What the 'On-Demand Economy' Means for the Changing Nature of Personal Cash Flows

What the 'On-Demand Economy' Means for the Changing Nature of Personal Cash Flows

What the 'On-Demand Economy' Means for the Changing Nature of Personal Cash Flows

Sean Banks

Sean Banks

Sean Banks joined TTV in 2002 as a summer associate and returned to TTV in 2005. He currently serves as a principal and has more than seven years of venture capital experience.

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In the last few years, there has been a surge of on-demand labor platforms and online work-management solutions. While most people immediately think of Uber and other rideshares, it also includes restaurant sales and delivery, hourly-based animal and childcare, freelance work, and many others. In addition, legacy work models and hierarchies are being dissolved and replaced with open-talent marketplaces.

PricewaterhouseCoopers (PwC) predicts the size of the on-demand economy will surpass $335 billion by 2025. By 2020, 7.6 million Americans will work in the on-demand economy, and the share of 'alternative work arrangements' will increase 50 percent in the next 10 years, according to the Intuit Investor Forecast.

So what does it mean for innovation?

When on-demand labor represents a larger part of the economy, customer profiles for traditional banking products and services will change. After all, today's traditional small business banking isn't designed for the freelance or on-demand workforce. This is mostly because these types of income can be so variable, meaning banks' high balance requirements simply don't align with many freelancers' needs.

Furthermore, a recent survey found 60 percent of freelancers said they don't understand their finances. A large majority of all freelancers use personal banking accounts for work-related activities and 80 percent don’t set aside enough savings to pay their on-going self-employed income tax obligations.

This all serves as a wake-up call for banks, who are realizing they'll need to evolve their approach to providing both business and retail banking products to this segment. Future tools must address:

  • The struggles of this customer segment to account properly for their daily business activities 
  • The lack of predictability of the cash flows when it comes to underwriting this segment for retail banking products

A few early entrants like Washington, D.C.-based Hurdlr are aiming to address these pain points. It's a mobile app that automatically tracks all of a user's mileage, expenses, income streams and tax deductions in real time. As of May, Hurdlr had 100,000 users and had been used to track more than $6 billion in finances and $250 million in tax savings.

A Recent Survey Found: 60% of freelancers said they don't understand their finances.

While apps like Hurdlr solve the business accounting and income tax challenges faced in the on-demand economy, it still leaves retail banking obstacles. Traditional retail banking products rely heavily on W-2 income for underwriting, but in the future fintech companies may be able to develop analytics that can help banks price and underwrite retail products for 1099 consumers as if they were W-2 income earners.

The impact is real

Solving cash-flow issues for both on-demand and low-wage workers offers greater access to the underserved through traditional banking channels. And in the absence of a banking solution, there are less-traditional options, such as payday lenders. In fact, there are more U.S.-based payday-loan stores than McDonald’s and Starbucks combined, according to research by Jonathan Zinman, an economist at Dartmouth. Payday lenders serve more than 19 million U.S. households, nearly one in six, according to the Community Financial Services Association of America, a payday-lending trade group. For employers of low-wage workers, stress caused by financial pressures creates staffing issues, productivity concerns, low morale, and results in employers having to overstaff to account for employees that do not show up for work.

The freelance economy is in a high-growth phase, with 60 percent of all existing freelancers beginning only in the last three years. That means that banks are still well positioned to capitalize on the freelance boom.

The statements and opinions of the writer do not necessarily reflect those of TSYS.

Other Articles by Sean

Sean Banks

Sean Banks joined TTV in 2002 as a summer associate and returned to TTV in 2005. He currently serves as a principal and has more than seven years of venture capital experience. Prior to joining TTV, Sean served as the Vice President of Finance and General Counsel for an Atlanta-based technology start-up company. He is currently a member of the Technology Association of Georgia's Executive Steering Committee for its Fintech initiative and he heads up the Fin Tech Innovation Institute for that group. He earned his M.B.A. from the Goizueta Business School at Emory University where he was one of five Woodruff Fellows.

Sean is currently a member of the Georgia Bar Association, having earned his J.D. at the University of San Diego in 2001. He is a graduate of the United States Naval Academy, where he earned a B.S. degree in economics.

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