Derived from the word “engagement,” the term “gig” was originally coined in the 1920s by jazz musicians who used the term when referring to their concerts, and has since been used regularly in the music community to refer to any type of performance.
Today, we see the term used more broadly to refer to many types of jobs, and even to describe an entire subset of the labor market.
The gig economy is a market built on short-term contracts or freelance work rather than permanent jobs. There are many different types of gig workers, including: rideshare workers, food delivery drivers, pet sitters, babysitters, movers, dwelling renters, graphic designers, tutors and more.
The number of gig workers in the US increased by 31% between 2016 and 2021, according to McKinsey’s American Opportunity Survey, and, according to Upwork’s 2021 Freelance Forward Economist Report, freelancers comprise more than one-third of the US labor market, with 59 million freelancers nationwide.
This translated to the global gig economy generating $204 billion in gross payment volume in 2018 according to a Mastercard and Kaiser Associates study, which additionally projects that figure to reach $455.2 billion in 2023.
This growing section of the economy presents banks with an opportunity to capitalize on servicing the unique financial needs and challenges that gig workers face derived mainly from their unpredictable income and hours worked.
“Gig economy workers by definition rely on flexibility and options,” says Mike Affuso, CEO of the New Jersey Bankers Association. “With banks now putting a higher priority on tools such as remote banking, remote deposit capture, online lending solutions, and more, gig workers are able to access most of the services they need with the push of a button at any time of day.”
Due to their aforementioned lack of consistent income, a major challenge that gig workers often face is difficulty securing financing, though some banks are tailoring their services to help.
“Columbia Bank has made significant strides in our ability to service the lending needs of small businesses, and more specifically gig workers, over the past few years,” Matthew Clements, senior vice president, head of retail sales and products at Columbia Bank, tells New Jersey Business Magazine. “We have implemented automated processes and significantly improved decision times for small dollar business lines and loans, and we also offer a full line of small business credit cards that give the client the option to leverage their personal credit history to open a business credit card.”
Clements says Columbia also offers everyday business accounts with no minimum balance and sufficient transaction limits to accommodate most any gig worker’s needs.
“On the consumer side, we have a variety of accounts that allow clients to set up direct deposits, deposit checks through our mobile app and offer full access to all of our banking locations. Several of our consumer accounts also offer ATM fee rebates. This allows our clients to leverage any ATM nationwide, providing them much needed access to cash,” he says.
Additionally, Affuso says that he is seeing banks offering more financial planning services that gig workers – who lack employer-backed options – can take advantage of, adding, “Banks now sell IRA products and some sell SEP IRA and Self-employed 401(k) profit sharing products that allow for additional tax deferred savings.”
While providing the right financial tools to the gig worker is vital, Patrick True, president of Lendovative Technologies, Inc., says that banks must expand beyond traditional financial services and add value to gig workers in new ways to accomplish a more consultative approach.
“In the past, banks have traditionally shied away from engaging in anything resembling consultative work for business customers because of lender liability issues, but that tide is changing quickly,” says True. “As banks work toward becoming more full service, they’re starting to think about how to deliver an entire ecosystem of products, services and personalized guidance that can make them a more central presence in customers’ lives.”
In a similar vein, Clements adds that Columbia Bank’s position as a community bank affords it the ability to provide truly personalized services to its clients, a big benefit for gig workers.
“Gig work can vary widely from a few hours of work a week for extra cash, to full-time and very lucrative careers. Our banking and investment teams take the time to understand the needs of each individual and tailor solutions to meet their circumstances,” Clements says.
“Gig workers require the full range of financial services, from depository to lending and investments, but many also have additional needs beyond what’s required for traditionally employed customers,” says True. “Think apps that help them plan for quarterly tax payments and for longer-term goals like retirement options, as well as HSA-like escrow accounts for unexpected medical expenses.”
“As more people move from W2 to 1099 gig workers, there is a growing opportunity for banks to deepen the relationship with these customers,” Affuso says.
Trust adds that deepening that relationship requires a proactive approach on the banks’ part.
“For example, leveraging gig workers’ data to help them more efficiently manage their businesses is a realistic and meaningful value add,” he says. “Sending proactive reminders to a florist when it’s time for the owner to order more inventory could significantly cement a bank’s relevance in that entrepreneur’s life. Or, looking at the marketing data and helping an Etsy shop owner understand who is currently buying from them and how to tailor communications accordingly presents another opportunity to add value.”
Trust goes on to say that if banks don’t start trying to embrace this type of model, other emerging financial providers will.
“Banks may have an advantage right now because they interact with these customers frequently and have the trust factor on their side. However, the head start won’t last long if they fail to invest in the technology and philosophy to make this consultative vision a reality,” he says.
“Gig work is an ever-growing phenomenon. It spans all age brackets and virtually every sector of the economy. We intend to be there for our existing clients and new clients looking for better banking experiences. Our job is to help support and maximize the benefits that gig work can provide for each and every individual client,” Clements adds.
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