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Highlights
- The gig workforce is growing as a significant demographic class, but its unique financial needs are underserved by banks and fintechs.
- The current fintech model involves unbundling of banking services and providing efficient one-off financial services.
- A wider adoption of open banking by financial institutions will enable them to offer a suite of financial services under one roof.
In this article
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Gig workers across the world are part of a growing tribe.
They have been largely ignored by traditional financial institutions. By 2022, this category of workers will cross 50 million in the US alone, which is a significant demographic class. Yet, there is a market gap when it comes to providing financial solutions that are customized to gig workers’ needs. These unmet needs primarily stem from the differences between gig workers and the general population concerning their patterns of temporary jobs, uneven income, and eventually, a lack of credit history. These factors make it challenging for financial institutions to offer products suited to the requirements of this financially underserved sector. While the intent of fintechs to serve the gig workforce is admirable, the solutions that address its financial needs are still piecemeal. The missing piece in this puzzle is a suite of comprehensive financial services under one roof. A wider adoption of open banking by financial institutions will aid in making this vision a reality.
Key to good banking
The current fintech model involves unbundling of banking services and providing efficient one-off financial services.
This makes it challenging for fintechs to assess gig workers’ financial viability. Fintech solutions are not comprehensive enough to serve all the financial needs of gig workers. Open banking, with its promise of unlocking the financial information of a bank’s customers, can aid in delivering a transformative customer experience. Considering the fragmented work histories and earning flows of gig workers, open banking will enable access to such distributed information and transaction data for credit risk assessments and offer relevant wealth management solutions, insurance, and personalized financial products. At the core, this transformation demands a sufficiently large number of banks and fintechs to make information about customers, transactions, products, and services available through open banking application programming interfaces (APIs). When data from most, if not all financial institutions is available, fintechs and technology divisions at banks will be empowered to build solutions leveraging the best products and services from the financial services ecosystem to deliver a suite of comprehensive financial experiences to the gig workforce.
Global gig workforce
The progress of open banking initiatives across Europe and the UK has been significant.
It indicates that the practice has the potential to provide a transformative experience to the gig economy. For example, customers in the UK are now able to make rental payments through banks by building a credit history. A UK-based personal tax application helps gig workers file tax returns effortlessly from their mobile phones. Another digital bank based in the UK is helping gig workers buy insurance and create wealth using its in-app marketplace. Apart from Europe and the UK, other geographies are also accelerating their open banking initiatives. In Latin America, a gig economy data aggregator helps gather data from gig economy apps to provide insights to fintechs and support financial inclusion of gig workers.
A consortium of big banks and financial institutions in the US has launched the Financial Data Exchange (FDX). The nonprofit organization is dedicated to unifying the financial industry around a common, interoperable, and royalty-free standard for the secure access of user-permitted financial data. While the US market is warming up to open banking, it still has a long way to go, with end customers poised to benefit from its adoption. Without an open banking ecosystem, fintechs will continue to deploy one-off and insecure methods to access customers’ financial data.
The way forward
Opening banks’ data to third-party providers (TPPs) will facilitate fintechs to offer a wide range of services to gig workers.
For example, they can consider rent payments and online purchase payments such as buy now pay later (BNPL) to build a credit history for individuals. With visibility to a gig worker’s income and upcoming payments, fintechs can provide AI-based personal financial management solutions. Insurance is another key challenge for gig workers, especially in the hindsight of the pandemic, with a very small percentage of them having employee-provided cover. Open banking will provide full visibility to all the income streams and expense history of gig workers, empowering institutions to design accounting, taxation, and tax optimization services customized to their needs. When all these financial services are accessible under one roof in a seamless manner, the experience is bound to be superlative for gig workers.
