Significant attention has been given to the rise of the so-called gig economy as of late, and with good reason.
Recent data indicates that there are now more than 50 million Americans who generate all, or some portion, of their income through gig economy work, and they likely represent at least one-third of any financial institution’s consumer base. That number is projected to increase even more, and banks and credit unions are taking notice.
So, who are the gig economy workers? Rideshare drivers are included in this group, but so are freelance graphic designers and writers, real estate agents, truck drivers, medical professionals and independent consultants, among others.
In fact, these freelance workers accounted for more than $1.4 trillion in total income in 2018, and 40 percent of them earn more than $100,000 annually, according to the latest PYMNTS/HyperWallet Gig Economy IndexTM.
As banking customers and members, gig or freelance workers have some unique needs to be met. First and foremost, they file income tax under IRS Form 1099, which requires them to pay federal income tax on a quarterly basis (versus annually like salaried W-2 workers). Unfortunately for financial institutions, this can often lead to deposit leakage as independent workers are forced to withdraw funds to cover surprise tax bills. They also tend to generate income in varying amounts, at irregular intervals, and through multiple revenue streams and different payment methods, all of which must be accounted for when tied to the workers’ checking and savings accounts.
Since much of their work is driven through the mobile channel, they represent a prime consumer market for FinTechs that can help them better organize their finances and more easily meet their tax obligations.
Recognizing the scale of the issue and the market opportunity, financial institutions are now actively partnering with FinTechs to serve the gig economy workforce. A notable recent example is PNC, which launched a FinTech within the bank and recently introduced a product specifically targeted at serving the bank’s customers who generate 1099 income. In addition, MasterCard has partnered with Evolve Bank & Trust to provide real-time payments capabilities to gig economy workers.
Columbus, Ohio-based RoamHR is another great example of a FinTech that is targeting the gig economy and providing banks and credit unions with the capabilities to support their gig or freelance customers and members via the mobile channel.
As more and more of the U.S. workforce shifts toward a demand initiative fueling the gig economy model, financial institutions will need to expand their capabilities to provide these workers with access to loan products, retirement planning and investment services just as they traditionally have for salaried W-2 workers. Therefore, expanding these services should be an integral part of financial institutions’ marketing and strategic planning processes going forward.