One of the main reasons for the rise in popularity of the gig economy was the flexibility and freedom it provided to its employees. Being able to work on their own schedule, having the option of pursuing multiple careers, or even just having a side hustle as an extra source of income, made the gig economy very lucrative.
But the recent pandemic, COVID-19, which has the whole world reeling from the repercussions of being locked down, has made steady paychecks with health insurance benefits look a lot more promising. And while there are advantages to being in the gig economy, there are also disadvantages that cause incredible anxiety to the workers in the ecosystem, the biggest among them, undoubtedly, being the payment question.
According to a Global Marketplace and Gig Economy Payment Satisfaction report, a survey of gig economy freelancers from various industries around the world found that 73% of gig workers are likely to leave the marketplace due to payment issues. Many gig workers and freelancers face delayed or even denied payments, and many spend weeks tracking down payments every year. And this is where companies who rely on gig-workers can make a difference and digital transformation can be a lifesaver. One could argue that adopting a digital transformation platform to meet employees’ requirements in real-time – an instantaneous payment platform for instance – will help the gig economy thrive going forward.
In a move that seemed understanding of this predicament, the US Federal Reserve officially announced in August 2019 that it plans to build a real-time payment service by 2023-2024 called ‘FedNow’. Hopefully, the changes that COVID-19 has brought upon the world economy spurs them on to develop and implement this sooner rather than later.
In the announcement, the Fed Reserve invited extensive feedback from members of the banking and payment community and in a much-publicized response, Google wrote to the US Federal Reserve Board detailing the successful example of the UPI (Unified Payment Interface) based digital payment platform in India to build FedNow.
UPI, according to the NCPI website “is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments under one hood.” It also caters to the ‘peer to peer’ collect request, which can be scheduled and paid according to your convenience.
Google listed three major qualities of the UPI worth emulating:
- Interoperability – account to account transfer and not just an online wallet
- Real-time money transfers
- An ‘open’ system – standards are open-source so technology companies can build their implementation of the solution
Let’s look at these qualities a bit closer and understand how they can become game-changers for the gig-economy.
The diverse requirements of the US FinTech industry necessitated multiple channels for enabling payments. The payment systems currently in place don’t interoperate seamlessly. Private solutions are closed-loop systems too – real-time transfers are possible only between those users who use their specific solution. This is arguably the biggest drawback of the multitude of perfectly functional payments systems that have organically sprung up over the years.
Now imagine a new platform that can now provide you with access to the funds lying in your bank account and can transfer money from your PSP (Payment Service Provider) to another party’s bank account without worrying about the PSP the other party uses. This would essentially convert all PSPs into portals to your financial world. This is what the UPI platform accomplishes.
Real-Time Money Transfer
As smartphones are replacing physical cards and POS systems, any new system being developed should be able to authorize a payment using a pin or two-factor authentication to transfer cash instantaneously regardless of the platform the merchant uses. Without Visa or Mastercard needing to act as intermediaries. A system that combines all the existing payment rails and can transfer money to any of the nodes seamlessly, just like UPI does.
In the current payment ecosystem, different payment rails need different types of authentication information. The new system should simplify and standardize these operations – the different types of authentication for each payment rail should be handled under the hood by the new system. The result would be an open and interoperable payment infrastructure, compatible with all the existing technologies and has the potential to integrate newer ones.
This is what will enable any PSP to facilitate transactions to any other PSP instantaneously, leveling the playing field for banking and non-banking PSPs (Fintech firms) when it comes to managing payments.
The Entrepreneur’s Advantage
The biggest beneficiaries of such an instantaneous payment platform, other than gig workers, will be small business owners and the low fixed-income individual who has to wait for a couple of days after a paycheck is deposited for the amount to reflect in their account.
If FedNow works with this kind of an open system, it will create opportunities for small and medium-sized banks, credit unions, FinTech companies, and large retailers to develop their version of PSP applications. And while developing such a system, firms must ensure that they create a simple, intuitive platform for P2P transfers and digital POS systems for their customers.
It will also create an opportunity for payment and ‘payment adjacent’ solutions providers to develop their own version of PSP apps. For instance, even small FinTech firms can utilize their existing infrastructure and leverage digital transformation solutions to meet customer requirements, offering innovative, secure and user-friendly solutions that can compete with the likes of larger banks. In this way, they can reposition themselves for continued success, even post COVID-19.
Having developed FinTech solutions for their partners, companies like Experion Technologies have a distinct advantage in developing PSP apps for their client partners, that companies around the globe can rely on to be top-notch.