In the Gig Economy, (Payments) Speed Thrills, But Added Fees Chill

The gig economy is out in full force, spanning the globe and any number of jobs, from welding to wedding planning, from knitting to pet sitting.

The platform’s the thing, then, that brings the supply and demand together.

Or, it should.

In the latest Data Drivers, PYMNTS’ Karen Webster, along with Hyperwallet’s Michael Ting, senior vice president of digital markets, delved into the friction that exists in online marketplaces that brings together the gig worker and the gig worker employers … and how when it comes to payments, one size definitely does not fit all.

Digital Platforms Gig Payments Gap

Less than half – okay, 44 percent, to be exact – of gig workers get paid through the platform that brings the buyers and sellers together.

That might seem like a low number, and perhaps an odd bit of friction – so is the flaw in the design itself?

The answer to that question has two parts, said the executive.

“A lot of these platforms when they first begin their primary goal is really to match people together … they’re really trying to match up the companies that need these workers with the people that can perform the work,” Ting explained.

“As they start to achieve critical mass and they start to see more users and more activity on their platforms, then the responsibility to foster a trusted and safe environment becomes a much greater responsibility. With that responsibility,” he added, “comes the payment itself, because payment is a huge part of why these gig workers trust a particular platform and keep coming back to it.”

In addition, not all gig work is the same, he said. Freelance work can itself be split into different components.

There is the traditional component, where, say, lawyers, accountants and others with particular knowledge sets are enlisted for that knowledge.

But, said Ting, platforms have also given rise to new ways of making money that did not exist just a few years ago – think, he said, of ridesharing and home sharing.

“When you separate those two buckets, it explains a lot of why some of the platforms behave differently than others,” he explained.

Scale matters. The platforms that put tens of millions of people to work are the ones that pay less. The risk of disintermediation is something with which every platform must grapple, and the platforms must find ways to add value to the people they are paying, said Ting.

One way to add value, said the executive, is to ensure that people can get multiple jobs on the platform – which in turn deters them from getting off the platform.

The platforms lessen the amount of administrative time spent chasing down payments, as well as the time spent chasing down work itself. Conversely, consumers benefit from the fact that they need not have a payments chase of their own, added Ting, where they might otherwise hunt for their checkbook or wait for an invoice.

The platform, on a whole, seems to be a successful model for the gig economy, where 51 percent of gig workers get paid within a week of performing work. And 90 percent, noted Webster, say they are happy with how they are paid.

Eighty-four percent said they’d do more gig work if they were paid on the same day or the next day – so when it comes to doing more work, speed (of payments) matters.

Yet, only 17 percent of platforms are in a position to pay workers as the work is done.

Said Ting, the platform entities that are paying the gig workers oftentimes have little control over the speed at which money moves. Getting paid in cash and check brings instant gratification and fulfillment that comes along with those conduits of payment.

But moving into ACH and electronic payments means there are inherent delays tied to how many people are getting paid and the sheer volume of payments, he said.

“They don’t control the last mile. They can initiate a payment, but they cannot control how quickly it gets to an individual,” said Ting.

Gig Workers: Pay for Being Paid?

Webster noted that more platforms are providing instant access to funds – but at a cost. Consider this data point twofer that might prove disheartening, as 40 percent of workers say they lose 20 percent of their income as a result of those additional fees.

“The platforms themselves, by playing the role of paying the gig workers, are providing a service,” Ting said, adding that “it’s not just the fact that they’re cutting a check or sending a bank transfer. There’s a whole workflow associated with what they’re doing. They’re oftentimes doing identity verification and they’re collecting and storing sensitive data like bank account information … there’s a lot of value that they’re providing along with that payment service. There’s typically a fee associated with that. It’s part of what these gig workers are getting out of these platforms in addition to the jobs themselves.”

That having been said, continued Ting, many platforms “could do a better job communicating to their users around why they have certain payment cycles in place and why they charge a fee for certain types of payments.”

“So people who want to get their money faster, on a quicker cycle than the default, should consider that a premium service,” he said, adding that “a lot of the platforms don’t sufficiently explain that. And so the users are often surprised when they are charged a fee.”

The preference for speed in payments also hinges on why the gig worker is gigging in the first place – whether they are saving up for a wedding, as Webster illustrated, or are in between jobs … or perhaps just want to knit and sell their creations online.

Thus a challenge looms for the platforms, said Ting, as they try to cast the widest net possible in terms of getting people to come and earn on those platforms.

“It’s a diverse group – and it’s not transparent to the platform why they are doing the jobs or the urgency for why they are doing them,” he said. “It’s hard to operate under the same rulebook, because they all have different needs and different requirements.”

Issues moving to the forefront of the gig worker economy – at least as related to Hyperwallet by companies themselves – include ease of getting onboarded and getting paid.

“And that sounds very simple, but it’s not when you think about the payment ecosystem,” Ting told Webster. “The more parties that you that you bring to the table, and the more options that you provide, there’s a higher likelihood that a certain subset of those payment companies are going to require some sort of registration or signup by the end user.”

Such administrative hurdles, said Ting, are not looked favorably upon by a lot of the platforms.

“They’ve promised to a lot of their users to eliminate much friction from the user experience. And placing that sort of burden on the payee – to have to go through all this work to sign up and set up an identity and do KYC and provide banking information to a third party – just so they can get paid – it’s often a point of friction and contention.”

To streamline that friction, said Ting, questions must be asked in designing the platform itself – namely, what is the user experience, and how is it actually manifested?

In a hypercompetitive market, he said, ease of onboarding and securing work with haste are differentiators.

The API and payments ecosystem offers an example of those questions in full force. We live in an API world, Ting noted, with administrative checks in place against money laundering and myriad types of risk.

Questions arise, said Ting, surrounding who is performing those administrative roles and to what extent users are being exposed to – or insulated from – third parties.

Thus, the difficult task of “finding the payment companies that have done a very elegant yet thorough job of ensuring they can provide that entire experience, either under a white label or deeply embedded API framework,” said Ting. “There’s not that many companies out there that are really successful at that. You have to coach a lot of them to ask the right questions … there’s a little bit of technology and also some discretion … when you have millions of users, you have to do it at scale and it becomes a real challenge,” he added.

Hyperwallet helps a bit, he said, in that the company focuses squarely on enrolling the company that is paying the individuals first.

“Over time,” he added, “we employ some of our own risk-based policies to see if individual companies’ own customers should get KYC … we are able to ensure that our clients are protected as we are acting as sort of a backstop to make sure the people who are earning, and getting paid, are good people.”