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How to Accelerate Spend Management Innovation in the Gig Economy – by Jerry Uffner
Feb 14, 2019
Jerry Uffner, General Manager, Line of Business Executive Prepaid
The gig economy is a market environment for temporary, flexible jobs where companies and organizations hire independent contractors and freelance workers for short-term engagement instead of full-time employment. New emerging gigs across many sectors often employ online platforms to manage tasks and services and make payments between parties for those services. Between 2013 and 2018, transportation platforms such as Uber and Lyft have grown to dominate in terms of both the number of participants and total transaction volume – accounting for as many participants and as many dollars as non-transport, sales and leasing services combined (source: JP Morgan Chase & Co – the Online Platform Economy in 2018 – September 2018).
There are currently almost 70 million workers in the U.S. gig economy, and 80 percent of American businesses employ independent contractors. There are strong predictions that almost half of the U.S. workforce will be freelance within a few years, up from one-third in 2016. This is not a peripheral or marginal sub-economy, it is very much mainstream, and consequently, businesses and corporations need to look at ways to pay gig workers in a more timely and cost-effective manner.
The missing elements when it comes to reimbursing gig workers is flexibility and options. Despite their disruptor reputations, many online platforms offer restrictive payment mechanisms – maybe they only pay via PayPal, or only offer U.S. dollar payments, or require a checking account for an ACH transfer. When companies only offer a single method of payment, that can make things difficult on gig workers. Someone with an established bank account may be frustrated that they must deal with money transfer delays and fees from PayPal. A worker in a foreign country might lose money converting USD into their country’s currency in addition to the hassle. Also, direct deposits can be highly problematic for who are unbanked (i.e., a high percentage of gig workers).
Many of the mechanisms in place to pay gig workers were designed to pay small companies, vendors, and high dollar contractors. While some businesses might be able to absorb a delayed payment due to an invoicing or cash flow issue, delays in payments to gig workers can have serious consequences.
The gig economy can be split into four main sectors: transportation of people or goods; non-transport services such as home repair, dog walking, telemedicine, etc.; direct sales of goods through online marketplaces; and the leasing sector where property and other assets can be rented. The online platforms that service these aim to connect independent suppliers to customers, manage the payment between parties, and empower participants to join or leave the market as needed.
Attracting gig workers is going to be critical going forward. Companies must seek technical solutions that allow them to ensure prompt and accurate payments that match the needs of workers. Switching to digital disbursements like payroll cards, prepaid or instant payments to accounts will help increase efficiency for companies employing gig workers, and benefit gig workers themselves.
To encourage growth, providers need to offer multiple payment options to workers that allow them to choose how and when they get paid as well as where they send the money to after they get paid. ACH transfers at the end of every month are not to everyone’s liking, so why not offer the ability to use a prepaid card, make an instant payment to a checking account, send money to the worker’s credit card, or credit a digital wallet on a mobile phone. We are living in a real-time world with multiple payment mechanisms already existing to satisfy that demand for instant availability.
With more flexible payment options available, the online platforms that underpin the gig economy can ensure instant and seamless payments. Retailers get happier workers who are empowered to come in and out as needed; maybe just a few hours per week or 80 hours per week; maybe just one gig or perhaps several. All gigs paying quickly, seamlessly and wherever to the worker wants. Your Uber driver might also be your Lyft driver, and the temporary worker at the ball game.
Without the overhead of conventional payroll processes of check posting or large-scale ACH transfers, payment can be made at the click of a button, saving on administration costs. Knowing they will get paid in a way that meets their needs can be an incentive for gig workers to stick around.
Mother of Invention
The gig economy is a relatively new one. While taxi/ride-sharing has been the engine of growth, it is not a full-time job for most participants. In fact, alongside the rapid growth in the number of drivers has come a steady decline in average monthly earnings, while the highest earnings are concentrated among a few drivers. There is little evidence that the gig economy is replacing traditional sources of income for most families. It remains the domain of the side-hustle; it is a means to an end. But as millennials get used to this economy with multiple micro-jobs, any delays in reimbursement will become increasingly unacceptable.
Real-time, immediate payment services such as prepaid cards can help eliminate gig workers’ insecurities, protect them from acquiring debts, and make the business stronger than ever.