Fintech and the gig economy

Can financial services firms support gig economy workers and solve the major issues – income smoothing, insurance and pensions – they face?

Over the last few months, there have been some significant developments in the world of gig economy work. On the positive side, campaigners had a pleasant surprise when Amazon raised its minimum wage for its 40,000 UK employees to £9.50 (or £10.50 in London) - about a fifth above the legal minimum wage. On the negative side, changes in the Uber fee structure and an increase in the number of ‘deactivations’ saw several hundred drivers blockading the company’s offices (an office block that 11:FS shares).

Tech-no-utopia

It’s hard to know which of these events will be the norm going forward and which is the anomaly. If you listen to the more energetic techno-utopians, it’s a future of flexible, digital nomad, laptop-on-a-beach employment. If you’re currently dependent on a patchwork of unreliable gig-economy positions for the bulk of your income, you’re probably imagining something less idyllic.

While only based on 150 interviews, the UK government’s detailed ‘Gig Economy Experiences’ report provides a well-rounded picture of today’s gig workers. And the gaps that exist between flexible work and more traditional employment. Reports like this make it clear there’s a growing space in the market for financial services tailored to gig workers.

Particular gaps in the financial services for gig workers include income smoothing, insurance and pensions or tools to build long-term savings. Financial products are beginning to emerge that address some of these needs, but there are no services that provide the full package…yet.

The cornerstone to financial services for gig workers is helping to smooth variable income. In a 2016 paper on the matter, Reuters reporter Tim Aeppel notes that although gig workers can enjoy the benefits in the good times when business slows, they have no safety net. The problem of volatile income is most extreme for the 14% of gig workers that the UK government found earned all of their income from gig work.

A related problem to uncertain income is insurance and sick leave. Gig employment is structured so that the onus is on the worker to be able to work. That means that in many gig economy positions if you’re sick, you don’t get paid. If your bike is stolen and you can’t deliver food, you don’t get paid. Recently, improvements to this situation have seen firms like Deliveroo moving away from charging workers for insurance, and towards providing free medical expenses and 75% pay for workers who are injured on the job, but unions and employees continue to fight for more.

Finally, pensions and savings remain a large problem. Of the 150 gig workers interviewed for the UK government report, short-termism was rampant. Very few workers were able to save, and although few saw themselves remaining in the gig economy indefinitely, very few workers had concrete plans to move out of the sector.

The report notes that gig workers “who had property rental income or a pension from a former period of employment were in a better position, but younger workers could potentially find themselves in a difficult financial position further on in their working lives.” While this may not differ greatly from the experience of young people in general, there is an intensification of the problem for gig workers who do not benefit from the legally mandated pensions schemes in the UK.

Future Solutions

So, what would an ideal financial product for gig workers look like? It would help workers to smooth their income in some way, or at least to build an emergency ‘cushion’ during good times. It would provide some kind of low-cost insurance, potentially as part of a collective. And it would help gig workers to make long-term savings. The good news is that products that already provide these features already exist, albeit disparately:

• The emergency ‘cushion’ element could be performed by a feature like Chip’s savings bot - intelligently identifying times when there is a surplus in a user’s current account to make small, regular withdrawals into a savings or investment pot. In terms of the income smoothing, the partnership between Walmart and US fintech Even provides an interesting case study. Walmart’s 1.5m workers are able to access earned wages early - a move which promises to decimate the payday loan industry. Many gig workers are paid on a fortnightly basis - so a similar setup would allow them to draw down on wages they have already earned. This admittedly only goes some way towards addressing the issue of volatile working hours and wages, which is where startups like Steady come in. Steady claims to help gig workers find supplementary forms of income which are suited to their circumstances, and in the first two weeks of launch it signed up 100,000 US customers.
• For the insurance element, inspiration could be drawn from working on the same P2P model as experimental insurance collective Teambrella, or Tröv’s short-term bursts of insurance that are only active at certain times (for example, when riding a bike). Alternatively, gig workers could also designate a proportion of their automated savings as funds for self-insurance.
• For long-term savings, companies like Uber have made tentative steps in the right direction with a partnership with Moneyfarm, which allows drivers to sign up to discounted long-term investment accounts and financial education sessions. But this is really more of a gesture. In reality, it is up to governments to require gig platforms to pay pensions to their workers.

In short, it’s possible to imagine a world where platform agnostic financial product could work with a broad range of gig economy platforms to help employees gather together their income, savings, insurance, and more.

This could either be an ecosystem which pulls in specialist third-parties via APIs who can provide specific services, or could be a service which is powered by larger financial providers (as we’re seeing in the insurtech and robo-invester spaces), or it could be an incumbent player who can provide all of the services themselves.

The bigger question is whether gig workers should be forced to piece together their financial lives, plugging the gaps that were previously filled by a traditional employer with non-traditional solutions. Do the benefits of flexibility warrant the effort?