Gearing Up for Gig Workers
July 24, 2019
There is a growing number of independent workers who earn a living from short-term engagements, independent contracting, or temporary work, rather than traditional full-time jobs with one employer. This is the nature of the gig economy, and while some like the freedom it offers, it can also mean a lack of access to credit.
The number of gig economy workers is difficult to measure because of the way labor statistics are recorded, but McKinsey published a study in 2016 that showed 20-30% of the working age population in the United States and EU-15 are independent workers. Of those individuals, about 44% are not only supplementing their income, but earning their primary income from independent work.
This percentage of independent workers translates to a lot of people who may be frustrated by their inability to borrow money when they need it. Gig workers’ financial needs can range from funds to grow a business to short-term loans to smooth out cash flows – all of which could represent opportunities for credit unions, especially in micro-lending.
The question is whether credit unions are positioned to serve this expanding market well. Specialized marketing strategies, products and services, and underwriting may be necessary to capture this growing, non-traditional segment.
For some, the ability to safely underwrite loans to gig workers is a hurdle because, while they may be credit-worthy, they may not have the financial history to support a high credit bureau score. FinTechs have been gaining ground in the use of alternative credit scoring models because they want access to that group. In 2018, the FDIC’s Center for Financial Research published a paper that analyzed the information content of the digital footprint – information that people leave online simply by accessing or registering on a website – for predicting consumer default. In regards to FinTechs winning the race on this, they said, A key reason for the existence of financial intermediaries is their superior ability to access and process information relevant for screening and monitoring of borrowers. If digital footprints yield significant information on predicting defaults then FinTechs – with their superior ability to access and process digital footprints – can threaten the information advantage of financial intermediaries and thereby challenge financial intermediaries’ business models.
For credit unions that decide they want to serve this growing market segment, even more important than alternative credit scoring is a mindset that recognizes a 40-hour per week job is not the only reliable way to make a living. It’s possible that those who depend on finding independent work, often from multiple sources, may be well-positioned to adjust to changes in the employment landscape – perhaps even better than those accustomed to traditional full-time work. As the trend toward independent work grows, credit unions should think through how this segment’s needs can be met and determine whether it is a target market they wish to pursue.
Independent Work: Choice, Necessity, and the Gig Economy, McKinsey & Company, 10/2016
On the Rise of the FinTechs – Credit Scoring using Digital Footprints, Federal Deposit Insurance Corporation Center for Financial Research, 09/2018