understand the risks. However, they should begin developing a clearer picture of how independent workers earn and manage their money. Relying primarily on conventional payroll deposits to assess a customer’s income could overlook significant freelance earnings and provide an incomplete view of that individual’s financial position.
As independent employment becomes more common, gig economy banking could represent an important opportunity for financial institutions willing to adapt. Understanding irregular and diversified income streams will help banks assess customers more accurately, identify unmet financial needs, and determine how best to serve a workforce whose relationship with traditional employment is changing.
Overview by Sarah Grotta, Director, Debit Advisory Service at Mercator Advisory Group
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