



Smarter Lending for a Changing Workforce

With each passing month the so-called “gig economy” grows to comprise a larger portion of the US workforce. The gig economy is an economic environment characterized by short-term contracting and freelance work, and it is the principle on which companies like Uber, Etsy and Freelancer.com operate. 

Their workers do not have typical nine-to-five hours, monthly paychecks, or W-2 forms. Instead they take work when and where they want it. 

The gig economy already accounts for more than one third of the US workforce, or approximately 57 million people, and is projected to expand to nearly half of the workforce within a few years. Even the top tech companies are staffed largely by contracted or “temp” workers. In fact, Google was recently revealed to have a temp workforce of roughly 121,000 people, significantly outnumbering their permanent workforce of just 102,000 employees. Yet despite its rising prominence, the gig economy has still not been adequately addressed by many banks and other financial institutions. 

The independent lifestyle of gig economy workers comes with many freedoms and conveniences, but all too often at the expense of their financial flexibility. This is not to say that they do not earn as much as regular employees; many actually out-earn their fixed income counterparts. It is often challenging, however, to secure loans without the guarantee of a steady paycheck because financial institutions continue to see independent workers as a risk. 

De-Risking the Gig Economy 

Indeed, maybe some gig economy workers are a risk. But others are writers, drivers, programmers, dog walkers, web designers and countless other professionals. Many are well-paid and financially secure. Google’s temp workers, for example, can earn up to $125 per hour, equivalent to an annual; salary of $260,000. Yet, despite potential salaries reaching a quarter of a million dollars per year, such workers are perceived as risks to banks and other financial organizations simply because they often lack W-2 forms. Meanwhile, lenders are missing out on the large and growing population of freelancers, contractors, and other independent workers. 

So how can lenders de-risk the gig economy to help both themselves and the millions of honest, hard-working workers being affected? The answer lies in the range of new technologies becoming available in the financial services sector. The rise of automation, artificial intelligence, big data, and machine learning are enabling fintech lenders to find new trends and patterns in the gig economy, to better understand the financial status of individual workers, and to confidently evaluate their actual risk to give them fair and attainable rates. 

In fact, the deeper analysis made possible by machine learning is enabling a better evaluation of borrowers across the board, even W-2 workers with more typical employment structures. Machines pick up on economic undercurrents that can only be seen in the big picture and can detect subtle indicators of job security and financial stability that underwriters often miss. 

Fintech, the Gig Economy, and Venture Capital 

All these advantages, coupled with the rapid expansion of the gig economy, could explain the explosive popularity of fintech in the venture capital world. VC firms track the changing markets and identify industries with the most room for improvement. They vote with their wallets and, lately, they’ve been voting for fintech. Fintech startups raised almost $40B of VC funding in 2018, and many of them are going after freelancers, contractors and other independents. 

As the gig economy continues to balloon, legacy financial institutions must pick up the pace of innovation or they will continue to lose out to the growing fintech sector. People from across the employment spectrum are finding AI-powered solutions to their financial problems and realizing that fintech has the power to address their particular needs and situational constraints in ways that the classic lending process has failed to do. If the changing workforce or the VC world are any indications, financial services are evolving, and people need more advanced, more tailored, and more responsive lenders. 

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