The startups catering to gig-economy workers

Reinsch’s startup, Qwil, focuses on providing working capital for the freelancer who has trouble, like he did, getting paid on time.

“The credit system doesn’t provide a lot of options for a freshly minted freelancer or a true SMB,” Reinsch said. “There aren’t great products for them or the products aren’t as accessible as they are to their W2 or full-time counterparts.”

Because the cost of customer acquisition is high and the typical loan size low for freelancers ($1,000 on average), Qwil works with marketplaces, payment providers and HR platforms to offer its cash advances in their ecosystems.

One such marketplace, Dronebase, is used by drone pilots that do things like assess flood damage for insurance companies. Whenever a drone pilot working in Dronebase has a payment that’s about to be paid out, Qwil captures the data, proving that the job was performed, and offers the drone pilot the ability to get paid the same day for a small fee. Other Qwil users are freelance software engineers and designers, small design agencies and small doctors’ offices.

Qwil’s underwriting technology assesses the payor’s likelihood of paying. It captures information about the approval status of the invoice: Is it definitively approved, is it likely to be approved or is it simply booked and not approved? It conducts identity verification and fraud checks on each freelancer. Qwil charges a flat fee for the advance, such as 1% of the amount. No interest rate or late fees are charged. And it never goes after the freelancer or small- business person to collect.

“If we underwrote this incorrectly, we’re not going to go after the freelancer. It’s our bad for underwriting badly,” Reinsch said.

It does go after the freelancer's client, however. Reinsch wouldn’t say how many users Qwil has. His team initially thought Qwil's offering would appeal to low-skill, low-paid workers. But, he said, it has attracted highly paid software developers and designers as well as delivery drivers. The advance amounts have ranged from $1,000 to $1 million.

Hussein Ahmed, founder and CEO of San Francisco-based Oxygen, has an origin story similar to Reinsch’s. He was working on getting an MBA from University of California, Berkeley and consulting on the side when he applied for a loan at LendingClub. His FICO score at the time was in the high 700s.

“I got an email letter saying, 'Sorry, we could not extend credit because we could not verify your income,' " Ahmed said.

He was pointed to a daunting set of requirements including sending two years of tax returns, bank statements, and other personal and business documents.

“That’s the first time it hit me that it doesn’t make sense. Why I can't get money despite making more than $150,000 in annual income? I'm treated like a bad borrower, a second-class citizen, just because I don't have a full-time W-2 job,” Ahmed said.

He researched the market, wondering if there was a reason the online lenders weren’t helping freelancers. “I thought, these guys are smart and they're not wasting time going after this niche little market,” he said.

But he found that there are 57 million freelancers in the U.S., accounting for more than 35% of the workforce. One estimate is that more than half the country will be freelancing is less than seven years.

“That was the light bulb. I saw this is a big enough market,” Ahmed said.

Online lenders like OnDeck, Kabbage, Fundbox and Bluevine all look at accounting software data and bank account data to analyze the cashflow of and qualify small business applicants. But the freelancer graphic designer working in a Starbucks or contract copy writer can’t get this type of loan, Ahmed said.

Oxygen tries to look at the worker’s broader financial picture. It pulls in cashflow information from bank accounts and credit report data. It performs cash flow analysis and cash-flow forecasting.

“We’re able to look more into details of actually how volatile is that income? Is it cyclical, seasonal? And then assess their capacity and willingness to pay in a much more nuanced way than other lenders are looking at today,” Ahmed said.

Oxygen offers a bank account backed by Evolve Bank & Trust. It also works with data aggregators to pull in external bank account data, so it can see all of a person's expenses and discretionary income.

It also provides a line of working capital that customers can access as needed, to help them deal with inconsistent income. For instance, an engineer working on a project may not get paid for three weeks but has rent due the first of the month. So that person might take out a small loan to cover that gap. Oxygen's banking and lending services are bundled into a membership with a flat monthly fee of $29.99.

Ahmed wouldn’t say how many users Oxygen has. The company, which started in a Y Combinator incubator, has been in production since September has been growing users at an 80% monthly rate.

Most of the technology was built in-house. But Oxygen also works with technology partners Socure (for KYC), Hummingbird (for AML), Jumio (for identity verification) and Mitek (for mobile check deposit). At the end of January, the company announced it had raised $2.3 million in seed funding from investors including Digital Horizon Capital and Cynthia Chen.