Much of the magic of using gig economy services like Uber is contained in the payment experience itself. Instead of fussing with cash or a card at the end of the ride, the payment happens seamlessly on the back end. And because the experience is so easy and smooth on the consumer side, Mastercard SVP of Digital Payments Silvana Hernandez said, it is easy to assume that the experience is just beautifully friction-free on the gig worker’s side when it comes to getting paid for that ride.
Unfortunately, Hernandez told Karen Webster in a recent PYMNTS interview, that isn’t always the case. Gig workers may not be paid until days or even weeks later. And that can create problems for those participating in the gig economy.
According to a recent study conducted by PYMNTS and Mastercard, of the 38.7 percent of the U.S. workforce engaged in the gig economy – particularly the 13.3 percent who live paycheck to paycheck and have no savings for emergencies – income instability and unpredictability create serious cash flow challenges.
“[We think] there is an opportunity to close the gap here and really match expectations – because the reality is these gig workers are also consumers,” Hernandez told Webster. “They expect to enjoy the exact same treatment they experience as consumers in their working lives, which means there is an opportunity to modernize the way these workers are being paid.”
Mastercard is hoping to seize that opportunity, she noted, with its announcement today that it will be working in partnership with Evolve Bank & Trust and Branch to use the company’s push payment product, Mastercard Send, to enable early wage access for gig workers.
Operationalizing Income Stability
Though the world of contract and gig work offers many advantages in terms of self-determination and flexibility for workers, the W-2 world of 9-to-5 work does offer a lot of certainty. Every 15 days, or in some cases 30 days, the employee knows how much money will end up in their bank account, and can plan and manage their spending accordingly.
In many ways, the gig economy is a classic paycheck-to-paycheck economy: paychecks are associated with jobs that may or may not line up neatly one right after another. Paychecks, therefore, need to stretch from job to job.
Pay advances can bridge that gap. According to PYMNTS research, $236 billion was paid out to gig workers through pay advances in 2018. Those advances have traditionally been made to skilled workers – architects, designers, developers, home builders and remodelers, to name a few – whose practice it is to collect retainers in advance of work starting. That practice provides funds to buy supplies or subsidize the production of deliverables. And there is a large opportunity to make this available to other areas of the workforce.
It’s a practice that, according to PYMNTS research, has not reached the many unskilled gig workers or micro-businesses whose paycheck-to-paycheck situations can be more acute.
“To be honest, a lot of these workers are really small business owners. And for any small business, managing cash flow is often the difference between being successful and not,” Hernandez said.
And worker success, she noted, isn’t an issue of casual interest for the partners who pair them with their next gig. The reality is that gig platforms must compete for talent just like any other firm, which means to stay competitive they have to start taking these needs more seriously. Their customers want fast, easy and sometimes early access to their funds. And any smart platform operator, Hernandez noted, has every reason to want to give it to them.
“This can really have a double impact,” she said. “If you start addressing these needs and provide workers with peace of mind and stability by being more supportive, the platform will see the benefit of attracting more (and more loyal) workers. But there is also the fact that happier, more stable workers are also more productive workers. If you as a platform start taking away those top-of-mind economic concerns, you will have workers spending more time doing better work.”
Technology is the pay advance catalyst. Artificial intelligence (AI) and machine learning can help limit the downside for the employer or gig platform by helping to create a worker’s wage profile and advancing some, but not all, of what is expected from a current gig. Push payments can make those funds available in real time via debit card for immediate use.
Pushing those funds to a debit card frees up those gig workers to make different – and, in many cases, better – decisions for themselves. It is obviously desirable – and as the competitive stakes increase between platforms, this form of payment architecture in the gig economy will also increase, until it becomes ubiquitous.
Why Early Could Be the New Instant in the Gig Economy
According to Hernandez, that doesn’t mean every worker will want to take advantage of it, since the marketplace has shown that use is more dictated by need than by mere availability. When customers find their finances pinched, when they have that $500 emergency they don’t have funds to cover, or when they need to make a special purchase, they need to turn to the early payment options. When they don’t have the need, they usually don’t utilize them.
The question for Mastercard and its partners, Hernandez noted as she concluded her conversation with Webster, is about where the unaddressed pain points lie – and how to relieve them. Money that can get there just in time when a worker needs it, she said, is the next frontier in payment solutions.
“What we see in the broader perspective is that enabling optionality adds value,” she said. “When you restrict people – workers, consumers or businesses – to a certain method, you are always taking away flexibility. What we see is that just adding it as an option for the gig worker to use it when they need it is a huge value add.”
In collaboration with Mastercard, PYMNTS surveyed 2,200 gig workers to learn how they are currently paid and gauge their interest in receiving pay advances for ad hoc jobs. Here’s what we learned…