B2B Payments

Why Banks Must Gear Up For A Growing Freelancer Base

With dramatic disruption in the economy, the freelancer community is in flux.

Many self-employed entrepreneurs have seen their businesses muted or entirely wiped out as a result of the pandemic. Other professionals that had previously been full- or part-time employees are now turning to freelance work amid mass furloughs.

PYMNTS' May Gig Economy Tracker highlighted the growing uncertainty of the freelancer community, noting, "Many ad hoc workers are finding themselves either out of work or trying to collect late payments."

In support of these professionals, many platforms and FinTechs fueling the gig economy have introduced new services, for instance the introduction of sick pay for professionals on food delivery portals, the Tracker noted.

But financial insecurity continues to be a top concern for freelancers, and according to Lilac Bar David, co-founder and CEO of freelancer financial services platform Lili, freelancers have been largely left out of the product roadmap for traditional financial institutions.

Streamlining Services

As a FinTech working with Choice Financial Group to power its own banking services, Lili aims to focus on freelancers specifically with its financial services that include account and tax services. In a recent interview with PYMNTS, David explained that the unique financial challenges of freelancers warrant a service provider specific to this customer base.

"If you look at the freelance community, they have a lot of challenges of managing their business," she said. "In addition to balancing their work-life environment, they are struggling to get paid, issue invoices, do bookkeeping, manage expenses, [save] for taxes, [obtain] financial insights, [know] their balance and how much they made and so on."

The result is that many freelancers are often forced to piece together a mosaic of individual services. They may retain their current bank account services while procuring a third-party expense management or tax FinTech. Not only does this lead to a lack of holistic visibility into finances, it can also be extremely expensive for an individual professional to invest in so much technology.

"We're talking about 60 hours a year just on administrative tasks," said David, referencing the need for freelancers to manually jump from one platform to another, between excel spreadsheets and receipts, to obtain an accurate view of their finances. "In addition to that, $1,700 a year in banking fees, costs in expense management software, payments, deductibles in taxes. So, this really is about having them take back control, and getting them access to their financial insights while saving them time and money."

Preparing For A Shifting Landscape

Before the global pandemic, freelancers faced a slew of challenges to manage their finances. Today, those obstacles have, in many cases, amplified thanks to revenue uncertainty and shifting business models.

In the U.S., with a growing gig economy workforce, freelancers continue to form a highly diversified community.

"The U.S. is very diversified," David said. "There are 57 million Americans doing freelance work, some doing it as a full-time position, others doing it in addition to other work. But what is common about all of these freelancers is that they're facing the same challenges on managing their business."

That's not to say that there can be a one-size-fits-all approach to filling the finserv gap, however. Service providers must offer products and tools designed for the individual freelancer based on whether they freelance full time or part time, their industry, their financing needs and other factors.

And the freelancer landscape is going to continue to evolve, which will inevitably add more pressure on finserv providers to innovate.

"A lot of freelancers are very young," noted David. "The younger generation is more likely to be independent workers. But the younger you are, the more challenges you have, because you don't have access to resources and knowledge on what it takes to manage a business."

Earlier this week, Lili announced a $10 million seed funding round led by Group 11, while Foundation Capital, AltaIR Capital, Primary Venture partners and Torch Capital also participated. With the fresh backing, David noted that Lili will focus on this challenge of not only extending the appropriate products to freelancers based on their individual needs — a strategy that will inevitably entail the introduction of new products — but to also expand access to finance and business management resources to these professionals.

While the market volatility has introduced even greater cash flow uncertainty to freelancers, David said that rising unemployment is likely to guide more individuals toward the freelancing world as they see the benefits over traditional employment. (The latest data from the U.S. Department of Labor found 21.5 million Americans filed continuing unemployment claims last week.) In the long term, that could mean ballooning of the freelancer market — and even greater demand for freelancer-specific financial service providers.

"Nearly half of freelancer workers started out of necessity, so today I think many will be exposed to the option and opportunity to become a freelancer," David said. "Over time, they may actually consider standing with the freelance position."

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