By Chris Seip

In Canada, and across the globe, we’re seeing the emergence of a gig economy that is fuelled by on-demand workers. According to EY, the U.S. contingent workforce has grown by 66 per cent in the past 10 years1. Ride-hailing services are one of the largest users of contingent workers. Today, our estimates show that over 25 million drivers around the world drive for the three largest companies, Uber, Lyft and Didi in the ride hail space.

Financial vulnerability

In contrast to the past, when employees typically put down deep roots and rarely changed careers or even employers, the gig economy is built on temporary, flexible jobs that are filled by independent contractors and freelancers.

But the gig economy also presents some unique challenges. Traditional weekly or bi-weekly payment cycles do not meet the needs of the on-demand workforce, thereby leaving them financially vulnerable.

Based on Payfare driver data, a typical on-demand driver works full or part time up to 18 days per month, earning $1,180 per month. These earnings are usually carefully allocated towards rent, food, childcare and transportation down to the last cent.

Problems occur when an unexpected expense arises. For a ride hail or instant delivery driver, vehicle maintenance or repair or a rise in the cost of fuel could suddenly leave them unable to work if payday is still days away. Alternatively, they may be forced to turn to credit cards, credit lines or steep payday lending rates to cover the expenses: which often begins a cycle of debt they cannot break.

Unexpected expenses aside, the rising cost of living and the growth of income disparities are making it difficult for on-demand workers to cover basic living expenses. To illustrate, even in the face of a stronger economy 40 per cent of American households cannot cover a $400 expense2 while 78 per cent of American households live paycheque to paycheque3. While these statistics are concerning, there is a solution that creates affordable and effective working capital solutions for better cash flow to cope with every day and unexpected expenses. The solution is instant pay.

Financial inclusion

Instant pay or “pay while you’re earning” can transform the lives of gig workers by providing them with financial inclusion and literacy. By giving gig workers immediate access to 100 per cent of the net money they’ve earned, while they’re earning, they have better cash flow for bills, groceries, fuel and vehicle maintenance. Instant pay gives them the ability to take care of their needs, setting saving goals and ensuring they aren’t beholden to pay cycles, credit cards or exorbitant payday lending rates.

Although some individuals believe traditional bi-weekly payment cycles encourage financial management, and instant pay would fuel irresponsible spending, this is not the case. Access to daily earnings encourages workers to spend within their earning potential rather than beyond it. Daily or instant pay give workers greater control over prioritizing payments so they can reduce debt on high-interest credit cards and loans, which is critical to a sound financial strategy. It helps them avoid unnecessary expenses such as overdraft fees and steep payday lending rates. Also, by knowing exactly how much money they have, gig workers can increase their work and their earnings when unexpected expenses are incurred.

Pay cycles contract

Currently, traditional employers provide data for payrolls which in turn are directly deposited into employees’ bank accounts. However, in the gig economy, workers will benefit most if earnings are generated daily and provided to a payroll solutions company. Businesses enrolled with an instant pay solution offered by it then provide their workers with mobile banking applications paired with debit cards. Individuals can then perform all of the transactions offered through traditional bank accounts for a fraction of the cost, including cashing out their earnings multiple times daily, viewing their card balances, transaction and earnings histories, transferring money, paying bills and depositing cheques.

The emerging gig economy can’t thrive with traditional payment cycles. By disrupting them, and enabling same-day earnings, instant pay delivers financial inclusion to gig workers globally.

Chris Seip is chair and CEO of Payfare (www.payfare.com), a financial technology-operations company that provides instant pay, every day to businesses and their workers. Payfare’s proven, in-market, scalable solution is backed by major investment firms and financial institutions around the world and has strong partnerships with Mastercard, issuers, processors, card manufacturers and other providers.

1 David Storey, Tony Steadman and Charles Davis “Is the gig economy a fleeting fad, or an enduring legacy?”, EY, report, 2016.

2 Federal Reserve Board, “Report on the Economic Well-Being of U.S. Households in 2017”, report, May 2018.

3 CareerBuilder, “Living Paycheck to Paycheck is a Way of Life for Majority of U.S. Workers, According to New CareerBuilder Survey”, press release, August 24, 2017.

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