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Fintech and the Gig Economy: Empowering Workers with Financial Services

The Growth of the Gig Economy

A gig economy is an economy that operates flexibly, involving the exchange of labor and resources through digital platforms that actively facilitate buyer and seller matching.

In the gig economy, organizations hire independent contractors and freelancers instead of full-time employees. This is because work is allocated on a temporary basis, not requiring a systematic schedule. A similar arrangement can be seen in Uber, DoorDash, and Airbnb companies.

Nevertheless, the rapid expansion of gig labor poses a number of obstacles, particularly in terms of obtaining conventional financial services. Due to their irregular income and absence of employer-provided benefits, numerous contract workers encounter challenges in opening bank accounts, obtaining credit, or saving for retirement. This is the point at which financial inclusion becomes essential.

Read: Fintech and Microfinance: Bridging the Gap for SMEs

Financial Inclusion and the Gig Economy

This generally means offering cheaper financial services to most people who may not access such services from a traditional banking setup. To a gig worker, financial inclusion comes in as important for securing themselves financially and, therefore, for the future. But so far, traditional financial systems were designed around people who earn wages.

A report from the World Bank in 2019 indicated that approximately 1.7 billion people globally lack access to banks, with many of them being self-employed or working in the informal economy, including gig workers. This limits their ability to manage their money, invest, or plan for the future.

Fintech companies are attempting to fill that gap, specifically catering services offered only for the gig workers that can range from a digital wallet to savings, health insurance, and retirement plans, among other things.

How Fintech Companies are Empowering Gig Workers

1. Banking and Payment Solutions

Traditional banks, therefore fail to cater to the needs of gig economy workers because their income is pretty irregular. Fintech companies, however, are engineering innovative solutions that make it easy for the gig worker to manage money.

For instance, digital bank Chime offers feeless checking and savings accounts that people without a classic employer can open easily. Chime’s features—its early direct deposit and no-minimum-balance requirements—help the gig worker manage her earnings better.

Read Latest Fintech Blog: DeFi (Decentralized Finance) as a Tool for Financial Inclusion

Similarly, PayPal has collaborated with companies such as Uber to provide instant payouts to gig workers. The Instant Transfer feature by PayPal allows gig workers to receive their earnings immediately rather than waiting for a weekly or monthly payment. This provides financial flexibility for gig workers who may need quick access to their money.

2. Insurance Services

One of the many gaps the gig economy provides is a lack of employee-sponsored health and dental coverage insurance and also no life insurance—should something awful go wrong financially, it can wreak havoc on a person in bad health economically too.

Fintech companies are filling the gap, offering cheaply priced insurance plans suited for gig workers. In addition, Stride Health works with companies like Uber to facilitate health insurance plan coverage for the gig worker community at affordable costs. Through its platform, the firm enables the comparison of several options and, more importantly, enrolls its customers into some affordable yet all-encompassing plans.

3. Retirement Plans

Retirement planning is another area where gig economy workers are sometimes overlooked. Unlike regular employees, gig workers are not eligible for employer-sponsored pension or 401(k) plans. This implies that people must actively participate in retirement savings.

Fintech companies are providing a solution by filling some of the gaps. For instance, gig workers can form individual retirement accounts (IRAs) and have a set percentage of their monthly income regularly deposited into them by the robo-advisor company Betterment. Betterment uses its technology to create customized investment strategies based on the needs and profile of each employee. In contrast, The Rocket Dollar offers gig workers Solo 401(k) plans and self-directed IRAs that let individuals diversify their retirement funds by investing in various assets, including equities and real estate.

4. Credit Access and Loans

Credit scoring is yet another hurdle that gig workers face. Most gig workers lack a traditional employer through whom they could establish a credit report. Fintechs fill this gap by providing new ways of credit scoring and lending.

For instance, Earnest is a digital lender providing gig workers with personal loans by offering competitive interest rates and flexible repayment options. The company uses data such as education, employment history, and savings habits to assess people’s creditworthiness, which makes it easier for gig workers to qualify for loans.

In addition, Kiva is the world’s first microfinance platform that enables jiggers to receive small loans from people all over the world. Its platform has lent thousands of gigs in developing countries access to start or expand businesses.

5. Tax Services and Financial Planning

Gig workers have to work in the space to create different income sources and also don’t have access to the company’s human relations department to help file taxes. Gig workers are in a lot of confusion when it comes to this aspect. The development of financial planning tools and tax software by fintech would thus help ease the navigation of the responsibilities levied upon gig workers in terms of filing their taxes. 

Because gig workers often fulfill multiple ‘gigs’ that lead to them being paid, such individuals need to depend on QuickBooks Self-Employed to track properly what they earn against what they spend and their tax deductions. The portability scenario of having earned money and the simultaneous countenance of costs is facilitated by their integration with Uber and Etsy. Not only is it an accounting tool, but it assists in computing anticipated quarterly tax payments, so the gig worker suffers less stress as the dreaded tax time dawns.

Big Brands Leading the Way in Fintech Solutions for Gig Workers

Square 

An important financial technological venture in the business of payments, Square—its name led by Jack Dorsey. The philosophy behind the Cash app by Square is that the gig economy thrives mainly on its facilities, unfussy interface, and reasonable prices, which have earned it an ever-growing following among the freelance workforce. This includes being able to send and receive payments, as well as make investments in Bitcoin and shares. Adopting the Square Cash App means gig workers can now do everything from their finances all in one place.

Robinhood

By providing commission-free trading, this fintech app democratizes investing. Gig workers increasingly use Robinhood, particularly those who want to invest their profits in the stock market. The app is desirable for novice investors due to its user-friendly layout and instructive materials.

SoFi

It is another well-known fintech business that provides gig workers with a number of services, such as insurance, personal loans, and refinancing college loans. Additionally, SoFi offers a retirement planning platform called SoFi at Work that makes retirement savings programs easily accessible, especially for gig workers.

Venmo

Venmo, a popular payment software owned by PayPal, enables gig workers to get paid immediately by clients or employers. Freelance professionals in fields like writing, design, and photography are especially fond of it. Venmo is an essential component of the financial toolset for many gig workers because it provides a simple way to send and receive money.

The Future of Fintech in the Gig Economy

Another area of influence on the landscape may be regulatory change. Governments and financial institutions have recently come to understand the necessity of financial inclusion for gig workers, and policies to support this financial well-being may become even more prevalent.

Fintech has already done very well in empowering gig workers with the necessary tools and services to manage finances. The future, therefore, seems bright, especially for those working in the gig economy; they will see greater access to financial security and even more opportunities to grow.

Regarding fintech in the gig economy, ensuring that people out of the conventional system can easily access the required financial services to carry on with their operations has been key. As the gig economy expands and as the need for financial inclusion grows, there is room for fintech to be one of the strong drivers in shaping thoughts about work and finance. This means that gig workers will better plan for their future financial lives as these solutions evolve with an increasingly independent workforce.

Thank you for exploring this journey with us! If you’d like to share your thoughts or join the discussion, please contact us at news@intentamplify.com.

Read: Fintech Marketing: Top 10 Power Strategies to Accelerate Growth

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