Synapse: Gig workers enjoy customized financial services
In 2019, 35 percent of the American workforce engaged in some degree of freelance work. In turn, this meant that 35 percent of the workforce could have had an unstable income. For traditional banks and financial institutions, this was and is an immediate red flag, but it is not always justified. Regardless, this has driven many gig workers to use payday loans – so what can be done to improve their financial situation?
Financial inclusion is often associated with the unbanked – those who have historically been shunned from certain sections of society. However, it is easy to forget that there are already established members with access to funding who are also treated differently. Gig workers, due to the nature of their jobs, are not always able to have a reliable and constant source of income. That doesn’t make them any less credible, but in the eyes of the traditional banking system, it does.
Sankaet Pathakfounder and CEO of Synapse, the Banking as a Service platform, sat down with The Fintech Times to explain how fintech can help gig workers. He uses a client of theirs, Glance Capitalas an example of how customized financial services are the way forward:
Gig workers enjoy customized financial services
It’s hard to say what a typical day in the life of a gigger in the US might look like. While it may be more the case of managing your own schedule and freelancing on the side, for others it means working long, hard hours of work to make ends meet. Then, at the end of a tiring day, put on the second work uniform to go back out and do it all over again.
According to findings from Freelancers Union, in 2019 an estimated 57 million Americans, or 35 percent of the workforce, were engaged in freelance work in some capacity. Black and Hispanic Americans made up a larger percentage of gig workers, 20 percent and 30 percent, respectively, compared to 12 percent of white Americans. Gig workers also have to navigate the further complexities that come with being self-employed, whether it’s filing taxes or accessing credit to support their business.
On Synapse, a mission that guides our work is to ensure that everyone, including gig workers, has access to affordable, reliable financial services. We have entered into cooperation with Glance Capital to empower gig workers and ensure they have access to financial products tailored to their unique needs.
Advantages and disadvantages of gigging
Gig work provides flexibility, additional income and independence. It also presents challenges, such as complicated taxes, low or unpredictable wages and problems accessing benefits.
Because of these barriers, gig workers are often unable to build an emergency savings reserve. According to a report from Shift Project, compared to service sector employees, gig workers are more likely to earn less than the minimum wage. This is in addition to loss of income from technical issues with digital platforms, using SNAP benefits and not being able to fully cover their utility bills.
Income instability and a lack of traditional credit history mean that gig workers are outside the traditional financial system, looking for other ways to access their money, save and borrow.
The gap between gig workers and traditional financial services
Gig workers need access to affordable financial services just like traditional employees do. Financial products such as lines of credit, checking and savings accounts, credit cards and loans are necessary without the higher fees and interest that can come with them.
Traditional banks expect applicants to have a stable income and employment history. When gig workers do not meet these expectations, they are denied services and may fall through the cracks. As a result of being rejected by most banks, many workers fall victim to payday loans that charge predatory interest rates, trapping them in a never-ending cycle of borrowing and repaying.
Gig workers are ubiquitous across the United States, and helping them overcome these obstacles benefits everyone. In accordance Brad StewCEO of Glance Capital, a Synapse client looking to offer affordable loans to sub-banks: “Solving the financial access issue for gig workers is important to the overall economy as it allows for a more inclusive and stable workforce, which can lead to increased productivity and economic growth.”
Fintechs bring solutions to gig workers
Fintech companies are in a unique position to support gigs and the gig economy. They assess creditworthiness differently than traditional banks, in a way that is more inclusive of gig workers and not based on employment, income stability or other traditional markers for evaluating risk.
In addition, fintechs’ services have lower fees and their applications are designed to be easy to use and fast. When fintechs work with bank-as-a-service (BaaS) platforms, such as Synapse, they gain access to a wide range of financial products and services to choose from and then offer to their users.
From debit products such as checking accounts and debit cards to lines of credit and credit cards, fintechs adapt these products to meet the unique needs of customers, making it easier for those outside the traditional banking system to find safe, feature-rich, and cost-effective financial services they need.
