Why gig workers are turning away from traditional banks
Traditional banks are poorly designed for today's gig economy, and gig workers are beginning to look for alternatives.
162 million people, or 30% of the workforce, across the US and the EU-15 countries are gig workers. In 2018, the total spending on the gig economy around the world reached a staggering $4.5 trillion. Meanwhile in the US, 80% of large companies are planning to switch to a “flexible workforce”.
The practice of hiring independent contractors and freelancers instead of full-time employees--aka the gig economy--is taking the global economy by storm. The flexibility of working for anyone from anywhere, the lack of office politics, the independence, ditching the alarm clock, and a wide net of options are some of the perks the gig economy presents, and they are particularly alluring to millennials and Gen-Z workers, for whom job-hopping seems much more natural than staying put in one job until their hair turns all-white.
On the other hand, the same independent and masters-of-their-own-fate workers need to cater for a lot of things the conventional economy would have otherwise taken care of for them, such as health benefits, a 401k retirement plan, unemployment insurance, paid vacations or sick days. Perhaps the most nagging problem for contracted workers comes in the form of getting paid fast and without seeing considerable chunks of their payment slip away down the cracks of the banking establishment. It’s been estimated that a gig worker owed, say, $800 for a completed assignment will lose roughly 4 percent of the total payment in wire transfer fees.
Traditional banking still hasn't caught up with the gig economy
Craig J. Lewis, founder of Gig Wage, a platform promising to first simplify and ultimately democratize the payroll system for gig workers, saw both a big market opportunity and an injustice in how money moves through the entire gig ecosystem when he set sail to create Gig Wage in 2014.
“Although gig work has been growing exponentially in recent years, the system has been broken for these workers, who lose 2-20% of their income due to an outdated system,” says Lewis. Through a smart Fintech technology, Gig Wage has already horizontally integrated payroll, payments, and banking, allowing businesses to pay their vendors instantly, a practice which the Gig Wage website reports will retain top talent. “We're helping not just the gig workers, but the businesses that support these workers and provide work opportunities and earnings opportunities,” Lewis says.
The 39-year-old entrepreneur has an interesting personal story. He was previously a basketball player who played professionally across Europe. After his last season, he started a sports marketing company. It didn’t work out. He then had to figure out his next move. “I was recently married so I just decided to take a job, figured I'd be good at sales and boom!” says Lewis. Specifically, he got into selling payroll technology and spent years understanding the technology behind payroll and payments, HR and timekeeping, and 401k. At some point, he discovered Silicon Valley and “fell in love with the way they build companies”. He wanted to build his own. His expertise in selling payment and payroll technology had sort of opened his eyes to how underserved the gig economy market was--therein lay his own opportunity. But it wasn’t only business in his case, Lewis says. “A lot of my family members, whether willingly or by necessity, were independent contractors as well. You know, there's a lot of Black and Brown people in the gig economy,” says Lewis, who is himself Black.
For BIPOC people, entering the freelance market might not be so much about flexibility and self-governance, but necessity
Of the 1.1 million people on zero-hour contracts--a graceless kind of contract where the employer is not obliged to provide regular work for the employee, but the employee has to be on call in case the employer asks for it--a quarter are Black and ethnic minority workers, with Black contractors twice as likely to be on zero-hour contracts as their white peers.
“I definitely have a driving force and passion to help Black and Brown people find some financial equity, some financial stability and move up from lower-income to middle-income and from middle income to whatever-it-may-be,” says Lewis.
Many people are still hesitant to move away from traditional banks
Lucas Robinson, CMO of Crediful, a personal finance site, thinks there is lots of potential in enterprises like Gig Wage, but points out that some professionals might be reluctant to use them at first. “Though they are friendlier overall, some people may worry that they are being scammed if the money is not being transferred directly through the bank, ” says Robinson. That said, he thinks these platforms could be the next big thing and would really benefit a lot of people, especially freelancers. “It’s just that with the uncertainty of COVID-19 and the risk of hacking becoming more prevalent as a result of it, it may take some time for people to really adjust to them,” says Robinson, “but there is a chance that, in time, more similar services will arise.”
There is a decent number of gig pay apps on the market even at the time of speaking though, and competition between them seems to be fodder for progress. Everee, a payroll company that pays gig workers daily, employs automated clearing house (ACH) payments, which are electronic bank-to-bank payments that are made through a computer-based electronic network and not through card networks such as Visa or Mastercard. Ron Ross, co-founder and chief operating officer of Everee, says this ACH-based technology places his app ahead of the curve: “Most apps offer a very limited feature set, are incredibly pricey and lack quality reporting,” he says. But one way or another, Ross agrees most gig pay apps are a step in the right direction. “There's no reason today employees should wait weeks to get paid money they've already earned...It's about choice and giving employees more financial flexibility,” he says.
Institutionalized racism is 'woven into the way America does business'
Moving forward, Gig Wage’s Lewis says they will be launching a debit card and a bank account for gig workers. Their latest fundraiser raised $7.5 million. Given that less than 1% of Black founders receive venture capital, Lewis’s achievement is no small feat. “The data leaves no doubt. Silicon Valley has a poor track record when it comes to supporting POC, but also female-led ventures,” says Rosalind M. Chow, associate professor of organizational behavior and theory at Carnegie Mellon University’s Tepper School of Business. “Venture capitalists look to each other to syndicate deals, so whether you get the opportunity to pitch at a lot of places will depend on your ability to get in the door at any of these places,” says Chow. But the ability to get in the door is about networking, and as a general rule, women and BIPOC are not as well-networked with white men as are white men themselves, emphasizes Chow.
It is because institutionalized racism is woven into the way America does business, says Lewis. But in 2021, he is hopeful something is changing. Technology is in the palm of everybody's hands; this gives rise to access and opportunity.
“You know, because of YouTube, for example, I can go teach myself how to code if I want to. And with all these social networks now we're starting to see this trend of Black people having access to information and access to other people,” he continues. In the meantime, the investor community is gaining awareness about BIPOC entrepreneurs, but also BIPOC entrepreneurs are becoming proficient in what investors want. The resources ushered forward by the great digital ecosystem have helped those previously pushed to the fringes to build products and gain traction. Lewis is very hopeful that stories like his will continue mobilizing the next generation of diverse entrepreneurs. “Traction is, you know, a good equalizer,” he says.