Being one of the oldest sectors, banking holds a vital role in safeguarding the invaluable life savings and assets of consumers, as well as serving businesses globally. Nevertheless, despite their longstanding stability, traditional banks are facing a plateau in their capacity to meet the needs of emerging demographics. These include customer segments that have historically been overlooked but present substantial potential for expansion and revenue generation.
It is apparent that banks are grappling with hurdles in adequately accommodating specific segments of the workforce. These obstacles arise from a slower pace of innovation, a limited understanding of adaptive strategies, and difficulties in effectively integrating data.
For the banks today, engaging with emerging customer segments like the gig worker demographic is not merely a business necessity but also a matter of ensuring fair access to financial services for all. This necessity is emphasised by the dual advantages of unlocking untapped organic growth and broadening opportunities.
Given these imperatives, it’s crucial for banks to step up. However, a lingering question remains: what factors are hindering progress, and what insights can banks glean from the agility demonstrated by fintech firms?
Read More about Fintech :Â Gamification in Fintech: All About Customer Retention and Engagement
Gig workers deserve financial equality too
Gig workers and the self-employed make up a burgeoning segment of today’s workforce, representing a substantial portion of the British labour force. They contribute £20 billion to the UK economy annually, with an estimated 7.25 million regular gig workers in the country. This translates to over 20% of the total UK workforce (based on end of 2022 figures), marking an increase compared to 14.7% in 2021.
Despite this demographic experiencing growth they have not yet received financial products and services tailored to their specific employment patterns and multiple income sources. Concurrently, banks have been missing out on a significant opportunity due to their lack of the data and infrastructure necessary to effectively serve gig workers.
As per Rollee’s recent Gig Economy Equality Gap report, a staggering 70% of UK gig workers struggle to obtain approval for financial products. Additionally, two out of three (66%) have been refused loans despite having a strong credit score. Among the independent workers surveyed, two-thirds have faced loan rejections despite meeting affordability criteria, leading them to apply for approval from an average of three credit cards or loans before being successful. This predicament also impacts housing, with one in three gig workers failing to secure a new home despite meeting financial requirements.
Incomplete infrastructure leads to incomplete services
As highlighted by Rollee’s research findings, banks are not yet set up to cater to gig workers. A significant 73% of the surveyed financial institutions admitted that their existing risk assessment procedures fail to capture a comprehensive view of a gig worker’s payments, income, and employment history. Additionally, over a third (34%) revealed that they are more likely to approve applications from PAYE workers compared to gig workers, citing greater transparency in income and employment data. It’s evident that the primary barrier hindering banks from improving their services for this expanding customer segment is the accessibility of reliable data.
Financial institutions frequently encounter challenges with data integration when seeking to utilise alternative income and employment data. Integrating data from freelance platforms and HR software internally via public APIs can be riddled with difficulties. Negotiating access to private APIs involved intricate discussions with platforms, which may lead to refusals, while integrating multiple platforms presents scalability issues. Moreover, this approach necessitates substantial investments from backend, data, and DevOps teams for banks, hindering data-driven decision-making and growth prospects.
However, it’s imperative for banks and financial services to recognise that evolving to serve this expanding customer segment presents an opportunity rather than just a technical headache. Access to additional data can greatly enhance the end user experience. Similarly, it enables a comprehensive understanding of the customer and addresses gaps in legacy infrastructure by incorporating alternative income and employment data. Consequently, this leads to more customers being eligible for a wider range of products and enhances decision-making across all stages of the banking customer journey.
Fairer finance
Open banking has been heralded as the solution to facilitate the open access of financial data, making it simpler and more secure. However, its current focus on bank-based payment information presents limitations for gig workers. Financial institutions must seek solutions to access a broader spectrum of data and obtain verifiable data points regarding a worker’s income, employment status and work history. Having access to this information will ensure that credit assessments consider not only spending patterns and full-time employment contracts but also gig workers’ income history, work habits, and repayment capability. The fintech ecosystem is where banks should be looking to drive this final frontier of open finance.
Fintech innovations, in partnership with banks, are poised to tackle a systemic issue in society, where millions of workers lack equitable access to financial products compared to traditional employees. It’s alarming to note that more than a third (39%) of gig workers have contemplated abandoning freelance work in favour of full-time employment solely to enhance their prospects of accessing financial services.
Today’s economy relies on gig workers, and it’s imperative that banking services are tailored to meet their needs. To address this complex challenge, banks need to prioritize the expansion of integration endeavours across various markets and regions. This can be facilitated by leveraging an external API infrastructure and collaborating with integrators who specialise in fintech solutions tailored to this sector. Such partnerships can accelerate the transition toward offering products and services to these unique customer groups, thereby levelling the playing field and promoting financial equality for all.
 Latest Fintech Insights :Fintech Trends 2024: How Can Enterprises Be Better Prepared?
[To share your insights with us, please write to psen@itechseries.com ]Â
