In 2019, 35 per cent of the American workforce engaged in freelance work to some degree. In turn, this meant that 35 per cent of the workforce could’ve had an unsteady income. For traditional banks and financial institutions, this was and is an immediate red flag, but it isn’t always justified. Regardless, this has driven many gig workers to use payday loans – so what can be done to improve their financial situations?
Financial inclusion is often associated with the unbanked – those who have historically been shunned away from certain sectors of society. However, it is easy to forget there are already established members with access to finance who are also being treated differently. Gig workers, due to the nature of their job, are not always able to have a reliable and constant source of income. That doesn’t make them any less trustworthy, but in the eyes of the traditional banking system, it does.
Sankaet Pathak, the founder and CEO of Synapse, the banking as a service platform, sat down with The Fintech Times to explain how fintech can help gig workers. He uses a client of theirs, Glance Capital, as an example of how customised financial services are the way forward:
Gig workers enjoy customised financial services
It’s hard to say what a typical day in the life of a gig worker in the US may look like. While it may be more the case of managing your own schedule and freelancing on the side, for others it means working long, hard hours of labour to make ends meet. Then, at the end of a tiring day, putting on the second job uniform to go back out and do it all over again.
According to findings from the Freelancers Union, in 2019, an estimated 57 million Americans, or 35 per cent of the workforce, engaged in freelance work in some capacity. Black and Hispanic Americans made up a greater percentage of gig workers, 20 per cent and 30 per cent, respectively, compared to 12 per cent of white Americans. Gig workers also have to navigate the further complexity that comes with being self-employed, whether it be filing their taxes or accessing credit to help support their business.
At Synapse, a mission that guides our work is ensuring everyone, including gig workers, has access to affordable, reliable financial services. We’ve partnered with Glance Capital to empower gig workers and ensure they have access to financial products tailored to their unique needs.
The pros and cons of gig work
Gig work provides flexibility, supplemental income, and independence. It also brings challenges, such as complicated taxes, low or unpredictable wages, and difficulty accessing benefits.
Due to these barriers, gig workers are often unable to build an emergency savings reserve. According to a report from the Shift Project, when compared to service-sector employees, gig workers are more likely to earn less than the minimum wage. This is in addition to losing earnings from technical difficulties with digital platforms, using SNAP benefits, and being unable to fully cover their utility bills.
Income instability and a lack of traditional credit history leave gig workers outside of the traditional financial system, looking for other ways to access their money, save, and borrow.
The gap between gig workers and traditional financial services
Gig workers need access to affordable financial services just like traditional employees do. Financial products such as lines of credit, checking and savings accounts, credit cards, and loans are needed without the higher fees and interest rates that can accompany them.
Traditional banks expect applicants to have a steady income and employment history. When gig workers don’t meet those expectations, they are denied services and can fall through the gap. As a result of getting turned down by most banks, many workers fall prey to payday loans that charge high-interest rates with predatory terms, trapping them in an unending cycle of borrowing and repayment.
Gig workers are ubiquitous across the US and helping them overcome these hurdles benefits everyone. According to Brad Stuit, CEO of Glance Capital, a Synapse customer seeking to offer loans with fair terms to the underbanked: “Solving the financial access problem for gig workers is important for the overall economy as it allows for a more inclusive and stable workforce, which can lead to increased productivity and economic growth.”
Fintechs bring solutions to gig workers
Fintech companies are in a unique position to support gig workers and the gig economy. They assess creditworthiness differently than traditional banks, in a way that is more inclusive of gig workers and not based on employment, income stability or other traditional markers to evaluate risk.
In addition, fintechs’ services have lower fees, and their applications are designed to be easy to use and fast. When fintechs work with banking-as-a-service (BaaS) platforms, like Synapse, they gain access to a broad spectrum of financial products and services to choose from to then offer their users.
From debit products like checking accounts and debit cards to lines of credit and credit cards, fintechs customise these products to meet the unique needs of customers, making it easier for those left out of the traditional banking system to find the safe, feature-rich, and cost-efficient financial services they need.