The Financial Inclusion of Gig Workers: some fintech stories

the financial inclusion of gig workers is an open issue in many countries

The gig economy has seen a significant rise, with many individuals turning to platforms for work. However, financial inclusion for these gig workers remains a pressing concern.

Let's delve into the current state of financial services available to gig workers, the challenges they face, and potential solutions to enhance their financial well-being.

In a nutshell:

  • Financial inclusion is crucial for gig workers to access essential services like loans and savings.
  • Many gig workers struggle to obtain financial services due to a lack of credit history and data accessibility.
  • Innovative solutions, such as using work data for credit scoring, can help improve access to financial products.
  • Partnerships between gig platforms, fintech companies, and governments are essential for creating effective financial services.
  • The future holds promise for gig workers as new financial products and technologies emerge to support their needs.

Financial Inclusion of Gig Workers

Financial inclusion means ensuring that everyone has access to useful and affordable financial services. This is especially important for gig workers, who often face challenges in accessing traditional banking services.

Gig workers rely on apps and digital platforms to work. The so-called gig economy constitutes an emerging, sometimes controversial, work model where workers do not adhere to conventional work patterns or traditional working hours and rely on variable income for their livelihood.

Examples include domestic helpers who work based on demand, or drivers who depend on ride-hailing apps, or food delivery mobile apps.

These gig workers need tailored financial solutions that consider their unique work patterns and income variability.

Financial inclusion is crucial for gig workers as they need to manage their finances to face income fluctuations and plan for the future. Having access to financial services can allow them to save for emergencies and invest in their education. This can lead to improved financial stability and better livelihoods.

Unfortunately, many gig workers remain financially excluded. They often lack access to credit, savings accounts, and insurance products as traditional banks and insurance companies are unable to address their needs. This exclusion can lead to financial stress and insecurity.

The gap in financial services for this group highlights the need for innovative solutions to enhance their financial inclusion.

Challenges in Providing Financial Services to Gig Workers

There are different reasons why banks and fintech companies struggle to create a specific offer for gig workers.

  1. Data Accessibility: One of the main problems in offering financial services to gig workers is the lack of accessible data. Many gig platforms hold valuable information, but they are often hesitant to share it. This reluctance makes it hard for financial institutions to assess the creditworthiness of gig workers. Without reliable data, it becomes challenging to provide loans or other financial products that these workers need.
  2. High Costs of Product Development: Creating financial products tailored for gig workers can be quite expensive. The initial stages of development require significant investment, and there are many uncertainties about how profitable these products will be. This high cost can deter companies from entering the market, leaving gig workers without the services they require.
  3. Regulatory and Compliance Hurdles: Navigating the rules and regulations surrounding financial services can be complicated. Many gig platforms and fintech companies face challenges in understanding and complying with these regulations. This can slow down the process of developing new financial products, further limiting the options available to gig workers. Transparency and competitiveness in rates are crucial aspects for gig workers, who seek to maximize their income.

Innovative Solutions for Financial Inclusion

Let’s now examine what the financial sector could do to improve the financial inclusion of gig workers.

  1. Leveraging Digital Work Data: In today's world, digital work data is becoming a game-changer for gig workers. By using information from their work, companies can create better ways to assess creditworthiness. This means that even those without traditional credit histories can access loans and other financial services. For instance, platforms can analyze gig workers' earnings and work patterns to offer tailored financial products that meet their needs.
  2. Embedding Savings Mechanisms: Another exciting development is the introduction of automatic savings features. These systems can automatically transfer a portion of a gig worker's earnings into a savings account. This not only encourages saving but also helps workers build a financial cushion for emergencies. Such mechanisms can significantly improve the financial stability of gig workers, allowing them to manage their finances more effectively.
  3. Group Insurance Products: Lastly, group insurance products are emerging as a viable solution for gig workers. By treating gig workers as a collective group, insurers can offer better rates and coverage options. This approach helps to reduce costs and provides essential protection for workers who often lack access to traditional insurance. Overall, these innovative solutions are paving the way for greater financial inclusion among gig workers, ensuring they have the tools they need to thrive in the modern economy.

The Role of Partnerships in Enhancing Financial Inclusion

Unfortunately, despite the goodwill, banks, insurance companies, and even fintech companies cannot solve the issue of the financial inclusion of gig workers on their own. The gig economy is a relatively new phenomenon and needs to be addressed through the coordinated action of different players.

  1. Collaboration Between Platforms and Fintech Companies: Partnerships between gig platforms and fintech companies are crucial for improving financial services for gig workers. These collaborations can create tailored solutions that meet the unique needs of this workforce. By working together, they can develop innovative financial products that are accessible and affordable, helping gig workers manage their finances better.
  2. Government and Private Sector Partnerships: Governments can play a significant role in supporting financial inclusion by partnering with private sector players. Such partnerships can help in creating a regulatory environment that encourages innovation while protecting workers. When governments and companies join forces, they can ensure that gig workers have access to essential financial services, which can lead to better economic outcomes for these individuals.
  3. The Importance of Regulatory Support: Regulatory support is vital for the success of financial inclusion initiatives. It helps to create a safe and reliable environment for gig workers to access financial services. As embedded finance is redefining the landscape of financial services, having clear regulations can facilitate smoother transactions and encourage more companies to enter the market, ultimately benefiting gig workers.

A new generation of products and services

Even so, banks and insurance companies will need to rethink their own offering, creating a new generation of data-driven, digital products. And redefining

Potential for New Financial Products: The future of financial inclusion for gig workers looks bright, especially with the rise of innovative financial products tailored to their unique needs. Fintech companies are stepping up to create solutions that can help gig workers access credit, savings, and insurance. This shift is crucial as it opens doors for many who have been left out of traditional banking systems.

The Impact of Emerging Technologies: Emerging technologies are set to play a significant role in this transformation. By harnessing data from gig platforms, financial institutions can better understand workers' earnings and spending habits. This data-driven approach can lead to more accurate credit assessments, allowing more gig workers to qualify for loans and other financial services.

Some experiences from the Fintech and Insurtech Sector

Karmalife's Credit Scoring Model: Karmalife has developed an innovative credit scoring model that uses gig workers' earnings data to assess their creditworthiness. This approach allows workers who may not have traditional credit histories to access loans, thus improving their financial stability. By leveraging data from gig platforms, Karmalife is making it easier for workers to secure the funds they need.

Moove's Credit Access Innovations: Moove has introduced unique solutions to enhance credit access for gig workers. Their model focuses on using real-time earnings data to offer tailored financial products. This means that gig workers can receive loans that reflect their actual income, making repayments more manageable and reducing the risk of default.

Britam and LittleApp's Design Solutions: Britam, in partnership with LittleApp, has created financial products specifically designed for gig workers. Their approach includes user-friendly interfaces and services that cater to the unique needs of this workforce. By understanding the challenges faced by gig workers, they have developed solutions that not only provide financial services but also promote financial literacy among users.

The "HIVE by Income" case

Traditional insurance has traditionally served the needs of the majority of the population, but it has also excluded certain segments who either cannot afford premiums or struggle to find a product to suit their requirements. This limits insurance accessibility as most traditional insurance policies, often sold as annual policies with a lump-sum payment, are perceived by gig workers as too expensive to afford or commit to, often leaving many without basic protection.

The solutions lie in so-called “bite-sized” insurance policies. HIVE by Income is operated by Income Insurance, Singapore's leading provider of Life, Health, Travel & Car Insurance as well as savings, investment, and retirement plans. A stackable insurance model involves paying bite-sized premiums for each transaction and stacking insurance coverage. These transactions are typically linked to a lifestyle or specific activity, such as taking public transport, completing a job, or going for a jog and clocking a certain number of steps, to accumulate the corresponding insurance coverage over time.

In Singapore, Grab drivers can accumulate critical illness coverage for every ride they complete with a micro-premium from as low as SGD0.30 or US$0.22. To date, over 20 million micro-policies have been issued. Similarly, Foodpanda delivery riders in Singapore can stack bite-sized insurance coverage, including term life, personal accident, or critical illness, using a pay-as-you-earn micro-insurance offering. In Vietnam, local insurance firm PTI and housekeeping agency JupViec offer domestic helpers pay-as-you-earn personal accident cover. Whenever the domestic helper completes a job on the JupViec app, a premium from as low as 2,000 VND or US$0.08 is automatically deducted from the worker’s e-wallet.

Still in Vietnam, TPBank leverages HIVE by Income’s platform to embed stackable micro-insurance into its digital banking services. This allows customers to obtain insurance for 5,000 VND or US$0.20 each time they make any funds transfer or QR payments via the TPBank mobile app. Every time they scan a QR code or transfer money via the TPBank app, it allows them to trigger micro-insurance at a very affordable premium, which they can accumulate over time.