Why faster payments are critical to the gig economy

February 26, 2021 10:35 AM

More people are joining the gig economy, and a major driver of this trend — particularly for those working multiple gigs — is a need for faster access to cash to meet expenses.

The gig economy has proven flexible during the pandemic. When ride sharing cooled as fewer consumers traveled, food delivery services exploded. As Airbnb vacation rentals dropped, they were replaced by Airbnb home rentals as newly sequestered workers decided remote work could allow them to trade apartments in New York and Chicago for beach and mountain homes in Florida and Colorado.

The global gig economy generated more than $204 billion in gross payment volume in 2018 across multiple sectors including ride sharing, food delivery and vacation rentals, based on data from a Mastercard and Kaiser Associates study. The forecasted payment volume is expected to more than double in 2023, reaching over $455 billion, representing a compounded annual growth rate in excess of 17%.

Key drivers behind this surge in growth include a cultural shift in favor of a flexible work-life environment, increased cost of living and a shrinking middle class, as well as the increased digitization of the economy through wider smartphone adoption.

An additional factor that has had to pivot within the gig economy due to the pandemic has been sharing homes and other properties. As consumers have become more health and safety conscious, there’s been a shift in how people travel, moving away from renting a room in someone’s house to renting an entire house itself for travel.

Airbnb noted that many consumers are renting whole homes as part of a staycation where consumers work remotely from a rented house in a travel destination for long periods of time. This is affecting how hosts are needing to more actively manage and promote their vacation rentals.

The top reasons consumers want to work in a gig role is to be able to generate a supplemental income (59%) and to get a more flexible schedule (42%), based on data from daVinci Payments’ Gig Economy 2020 Report.

While earning a supplemental income may be easier to understand since it allows a bill to be paid or money to be saved for a future purchase, the flexibility offered by gig work is at the heart of the overall economy since it allows many who are unable to engage in a 9-to-5 office or factory job to be employed. It can also attract retired and semi-retired workers into new second careers without having the strings of a permanent job.

The daVinci study found that among consumers who do gig work, about 70% preferred doing only gig work. Unlike full-time jobs, gig work tends to be much more well-defined with beginning and ending times and clear cut payments, leading to their appeal.

An important motivator to seek out gig work, even for those who have full-time jobs, is that stark reality that most gig workers have little to no savings.

As documented in Everee’s 2021 Gig Workers Survey Report, one third (32%) of gig workers are unable to regularly make ends meet and another 53% are able to cover their current bills but are unable to save for the future. In other words, 85% of gig workers are living paycheck-to-paycheck and many are still not able to get by.

The pandemic has contributed to financial uncertainty, and even gig economy drivers have had to scramble and change how they make money, going from an Uber or Lyft driver to becoming a DoorDash or Grubhub food delivery driver.

Before the pandemic, the FDIC’s Report on the Economic Well-Being of U.S. Households found that almost four-in-10 (37%) households would be unable to cover an emergency expense of $400 or more without having to borrow money or sell an asset.

During the pandemic, earned wage access provider Immediate, which serves contract, gig and full-time workers, found that about three quarters (74%) of U.S. workers received an unexpected bill of $400 or more in the past 12 months. Additionally, the study also found that 86% of adults had received at least one unexpected bill in that last 12 months and almost half (47.6%) received a surprise bill every other month.

The increased need to generate income during the pandemic has led to more than half (59%) of gig workers enrolling to work for more than two companies and one fifth (20%) to work for more than three companies, based on the Everee study.

However, the study noted that gig workers with hard-to-find skills or geographic areas with low unemployment may be in high demand. This can lead to heavy competition over skilled contactors, allowing these workers to benefit, although travel may be heavy.

For example, organizations such as Mint Physician Staffing and LocoumTenens.com specialize in placing doctors, nurses and other medical professionals in short-term contract positions in areas of the country that have high temporary demand, like Los Angeles and New York, or have a dearth of health care professionals, such as Alaska and North Dakota.

There are also individuals who do a variety of gig work based on schedules and their availability — for example, being a virtual assistant during normal business hours and a food delivery driver in the evening.

Just as gig workers don’t want to be tied down to a factory or office job with 9-to-5 rules, they similarly don’t want to be paid the same way as traditional payroll is meted out.

The Everee study found that almost half (45%) of gig workers want to be paid daily or on-demand, along with another 45% wanting to be paid weekly. This need for faster payments is related to the lack of savings and the unevenness in which bills arrive and are due.

There's been a growing adoption of push payments by payroll companies using Visa Direct and Mastercard Send, as well as the creation of earned wage access, a category of vendors providing faster access to earned but not yet paid wages.

Faster access to pay has become a recruiting and retention tool which many gig economy companies have adopted. For example, Uber offered instant payments to its drivers in 2016 to create a competitive advantage, but received a dent in its reputation when the service went down in 2018 as a result of a technical glitch.

Often thought of as a fringe part of the workforce, gig workers actually account for a sizable minority of the overall U.S. workforce. Payroll vendor ADP reported that 16% of the U.S. workforce are gig workers. An ADP study revealed that Florida is the state with the highest proportion of gig workers out of the total workforce at 22%, followed by California at 20% and Texas and Illinois each tied at 18%.

The ADP study also found that in about 40% of the 75,000 firms and 18 million workers it analyzed, gig workers accounted for a quarter (25%) of the entire workforce. Only in 6% of the firms did gig workers comprise 85% or more of the workforce. While ADP anonymized the data, examples of heavy gig workforces would be companies such as Uber, DoorDash and Instacart.