This is is a syndicated post. You can find the original article on Forbes.
Today, 36% of the American working population does some form of independent work, veering away from the traditional 9-to-5 work arrangement on which America’s post-industrial economy was founded. Between traditional freelance workers, contractors, on-demand service workers and moonlighters, 57.3 million Americans are self-employed in some capacity; and this workforce is outpacing the overall U.S. workforce growth three times over.
Yet, despite the workplace revolution that is underway, banks continue to perpetuate an outdated service model that favors corporations and the salaried worker. To make matters worse, the prevailing narrative about independent workers is that of the struggling, on-demand gig worker: making less than minimum wage, robbed of health insurance and basic workers’ rights, unprofitable, a liability.
The recent portrayal of Uber drivers in the news has given impetus to this negative narrative of gig work, but to conflate these workers with all freelancers, entrepreneurs and independent contractors is a big mistake.
Dispelling the myths about self-employed workers
Today’s independent workforce is a diverse and varied market segment. Sure, it includes the gig workers that are part of the on-demand or sharing economy, but many of these workers are entrepreneurs and small business owners, full-time salaried workers with a booming side hustle, retired C-level executives who consult full-time, independent IT contractors and everything in between.
Far from being the risky and low-value segment banks regard them as, most of these workers opt for self-employment and are able to self-finance their operations. They also cite higher income levels and higher job satisfaction than their 9-to-5 counterparts.
Despite the clear trend toward self-employment and freelance work, the modern worker is not equipped with the best financial tools or services to succeed in today’s workplace.
Keeping pace with the workforce revolution.
In a survey conducted by FreshBooks, 52% of self-employed people said that “big banks aren’t designed to serve the needs of small businesses.” That’s because big banks haven’t evolved their product and service models fast enough to keep pace with the changing workforce. Self-employed workers need different personal financial tools and skills to survive in independent employment, where income is diversified and uneven, expense management is laborious and taxes are far more complicated.
Seed, Clearbank, Tide, Coconut and other fintechs are all vying to fill the market gap and address the pressing needs of self-employed people. And, in doing so, they are eroding bank customer loyalty.
If banks want to maintain their relationship with their customers, they need to respond quickly to their needs and tailor products and services that make managing their finances easier.
If banks seize these three opportunities, they can recapture this disenchanted segment and protect their advantage over nonbank entrants.
1. Mobile-first approach to expense and receipt management
There are notable expense management solutions on the market today, but most of them require tedious manual entry, which confines business owners to a desktop. Self-employed workers are not conducting business behind a desk and need advanced mobile capabilities to address their needs on-the-go. They should be able to scan and monitor their digital receipts, itemize their expenses and reconcile their statements directly from their phone. And it needs to be quick.
Come tax time, expense and receipt management challenges are tenfold for the self-employed worker. Many of these professionals rely on credit card statements to manage business expenses and monitor account balances, not realizing they need proofs of purchase — or, perhaps, not having the time to save them. It is habits like these that make them significantly more likely to be audited by the IRS.
Moreover, the administrative effort required to manually reconcile receipts to card transactions costs valuable time. In fact, one-third of self-employed people report spending in excess of 80 hours — two full work weeks — per year on tax preparations.
2. Improved cash-flow management
In conjunction with expense and receipt management, cash-flow management is a top priority for self-employed workers. Many of these workers use their personal banking accounts for work-related activities, making it challenging to get an accurate view of cash flow in real time.
Aside from being an administrative nightmare, this results in a lot of misreporting, which hurts the business’ bottom line. Mixing personal and business finances also makes it difficult to produce the income statements needed to obtain financing.
This raises an issue for banks as well: They have no insight into business activity in their personal banking accounts and, therefore, cannot properly assess their customers’ value or profitability or tailor a service model and product portfolio best-suited to their customers’ financial needs.
3. Integrated digital platform
If the goal for banks is to become a one-stop shop for customers’ financial needs, then self-employed banking customers must be able to sign in from their phones, apply for credit cards and monitor their cash flow all in the same app. Banks can accomplish this by integrating more solutions into their own digital platforms through partnerships with fintechs that are laser-focused on solving these individual pieces.
Collaborating with fintechs to expand services in areas such as expense and receipt management, cash-flow management, invoice scanning and more would help banks accelerate innovation at a lower cost while solving financial services for a soon-to-be-majority segment.
The takeaway for banks
This shift toward independent work is perhaps the biggest shift in the U.S. labor force in over a century, and yet, big banks are still treating freelance workers like nonentities. In part, I think it’s because the word itself has a bad rap, so let me introduce this segment in terms that financial institutions will appreciate: micro-businesses.
Today, these folks are in business for themselves, with only themselves. Some will choose to remain this way, but many will grow into bigger, more profitable businesses that resemble the corporate clients banks deem so valuable. It is this group that banks should set their sights on. To earn these businesses’ loyalty when they’re big means earning their trust when they need help most: right now.
Header image created using Creative Common assets from Pablo Stanley.