From independent contractors to side hustlers, the gig economy has a substantial – and growing – presence and momentum. Banks that fail to take notice and adjust service strategies accordingly are at risk of losing revenue and relevance.
A recent report from Upwork estimated that about 40% of wages currently come from gig work. The same study estimates that the U.S. will have more than 86 million independent gig workers by 2027. When you consider that nearly 70% of the nation’s GDP is defined by consumer spending, these numbers become relevant in economic and financial discussions.
To better serve and support the growing gig segment, banks are beginning to move away from strictly transactional relationships and adopting a more full-service philosophy that offers additional services and tailored advice. This can help meet the needs of gig workers and strengthen their overall financial health. Plus, boosting loyalty within this segment can have notable positive impacts on a bank’s bottom line.
In the past, banks have traditionally shied away from engaging in anything resembling consultative work for business customers because of lender liability issues, but that tide is changing quickly. As banks work toward becoming more full service, they’re starting to think about how to deliver an entire ecosystem of products, services and personalized guidance that can make them a more central presence in customers’ lives.
The first step is to master the basics. This includes providing the relevant products and services via the appropriate distribution models to meet gig workers where they are. These workers require the full range of financial services, from depository to lending and investments, but many also have additional needs beyond what’s required for traditionally employed customers. Think apps that help them plan for quarterly tax payments and for longer-term goals like retirement options, as well as HSA-like escrow accounts for unexpected medical expenses.
More nuanced guidance is also needed for the gig-worker community. For example, a common struggle is to obtain financing. For small-business owners, especially microbusiness owners, creditworthiness is directly dependent upon personal credit history. This is the most common roadblock to receiving a loan, which could be the difference between a business thriving or failing. Bankers must be able to work with these borrowers to provide options and help them navigate the best path forward for their unique financial situations.
And bankers should be able to provide these services via digital channels. Highly digital, but personalized, lending technology and communication methods are needed to align with this segment’s busy lifestyle. Here’s where digital loan applications, secure digital document upload, and authenticated chat options within digital channels will be critical.
While offering the right financial tools and guidance is extremely important, banks must expand beyond traditional financial services and add value to gig workers in new ways to accomplish a more consultative approach.
For example, leveraging gig workers’ data to help them more efficiently manage their businesses is a realistic and meaningful value add. Sending proactive reminders to a florist when it’s time for her to order more inventory could significantly cement a bank’s relevance in that entrepreneur’s life. Or, looking at the marketing data and helping an Etsy shop owner understand who is currently buying from them and how to tailor communications accordingly presents another opportunity to add value.
While the concept may seem distant to some, the stark truth is that if banks don’t start trying to embrace this type of model, other emerging financial providers will. From fintechs to Big Tech, many are trying to disrupt traditional banking relationships by offering gig workers a single source to help manage their businesses in a centralized, digitally optimized place.
Banks may have an advantage right now because they interact with these customers frequently and have the trust factor on their side. However, the head start won’t last long if they fail to invest in the technology and philosophy to make this consultative vision a reality. The key is keeping the bank at the center of the relationship while making it easy to bring in leading technology to extend capabilities and options to customers.
Patrick True is a senior risk analyst at Jack Henry Lending.
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