Fighting Friction In The On-Demand Economy

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If you build it, will they come? The gig economy is ripe with online marketplaces, but whether a platform sinks or swims is ultimately determined by the freelancers that power the system. Without that supply, there can be no demand.

In the second-to-last podcast in our series on crafting an optimal online experience, Karen Webster sat down with Tomas Likar, vice president of strategy and business development at Hyperwallet, to discuss friction — the kind that rubs freelancers the wrong way (in a virtual sense) and keeps them from participating in exchanges on marketplace platforms.

When it comes to on-demand marketplaces, Likar explained that the most prevalent points of friction exist at a level that is “individual for each platform. Typically, platforms have three important friction points during the onboarding process.”

Likar began: “First, there is probably going to be some form of identity verification,” referring to processes typically known as Know Your Customer (KYC). Typically, on-demand workers will upload identity documentation and some sort of supplemental information (e.g., a utility bill) to provide proof of residence. In a perfect marketplace experience, this would all be automated and completed in just a few seconds, but Likar noted that KYC procedures can fail, hindering the onboarding process and discouraging prospective freelancers before they’ve even begun on the platform.

According to Likar, the second point of friction comes when an on-demand worker is asked to submit their banking information during enrollment. As we discussed in previous episodes of our series on optimal on-demand marketplaces, some freelancers may not feel comfortable sharing this sensitive data upfront, while others may not have traditional bank accounts in the first place. This wrinkle can lead to further attrition during the signup process.

Thirdly, Likar explained that most marketplaces demand too much information during the onboarding process, despite needing “very little information to start with.” Likar continued: “You probably just need a name and address of [a prospective freelancer]. Then, as they start making more money” and become a more entrenched member of that platform, “you can step up your requirements and ask for more [information], and you can also set different requirements by country and payout size. You shouldn’t scare people off in the beginning.” Later in the relationship, Likar posited, on-demand workers will have more incentive to provide more granular personal details.

Marketplaces often miss these finer details on friction. They’ll mandate that freelancers sign up for PayPal and send earnings to that account, or they’ll require freelancers to have a bank account — neither of which is “the most frictionless way to onboard new giggers.”

The most optimal solution, Likar asserted, would integrate branded prepaid cards that can become part of the onboarding process — sending newly recruited freelancers a card in the mail following their enrollment. Because of the limited personal information required to distribute prepaid cards, companies could serve banked and unbanked workers equally, pushing payouts to the cards in real time. “Giggers can still take those funds and move them to a bank account if they want to,” Likar noted, which, no doubt, improves the flexibility of the payout and the overall platform loyalty.

Of course, there are other ways to improve loyalty to a particular marketplace. Likar encouraged the notion of loyalty benefits — that is, rewards or perks for performing a behavior that also boost marketplace revenue. For example, rideshare marketplaces could improve driver loyalty by offering discounts at gas stations, which simultaneously incentivizes driver activity.

On-demand platforms should take heed. As Likar stated, firms may tinker with apps or service departments, but for the freelancers, the biggest point of concern and anxiety “always comes down to payments.” Reducing onboarding friction — as well as friction in the payout process — is a sure way to keep freelancers active in a digital marketplace.