For gig workers, a growing subset of the economy where at least one-third of the U.S. workforce has taken on project-based work, getting paid in a timely manner can be critical to financial well-being.
In fact, as PYMNTS found in recent research on the gig economy, 85 percent of gig workers would work more often if they were paid faster. In another stat, as estimated in the report Pay Advances: The Gig Economy’s New Normal done in conjunction between PYMNTS and Mastercard, many gig workers live paycheck to paycheck, and 35 percent of them wait at least a week for their wages.
In an interview with Karen Webster, Qwil CEO Johnny Reinsch shone a spotlight on the ways that quickened payments can benefit small businesses, gig workers and their client firms alike.
Qwil makes it possible for businesses to pay their contingent workforces instantly, through what is known as Liquidity as a Service. Payments are disbursed on work performed and paid before terms.
Reinsch traced the 2014 genesis of the firm to his own experience as a freelancer, when a significant client did not pay an invoice on time.
“As a result of that, I nearly defaulted on my mortgage,” he told Webster. “I realized in the aftermath of that experience that the traditional credit system and the various options that were available to me as a freelancer were not very good, and really I was only left with going after payday loans.”
Not the most palatable option, Reinsch said, when those payday loans had annualized charges – tied to fees and interest rates – in the hundreds of percentage points.
He said that for gig workers and even small to medium-sized businesses (SMBs) focused on project work, the problem has been (and still seems to be) systemic. Namely, it’s that client companies, among them marquee names in the Fortune 500, are wedded to their own internal payout processes. And at times, they do not make payments in anything resembling a timely manner.
Qwil, in Reinsch’s words, strives to pave a better way for freelancers and SMBs to access their cash flow.
“By adding a bit of technology and injecting ourselves into the ecosystems where freelancers and SMBs find work and get paid for the work, we're able to have impact at a massive scale,” he said.
In terms of general mechanics, Qwil provides customers with advance pay functionality in more than 140 countries around the globe. When integrated with a client company’s payment platform, Qwil funds, advances and charges a below-market, one-time transaction fee to the payees.
Reinsch said the total fees amount to a few percentage points – on average, a roughly 20 percent annualized charge.
The advance payments, he said, are non-recourse in nature. They come as Qwil buys the invoice from the client, staffing firm or freelance marketplace and pays the freelancer or SMB a discounted amount.
That discount, Reinsch noted, is determined by risk and time value of money, scored and computed by Qwil’s own proprietary underwriting algorithms.
“You can use the data tied to a freelance app developer, and what they've delivered on the platform historically to back into an advance rate and reduce the amount of risk you're willing to take on,” he said, adding that “good data and a lot of technology helps us mitigate risk.” Ultimately, Qwil’s Liquidity as a Service offering handles all of this over an easy-connect API or in its web apps.
For the companies that contract with Qwil and are on the hook for ultimate payments to the company (and not the freelancers), default rates are low – in the tens of basis points across the more than $150 million worth of advances the company has completed to date.
The Client Base
As Reinsch told Webster of Qwil’s Liquidity as a Service, “If you go back to my situation in 2014 where my option was going to be to take out a payday loan at 300 percent annualized [charges], with Qwil I'm going to get an instant offer to get paid up to 270 days earlier than I otherwise would have, and at a fraction of the cost.”
Once Qwil is onboarded through a client company – with origination, underwriting and servicing all tied together – it offers Liquidity as a Service to all of that company’s individual and SMB freelancers, Reinsch said.
He added that his company has partnered with payment providers to offer Liquidity as a Service as well.
The payments providers, he said, get the benefit of stickier relationships by using a plug-and-play service. “They can just connect to our API without having to hire a capital markets team and go get a credit facility – those things that are quite onerous and outside of the scope of the core business,” Reinsch noted. The goal is for these ecosystems to enable freelancers and SMBs to find and get paid for work and focus on their core businesses while offering the powerful perk of instant pay.
Asked by Webster about how freelancers have embraced the optional service, he said the offers are accepted about 40 percent of the time, and that freelancers often repeatedly choose advance payments after trying it the first time.
Reinsch noted that the 40 percent take rate tends to get a boost once freelancers realize the payment advances are not payday loans and do not have the associated sky-high interest rates and fees.
“Lack of understanding is the first hurdle we come across,” he said, adding that collaborative efforts to educate end-users come through joint marketing between Qwil and its corporate clients.
Advances have ranged from $10 to seven-figure sums, and project work has included everything from drones deployed to help insurance claims adjusters view property damage to ongoing application development work.
Three Reasons for Advance Payments
There are three reasons that workers accept advance payments through the Qwil offering, Reinsch said. There is the opportunity to seize on growth capital, where earlier payments and steadier cash flow mean entrepreneurs can build their firms and brands.
The second reason is to avoid negative events, such as defaulting on a mortgage or missing an estimated tax payment.
The third reason, he said, is tied to “pure consumption,” where individuals are able to marshal funds to buy what they want at a given point in time.
The Public Benefit
Webster noted that Qwil is registered as a public benefit corporation, which means that in addition to striving to provide profits to shareholders, the company has a “charter purpose” to provide some social good and meet high bars for transparency and legal accountability. Qwil has said its mission is to give 300 million underbanked freelancers access to the financial services they need to thrive. It also brings opportunity to small businesses that want to grow, and have historically been turned down for bank loans.
The goal, said Reinsch, “is to make sure we really are adding material value to society – not extracting it in the form of fees.”