The COVID-19 pandemic and subsequent lockdowns across the world have seen increased remote work and an uptick in the gig economy for freelance, market research and e-commerce . From roles such as junior administrators to copywriters, web developers, and even some executive positions, there is an increase in the demand for temporary, independent workers.
According to McKinsey’s The Future of Work in Europe Discussion Paper June 2020, 20-30% of all jobs in the European countries are part-time work done by freelancers and gig economy workers. By 2021, there will be an estimated 57 million freelancers in the US workforce alone.
Despite the constant growth of the gig economy sector, there is a vast disconnect between gig workers’ workload and how they get paid. Only a tiny segment of the global gig economy workforce gets paid right after they complete their work or on time. PYMNTS’ Gig Economy Index reported that only 25% of gig workers received payments within a week of providing services.
The payments challenge in the gig economy
When asked about common challenges independent workers face, one of the recurring responses was the unpredictability of payments. This happens for various reasons, which we outline below.
Lack of access to payment methods
Unlike in-person transactions that can quickly be settled with cash, cross-border payments in the gig economy are conducted through bank transfers, fintechs, international payment processors, and remittance companies.
Unfortunately, not all cross-border payment services favour gig economy workers, especially those from developing economies. An example is PayPal, one of the most popular global payment processors, which still does not offer access to people living in 83 countries across the world.
Also, the percentage of banked adults, i.e., the working population with a bank account, is lower in most developing markets than developed economies. Only 37% in Mexico have access to bank accounts compared to 98.9% in the United Kingdom or 98.8% in Germany.
When it comes to getting payments into the hands of independent workers who have completed jobs for clients across the world, there is a gap in the available methods.
Excessive charges and time lag
Independent workers also share frustration regarding the fees, percentages, and commissions they handle when receiving payments. Slow settlement speed, lack of transparency in charges, and frequently changing foreign exchange rates are other common challenges.
Most online service marketplaces act as payment intermediaries and escrow services. They segment their payment processing models into consumer-to-business (C2B) and business-to-consumer (B2C).
The intricacies involved in this bi-process payment model, such as foreign exchange rates, ACH transfers, and banking regulations, add to the time lag between when the gig workers complete their work for clients and when they are able to receive payments
Reduced growth and interest in the gig economy
The payment processing methods in the gig economy currently are not adequate to foster more efficiency and better freelancer-employer relationships.
According to the Global Marketplace and Gig Economy Payment Satisfaction survey results, 73.7% of respondents consider leaving an online marketplace or the gig economy in general because of lousy payment methods. 80.5% indicated they would like to be paid earlier, with some expressing a willingness to give discounts in pricing in return for faster payouts.
With the effects of the coronavirus pandemic and the subsequent shelter-in-place order in most countries, all business but online and gig economy businesses are stalling. Now is an excellent time to create better payment methods that cater to this underserved market and bolster global workforce’s growth.
The best solution to the payment problem for the gig economy?
Real-time payments (RTP) are an excellent alternative to the current bulky and slow payment processing methods in the gig economy.
RTP is a method ensuring immediate transfer and settlement of money between two parties. This strikes a big difference when compared to other payment methods such as ACH or bank transfers, which cost more time and money.
According to Visa Insight, 83% of freelancers will pay for real-time payments in emergency solutions. In comparison, 76% don’t mind paying for real-time payments monthly. Thus, gig workers do not only want real-time payment solutions; they are willing to pay for it now.
Consequently, giving the global gig workforce the freedom to choose between Visa Direct, Unified Payment Interface, MasterCard Send, and other RTP options can be a significant game-changer in the post-COVID 19 economy.
Why the gig economy needs to provide alternatives to banking payments for its global workforce
It increases freelancers’ loyalty
Unlike current traditional payment methods that repel freelancers, real-time payment solutions don’t just satisfy gig workers; they also increase their loyalty to a brand or online marketplace.
According to PYMNTS.com’s recent analysis, 85% of gig workers say they would perform better if they got faster payments. According to Fiserv, 70% of gig workers prefer electronic payment for their work.
As a result, delivering immediate payments through real-time payment platforms meet the expectations of these freelancers who are increasingly becoming vital to a company’s functions.
It eliminates time lags
Traditional payment methods are associated with wait times that might frustrate a gig worker, especially when they have emergencies. Such slow periods of payment transfer can cause strain in a client-freelancer relationship.
However, RTP’s speed and immediacy eliminates such time lags, offering massive benefits to both the employer and independent worker in the transaction.
It improves gig workers’ experience
The traditional payment system through cheques or slow ACH can be quite stressful for the gig worker. In a technology-driven world, faster pay is no longer an expectation; it is a need.
Real-time payment options improve the gig worker’s experience by expediting payment in an accurate, transparent, and efficient manner. For an independent worker who depends on gigs as a significant source of earnings, payment efficiency is crucial, and real-time payment ensures this.
It helps gig workers predict timely revenue
With the traditional payment system, most gig workers struggle with getting accurate information about payment estimated arrival dates and notification of associated transfer fees. In cross-border transactions, this can be worse and take as long as two weeks to two months.
On the other hand, real-time payment platforms provide upfront payment schedules and costs. Not only that, but they are also fast and accessible. The globalization of the gig economy necessitates the need for transparency and speed.
Long before the COVID-19 pandemic, slow payment methods have been a source of frustration for many freelancers. Adding on the pandemic, gig workers all over the world are among the hardest hit economically. For this growing segment of the global workforce, slow payment issues pose a significant threat to their survival.
For online service marketplaces and other gig economy intermediaries, transitioning to faster and more efficient payment methods has never been more important. Choosing the right payments platforms to allow for faster, quicker, and efficient payout options, and adopting RTP can be a gamechanger in averting a reduction in the global gig workforce and moving the space forward.