By Booshan Rengachari, Founder & CEO, Finzly
The year 2009 was marked by two major landmarks. Many may immediately think of the end of the Great Recession, the U.S.’s most severe economic downturn since the Great Depression, leading to financial repercussions on a global scale. The second significant event was the birth of Uber, the ride-hailing app that has become a household name, today employing 5 million drivers across 69 countries.
In hindsight, it is not surprising that a company like Uber emerged in the wake of the Great Recession. According to the U.S. Bureau of Labor Statistics, unemployment rates reached 9.5% by the end of the recession and peaked at 10% in the following months. Across many industries, there was a shift from knowledge-based to service-based employment, eventually becoming a mainstay global phenomenon.
How did the macro-environment respond?
Views around the nature of employment have continued to evolve since that time and now, more than a decade later, the gig workforce continues to expand, most recently in response to the COVID-19 outbreak. This growth of the gig workforce has largely been enabled by continued technological advancements, including cloud-based computing, easy integrations, mobile technology and social media-powered communication, as well as platform-based and “on-demand” features. Reports now indicate that “gig wages and participation grew 33% in 2020 to represent 93 million U.S. adults earning $1.6 trillion compared to the 70 million adults who earned $1.2 trillion in 2019,” underscoring the need for unique, personalized products and services to cater to this sizeable market.
Even venture capitalists and entrepreneurs have responded to the need for specific products designed to enhance their financial wellness within the gig ecosystem. With innovative technologies serving as the catalyst for the evolving gig economy, it is imperative that financial institutions, too, respond to this opportunity.
Unsurprisingly, one of the most prominent topics occupying the conversation around the future of the gig economy is payments. While the general practice of the traditional workforce was to ensure employees were paid on a recurring paycheck cycle, many gig employees work irregular hours and/or complete jobs in batches. For this reason, there is a desire among gig workers for cheaper and faster access to their paycheck through daily settlement, and advances in the real-time payments (RTP) ecosystem, such as The Clearing House’s RTP® network and the Fed’s soon-to-be launched FedNow℠ service, the provision of quicker access to funds is gaining traction.
Banks and credit unions are doing a better job of serving their gig worker customers and members by offering services tailored to their specific needs. Whether it is ensuring that digital onboarding is just one click away, offering deposit accounts that directly link to their employers, giving financial advice or providing P2P payment services, there is an opportunity for financial institutions to play a role in contributing to gig employees’ overall financial wellbeing while tapping new revenue opportunities.
An attraction of gig employment is its ease of entry, and demographics show that 50% of gig workers fall into the 16-35 age group. Financial institutions have realized that by making things quick, easy, accessible and affordable, they have the potential to reach a new segment of customers in need of their services.
With the gig economy predicted to account for 60% of the US workforce by 2027, financial institutions should be seriously considering this customer segment if they have not yet done so. Payments as a service (PaaS), lending, managing finances, digital banking services, accounting and retirement planning are all taking flight for this sector of the market. Additionally, financial service provisions like tax savings accounts, expense management, loyalty rewards by expense and legal assistance, can benefit the underserved gig economy. However, community banks and credit unions must accelerate their pace in adopting gig-friendly solutions or risk losing this segment to challenger banks that are more agile and well-equipped with open-banking APIs and cloud-enabled platforms. From a technology standpoint, community financial institutions can leverage the same level of innovation through cloud-based, embedded fintech to enhance their core solutions and strengthen their product offerings to meet the evolving market demands of the gig workforce – better positioning themselves to thrive in the new economy.
Booshan Rengachari is founder and CEO of Finzly, a fintech provider of modern banking applications for payments, foreign exchange, trade finance and digital account opening. For more information, visit www.finzly.com.