How fintechs need to rise up to gig economy

Fintechs have sprung to the challenge of serving the growing gig segment with tailored financial services. In the last couple of years, battered by the winds of the Covid pandemic, many have come and gone. This is a massive opportunity with 90 million gig jobs and over $200 billion in annual earnings processing expected by the end of the decade. But there are also major challenges.

Given the transient nature of a gig job and high churn levels seen on gig platforms, meaningfully underwriting these workers is tough. Traditional credit markers and models are doomed to fail. Deeper longitudinal data on worker lifestyles and behaviours are just starting to emerge.

What’s clear is that this burgeoning workforce has high aspirations but low levels of non-specialist skills, short attention spans, and severe time constraints. A transformational and sustainable business model would require a focus on non-traditional data, new partnership models, deep lifecycle-based value propositions, and tremendous ease of use.

Credit remains a ‘pull product,’ given the erratic nature of both expenses and earnings. Digital lending models have been modified or reinvented to feed on work histories, earning flows and other forms of digital work data trails. Mobile transactions and behaviours generated from app usage, ranging from communication patterns to social graphs, can be gleaned through user consent and Android protocols.

The new account aggregator service now enables financial account statement analysis at scale. How effectively fintech startups can capture this still messy data, clean and analyse it, and convert it to predictive intelligence on the user’s ability and willingness to repay will be critical.

New collaborations between fintech startups and digital gig platforms are also growing. Platforms control these pools of workers, their data, and earnings streams that can be tapped for repayments, and are key stakeholders in establishing sustainable models. Platforms are coming around to the reality that providing financial services is key to managing worker retention, but not trivial to do on their own, which also distracts from their core business.

Successful partnerships with specialist fintechs will rest on long-term strategic vision and not mere transactional considerations like revenue share. For example, a leading platform is experimenting with a ‘lifecycle approach’ wherein progressive credit milestones are promised against worker tenures, right from micro-loans for early employees all the way to business startup loans for loyalists who can be sunsetted after clocking a certain number of years.

For young and new-to-credit gig workers, these ‘progressive credit’ models are key and recurring small-ticket loans serve as a gateway to the formal financial world. Earned Wage Access and Lines-of-Credit linked to accrued and forecasted earnings, respectively, allow for a risk-capped starting point for fintechs and NBFCs to learn and build deeper segment-specific credit models. Borrowers also get to demonstrate credit awareness and financial responsibility. These solutions can do for gig workers what credit cards did for affluent borrowers - provide the only path to build a credit history to access auto, home and business loans they need. Many fintechs have already burnt their hands by starting with term loans.

The expectations of lower-income gig workers are no different than their broader Gen Z cohorts. Groomed on Whatsapp, PhonePe and Sharechat, they need clear and direct sources of value, functional efficiency, and supreme convenience (even immediate gratification). Fortunately, public digital infrastructure now exists to ensure the viability of digital nano loans down to Rs 50 per day. Providers can now onboard customers within seconds, capture rich and real-time data with consent, offer personalised and purpose-driven finance, and automate repayments from bank accounts.

Studies also show many workers face anxieties related to lifestyle risks (for instance, over 50% of workers worry about “what will happen to my family if something happens to me?”) but still keep inadequate insurance cover. While sachetised insurance formats increase affordability and many gig workers get basic insurance through platforms, small credit can be purposed to cover larger premiums, while insurance further mitigates credit risk. Conversely, for just a few rupees, accident or hospitalisation cover can be wrapped around short-term loans and made contingent on timely repayment.

According to a recent credit bureau report, at the end of 2021, about half the Indian population remained credit-unserved whereas 16 crore consumers are credit underserved. It suggests the key barrier to access is not awareness or education but rather the structure and pricing of products offered to perceived ‘higher risk’ customers. The race to sustainably serve gig earners has begun, and the next couple of years will determine who wins.

As someone said, it takes an entire village to raise a child. Similarly, gig-tailored finance is an imperative that will require the entire ecosystem to come together to financially empower the worker of tomorrow.

(The writer is co-founder and the Chief Business Officer of KarmaLife)