Why The Gig Economy Is Turning Its Back On Traditional Banking
This is an article “Why The Gig Economy Is Turning Its Back On Traditional Banking” by Marc Primo
Back in the '90s when alternative bands dominated the radio airwaves, chances are parents of teenagers would cringe whenever their adolescent would tell them they’d be attending a 'gig'. In those days, that might have only meant they’d be playing grunge music in a nearby club for a few bucks (or beers, if the floor wasn't that packed). Not that it was considered a bad thing during those days; it was simply associated with a live performance than it was with a two-wheeled horse-drawn carriage.
However, 'gig' has taken on an entirely different meaning these days, not only in our parents' dictionaries but in the global economy as well. From politicians to corporate bigwigs, the term is now synonymous with financial opportunities and long-term sustainability in livelihood more than anything.
Meanwhile, another buzzword is making waves in global business sectors. FinTech or financial technology is making financial transaction alternatives easier, as well as the disbursement of salaries, usually for boutique agencies. It's the perfect platform for today's startups and freelancers who fuel the gig economy, which is estimated to be worth $347 billion by the end of the year.
While most gigs are considered to be temporary work performed on-demand, figures may not always be consistent year to year. The only thing that's certain is that its economic value is on an upward trajectory in the coming years and, along with it, FinTech's growing role global banking and the financial services industry.
So, where does that leave traditional banks? Here are a few insights why the gig economy may have what it takes to bring conventional banking to its knees:
Traditional banks did not meet the gig economy's needs
Freelancers have been around for a long time. In fact, the gig economy began right after the Great Recession forced individuals to earn from odd jobs. It's just at that time, many believed that fewer people would take on odd jobs and look for ones with more tenure when the economy improves.
Only in the digital age did we see another promising revival of the gig economy. Yet, even with its rapid growth in recent years, most traditional banks were not able to foreshadow how it would affect the financial foundation in the future. In 2020, the pandemic caused businesses to offer more flexibility to workers via telecommuting arrangements. Because people were afraid to step out of their homes to go to the bank, withdraw cash from an ATM, or purchase goods at bricks and mortar stores, FinTech started to become a more viable solution than traditional banks' services.
Soon, freelancers and startups were joined by many ‘work from home’ employees who earned their salaries through cashless disbursements via eWallets and mobile bank accounts. Needless to say, larger banks were somehow not prepared for this financial disruption and left gig workers underserved for years.
Today, the individuals that make up the gig economy are divided into diversified employees, independent contractors, freelance services, independent business owners, and temporary businesses. Today's current 57 million gig workers are also expected to increase up to 86 million by 2027. Adding up all these figures can undoubtedly become a massive loss for traditional banks who don't act now to give gig workers what they need.
What should traditional banks do?
During the pandemic, more established banks started taking the gig economy more seriously. The thing is, the FinTech industry already had a good head start. Before the health crisis, startups focused on transactional blockchain technologies to solve gig workers' problems. Professionals who did not receive a regular paycheck quickly collected service fees via eWallets and have done away with tedious bank approvals to get their pay.
As the pandemic broke out, more companies soon started scaling their workforces, so they hired more freelancers and helped FinTech startups take on more clients and upgrade their software and platforms. Other gig workers took on traditional jobs, built startups from the ground up, or were contracted as temporary employees.
Soon, traditional banks saw the promise in gig economy investments and started partnering with Fintech startups to reconcile traditional savings accounts with eWallets functionalities through blockchain. Gig workers who are less invested in the banking industry give large banks higher financial value, as long as they address specialized needs such as cashless transactions and financial tracking.
Of course, it's not all over for traditional banks who still have a considerable number of clients to serve, not to mention they have more superior services to offer. However, traditional banks can tap the gig economy market by integrating with available FinTech services while scaling their offerings. Doing so can prove that they have a more efficient and established banking model than most startups, making them indispensable.
Making relationships a key in banking success
As long as traditional banks show that they are focused on addressing the gig economy's needs, they can improve customer relationships by introducing new tech services into their line of offered services. Giving individuals more free reign to manage their finances and helping them track their money is what appeals to gig workers more than bank promos and incentives.
Partnerships with FinTech providers are already a given, but aside from customer relationships, forging collaborations with gig economy platforms such as UpWork or Fiverr can give traditional banks a much broader reach. After all, 40% of all wages currently come from freelance service fees, according to UpWork. Taking advantage of the data they gather from potential gig worker customers can help improve their business and boost campaigns that can position them as a consumer-centric brand.
Speaking of relationships, applying digital marketing strategies based on the insights they get from the data gathered can help them establish better communication with their clients and leverage social listening. Lastly, data can also help them follow eCommerce and FinTech trends to stay on top of the tech race.
With more of those previously unbanked now enjoying multiple FinTech services, traditional banks have probably learned a lesson or two about hearing out the needs of the underserved. Doing so entails moving away from tedious transactional relationships and into more tech-driven solutions that offer a convenient banking experience to customers that improves their financial health. Plus, gaining the gig economy's loyalty will certainly enhance any bank's bottom line.