Can the gig economy help transform banking?

While modern conveniences such as mobile check loading and digital alerts have transformed the banking industry, in many ways, banking remains old-fashioned and tired. Many brick-and-mortar banks still operate on a 9-to-5, Monday through Friday schedule that doesn’t mesh with the schedules of a large portion of the traditional workforce. 

The emerging gig economy may hold the key to transforming the banking industry. Traditional payroll schedules and methods are being phased out in lieu of more inclusive banking techniques, as more and more workers transition into the gig economy.

Efficacy of the Gig Economy

What is the gig economy, exactly? Well, the Bureau of Labor Statistics describes a “gig” as: “a single project or task for which a worker is hired, often through a digital marketplace, to work on demand.” The BLS estimates that 68 million workers are part of the U.S. gig and sharing economy.

The definition of “on-demand” employment encompasses workers in a variety of industries, from freelance writers and photographers to Uber and Lyft drivers, musicians, customer service representatives, web developers, and many more. Customer service is a big part of the gig economy, with freelancers and other on-demand workers essentially serving as their own marketing agents and customer support team.

Gigs can be short- or long-term projects, and payment methods for services rendered vary.

Some employers eschew banks altogether, paying cash to the on-demand workers they hire. Others may opt to use instant money transfer services, such as PayPal. For many workers, cash and instant transfers leave little need for the services of brick-and-mortar banks.

Workers should be aware of the potential requirements of working in the gig economy. For tax purposes, there’s a distinction between on-demand workers and traditional employees. Gig workers hold “Independent Contractor” (IC) status, and earnings are subject to Self-Employment Tax.

But the differences don’t stop with taxes — ICs have much more autonomy than employees, who may be subject to complete oversight of their actions. ICs are responsible for the work that gets done, rather than job specifics. And the workplace freedom enjoyed by ICs crosses over into the population’s banking needs.

Working and Banking on Demand

Autonomy is one of the biggest draws of the gig economy, along with payday flexibility. Instead of waiting until a scheduled weekly, bi-weekly, or bi-monthly payday, gig economy workers often receive payment as soon as services are rendered. This on-demand payment system renders brick-and-mortar banks unnecessary. 

Requesting payday monies can be done at any time of the day or night, seven days a week. Furthermore, ICs can access their payment immediately, without waiting in line and without the uncertainty of a paper check.

Additionally, ICs can accept many different forms of payment, which may include traditional paper checks, PayPal, cash, credit and debit cards, and even cryptocurrency such as bitcoin.

The worldwide influx of cryptocurrency and non-traditional payment forms has led to the emergence of so-called “challenger” banks and open banking platforms. Challenger and open banks are similar to credit unions, in that they encourage bank competition and lower banking costs, yet provide the same services as a traditional financial institution. Many open banks don’t even have a storefront, helping to drive efficiency and cost-effectiveness.

Security Considerations of Non-Traditional Banking

One issue that comes along with open banking platforms is that of payment security. Where banks and credit unions are required to keep online transactions and personal customer data safe, there may be grey areas when it comes to cryptocurrency and open banking.

ICs and on-demand workers may have the burden of keeping online payments and accounts secure and safe from hackers. Fortunately, there are a number of ways on-demand workers can protect their financial data. Banking insiders recommend that individuals who use any form of online banking service should avoid public Wi-Fi, change their passwords regularly, and opt for text alerts that notify the user of any suspicious financial activity.

Final Thoughts

The gig economy is helping to upend the tired, outdated traditional banking platforms that no longer mesh with the needs of the modern digital consumer. Open banks, payment flexibility, and cryptocurrency are part of the banking revolution, which is being fueled in part by savvy on-demand workers and independent contractors.