Neobanks Are Not Enough
Gig workers need behavior nudging tools to gain financial stability.
Gig workers are overworked and underbanked. 71 percent of independent workers can’t plan for major life events due to income volatility and 60 million workers overall in the U.S. don’t qualify for basic credit cards. For those in the app-based gig economy, the disparity is more pronounced — over 35 percent of Uber drivers have never used traditional banking services.
Many well-intentioned NeoBank startups have responded to this access gap by building robo-advisors, auto-saving, auto-investing, or debt tracking applications. Some are integrated with popular apps such as rideshare, food delivery, pet care, or survey firms that make the task of generating income easier for their users. But is it enough?
The financial state of gig workers
Only 20 percent of workers are able to pay their bills and an even lesser amount are able to save money for emergencies [Source: PYMNTS.com]. Emergency savings are virtually non-existent for gig workers who rely on app-based platforms for income as many of them struggle to make minimum wage on the behemoth apps.
Though many gig workers eked out a full-time living doing rideshare, most workers in the gig economy were already struggling when the COVID lockdowns hit in March. For most of them, things are just now beginning to return to some level of normalcy as economies are slowly opening up. Rideshare is returning and many of the unemployed who turned to gig work are now going back to their jobs.
The average gig worker spends over six hours per week searching for work on apps or waiting on apps for a gig to pop up. Most use more than one smartphone and some also use a tablet to search and manage their gig work.
The inability to plan for consistent income has on-demand workers living in a perpetual state of income volatility resulting in FOMO behavior where they typically accept the first gig that comes up, regardless of weighing strategic factors such as compensation or travel time.
“We can build thousands of NeoBank apps but until real behavioral change happens with independent workers and they reach a proficient level of financial literacy, they will still be left in a cycle of being payday dependent with no savings and unable to achieve real financial security. How can you save more, when you don’t earn enough in the first place?”
— Hantz Févry, Stoovo co-founder and CEO
More NeoBank apps with work search functions won’t change behavior either.
We can build thousands of NeoBank apps but until real behavioral change happens with independent workers and they reach a proficient level of financial literacy, they will still be left in a cycle of being payday dependent with no savings and unable to achieve real financial security. How can any independent worker be expected to save money when they don’t earn enough in the first place?
The response of the fintech community to address the underbanked state of the gig community is admirable. Once workers link their bank accounts to these apps, they have access to cash advances in varying amounts of $75 or more, pay a monthly fee for the service, and typically have to pay their advances back within 30 days.
The app alerts them to low balances and tracks the income they are making from apps or companies they are working for. But until they have access to higher-paying jobs and are free from time-consuming job searches on smartphones, they will be unable to make that leap out of being payday dependent and continue to live with income volatility.
What technology do gig workers need to battle income volatility?
Even the most motivated of independent workers will never have the ability to search and analyze the best job opportunities available to them on mobile apps in real-time. It’s not a matter of motivation — it’s not humanly possible to identify and analyze all of the potential jobs out there and then determine which ones pay the most and are aligned with their financial goals.
For the purposes of this discussion, we are referring to the independent workers that primarily work on app-based platforms for rideshare, grocery or food delivery, and other on-demand platforms. These are clearly differentiated from the whole of all independent workers in a previous article, “Who are the ‘real’ gig economy workers, and what does their future hold?”
Building The Ideal Gig Economy App
- User profiles and skillsets aggregated onto one platform
- Integrations with companies beyond traditional app-based platforms
- No fee to the user
- Internal and external AI-driven recommendations to maximize the workers’ earning by focusing on their short and long-term financial well-being. Embedded loans underwritten based on unique work history and earnings
- Multiple data points to assess worker history and skills for optimal gig job recommendations, including compensation and geographic proximity
- 1099 automatically calculated saved and paid.
Once independent workers have access to the power of AI in making intelligent recommendations in real-time, they are able to spend more time working and less time searching for work — eliminating accepting gigs based on FOMO is a huge step in real behavioral change for these workers.
I believe that the best way to cut through financial confusion and needless complexity for gig workers is with A.I. processing millions of data points, distilling the key factors needed to make decisions to maximize the workers’ income — and, in some cases, even making those decisions for them.
Edison Research’s Economic Anxiety Index is a tool with a means of 31 for economic anxiety for all respondents, regardless of employment e.g. W-2 workers and gig economy workers. Only 24 percent of those with regular employment have an index over 50, while 45 percent of gig workers have an index over 50, well above the means score of 31.
Income Boosting + Income Smoothing
The transformation of independent workers is contingent on achieving two objectives — income boosting and income smoothing. Income boosting requires the technology and data to make recommendations that result in increased earnings and less stress for the worker.
Income smoothing enables the worker to take home the same amount of money by reducing income volatility, a direct result of technology-enabled income boosting. Independent workers live with higher stress levels than those traditionally employed, the boosting and smoothing of independent workers’ incomes will help to reduce these levels.
The future of work is 1099
Traditional work settings have been upended by the pandemic and major shifts in work portability, including benefits and retirement accounts, are happening now.
The traditional banking system has responded to this shift with new and more nimble financial products and much of this transformation has benefited the on-demand economy. The reimagining of work is resulting in the reimagining of banking and all of it will benefit workers as the future of work continues to evolve.