Mastercard: Driving The Gig Economy’s Future Through Pay Advance

While traditional temporary and contract workers are not exactly new in the economy, the modern gig economy enabled by mobile technology is something of an economic force all its own. What emerged a little over a decade ago as a response to a financial downturn, and a host of unemployed and underemployed Americans, has evolved into a way of life for many. Today the gig economy drives $1.4 trillion in U.S. income.

Also, the demographics of the segment are changing. Workers aren’t migrating to the gig economy out of need, or for want of work, but because it’s a new and in some cases better and more lucrative way to build a career. For an increasing number of workers, the gig economy isn’t an add-on to their normal professional life, it is their primary professional work.

“The reality is what we call gig workers are now about one-third of the workforce and that is only expected to grow,” Mastercard Executive Vice President Jess Turner told Karen Webster in a recent conversation. “We have new technologies to allow people to work in a different way than we have in the past and there is really an opportunity for people to become full-time entrepreneurs.”

Living up to that opportunity, however, means payments must continue to evolve together with the rise of the gig economy. Workers, Turner noted, are increasingly opting into the broader gig economy because of the flexibility and independence it offers when compared to the “regular” 9 to 5 working world. However, the persistent downside many workers are still facing is volatility in terms of access to funds. Working on a salary is very stable — project work can have an inconsistent cash flow.

“This is what the gig economy needs to innovate and solve for,” Turner told Webster, noting that a glance at the July 2019 Pay Advances: The Gig Economy’s New Normal collaborative study by PYMNTS and Mastercard offers something of a mixed progress report. On the one hand, instant and advanced payments have made tremendous jumps, particularly amongst highly-skilled gig workers, and workers are more interested than ever in the service. On the other hand, progress has been slower on the lower-skilled end of the spectrum, and “greater educational push” is needed to prod this evolutionary development forward faster.

Empowering The Worker

When flipping through the latest data, the undeniable takeaway is gig workers of all types and skill levels would like to be paid on demand, if not sooner. Among those surveyed, 29.6 percent of gig workers report not having savings for emergencies, and 16.3 percent not only lack savings for emergencies but are also struggling to pay their bills. That access to instant or advance payments would be a boon for those workers is clear — but the research also found that more than a third of gig workers (35.2 percent) report waiting a week or more on average for wages.

“This is when actively managing cash flow can get very hard, because unexpected emergency spending becomes an issue,” Turner said. “And as more workers are entering the gig workforce and making it their primary form of support, the need for advance payments is only going to grow.”

Moreover, she said, the study demonstrates that the workers themselves are probably the best people to have this money. The leading use case for workers wanting access to advanced payments, she said, was for savings purposes. Gig workers are aware of their volatile situation and are looking to self-solve it by using faster access to their funds to create savings cushions that allow them to even out their spending. The second most common use, she noted, was paying bills, while the third was reinvesting in their business to prepare for more work.

The technology to make this happen is out there, she said. On the Mastercard front, there is Mastercard Send, which enables consumers to push funds onto any U.S. debit card and thus into a bank account.

“In the world with advanced technology and AI [artificial intelligence] there are now all kinds of things employers and marketplaces can be looking at to democratize pay in advance to workers who clearly want it and across professions that may be in the past it wasn’t thought possible for.”

The Raised Bar

For as long as there has been contracted work, there has been pay advance in some form. Contractors, architects, lawyers, accountants and the like generally insist on being paid in part or in total upfront. What technology makes possible — and thus desirable — is to expand that out to rideshare drivers, grocery deliverers, home healthcare workers and others.

“There are many flavors of what this is going to mean — which means building solutions for a lot of different kinds of platforms. There is absolutely a need for the private sector to help solve in every segment,” Turner said.

Because the demand for solutions is coming, today’s knowledge about the possibility of being paid in advance and instantly is still getting out among gig workers — and though that educational process is taking time, it is marching forward. Moreover, it has undeniable appeal: According to our study among gig workers, 51.8 percent of those who currently are working on a platform that does not offer instant or advanced payments would consider switching to one that does if it became available. Payments, she said, has tremendous power as an acquisition tool for gig platforms — which means the data is telling a clear story of something that can be a value-add today and that over time is going to become an expectation.

“This is a natural evolution for what the new working environment will require,” she said. “No one is going to disagree with that fact that the gig economy is going to continue to grow and the firms that succeed will have the payments optionality that are growing up with it.”