Ali Hamriti, Co-founder and CEO at Rollee
Banking, as one of the oldest industries, holds a significant position due to its responsibility in safeguarding consumers’ invaluable life savings and assets, and serving businesses worldwide. However, despite their enduring stability, traditional banks are encountering a stagnation in their ability to cater to emerging demographics. These include sectors of customers that have historically been overlooked but present substantial potential for growth and revenue generation.
It seems evident that banks are grappling with obstacles in effectively accommodating certain segments of the workforce. These challenges stem from a slower rate of innovation, a limited grasp of adaptive strategies, and struggles with the efficient integration of data.
For today’s banks, engaging with emerging customer segments like the gig worker demographic is not just a matter of business necessity but also one of ensuring equitable access to financial services for all. This imperative is underscored by the twin benefits of unlocking untapped organic growth and expanding opportunities.
In light of these imperatives, banks must rise to the occasion. Yet, there remains a lingering question: what is impeding progress, and what lessons can banks glean from the agility of fintech firms?
Gig workers: a full-time part of the UK workforce
Gig workers and the self-employed are a growing sector of today’s workforce and represent a sizeable proportion of the British workforce. They contribute £20 billion to the UK economy every year and the number of regular gig workers in the UK is estimated at 7.25 million. This equates to over 20% of the total UK workforce (based on end of 2022 figures), an increase compared to 14.7% of the total workforce employed in the gig economy in 2021.
Despite this demographic being on the rise, they’ve yet to see financial products and services that take into account their employment patterns and their multi-source incomes. Similarly, banks have been losing out on a huge opportunity, because they lack the data and infrastructure that will enable them to fully serve gig workers.
According to Rollee’s latestGig Economy Equality Gap report, 70% of UK gig workers struggle to get approved access to financial products; while two out of three (66%) have been denied a loan since being a gig worker, despite knowing they have a good credit score. Of the independent workers surveyed, two-thirds have encountered loan rejections despite meeting affordability criteria, prompting them to seek approval from an average of three credit cards or loans before succeeding. This predicament also impacts housing, with one in three failing to secure a new home despite being financially eligible.
Banking’s data disconnect
Banks are not yet set up to serve gig workers, and they know it: Rollee’s research revealed that 73% of financial institutions surveyed said their current risk assessment processes are not able to see a complete picture of a gig worker’s payments, income, and employment records. Over a third (34%) said they are more likely to approve an application from a PAYE worker than a gig worker because they have greater transparency of their income and employment data.
It’s apparent that the main obstacle stopping banks from better serving this growing customer segment: Access to reliable data.
Financial institutions often encounter hurdles with data integration when attempting to leverage alternative income and employment data. Integrating data from freelance platforms and HR software via public APIs in-house can be fraught with challenges. Getting access to private APIs entails negotiations with platforms that may result in refusals, and integrating multiple platforms poses scalability challenges. This approach also means banks must invest significant resources from backend, data, and DevOps teams, preventing data-driven decision-making and growth.
But banks and financial services need to be shown that evolving to service this growing customer segment is an opportunity for them – not just a technical headache. Having access to more data on them can have a hugely positive impact on the end user experience. Similarly, it’ll provide a holistic view of the customer and fill the gaps in legacy infrastructure with alternative income and employment data. This, in turn, means more customers eligible for more products, and better decision-making at all points in the bank customer journey.
The open finance final frontier
Open banking has been touted as the means to ease open access of financial data – and it does make that far simpler and more secure. But its current emphasis on bank-based payment information poses limitations for the likes of gig workers. Financial institutions need to find solutions to access a broader range of data and access verifiable data points about a worker’s income, employment status and working history. Having a view of this data will ensure that credit assessments are not just based on spending habits and a full-time work contract – but also accounts for gig workers’ income history, working habits and ability to repay. And it is the fintech ecosystem that banks need to be turning to, to drive this final frontier of open finance.
Fintech advances, working in collaboration with banks, will address a functional problem within society whereby millions of workers don’t have the same equal rights to access financial products, as traditional workers do. It’s shocking to think that over a third (39%) of gig workers have considered giving up their freelance job to get full-time work just to improve their chances of gaining access to a financial service.
The modern economy needs gig workers. And gig workers need banking that works for them.
To solve this multi-layered challenge, banks must prioritize the expansion of integration efforts across different markets and regions, facilitated by an external API infrastructure and integrators who work with fintech specialising in this space to accelerate the transition to being able to offer products and services to these distinct customer groups, level the playing field and deliver financial equality for all.
