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The pandemic caused an undoubtable and significant shift in the way people work and earn a living. The number of people identifying as ‘independent workers’ increased by over a third as the importance of balance and flexibility at work gained priority, and people realised they could earn an income from home amidst changing circumstances. But even before Covid struck, the freelance sector in the UK had been steadily increasing year on year. Today 4.4 million people identify as freelance workers in the UK according to research by University of Hertfordshire.
The changing world of self-employment
In today’s digital world of online work and with the rise of the creator economy and gig platforms, there are so many options for people who wish to have a varied career, and even specialise in more than one profession at a time. The opportunities are endless, and therefore people’s source of income is increasingly diversifying. 48% of UK gig workers do it as a side hustle to top up their income from other sources and 52% rely on gig work as their primary source of income.
Diverse incomes have many benefits, such as the flexibility to focus on certain work in case one revenue stream stagnates and the greater financial security that brings. However, with the expectation of greater financial freedom and security, it is disheartening for many independent workers to find themselves up against unequal access to financial services. Over a quarter (28%) of the UK’s self-employed struggle to access the financial services they require, according to new consumer research from Tink. In addition, a third of the self-employed (33%) believe their employment status has been an obstacle to getting a mortgage, and 31% believe it has affected their ability to obtain credit.
The challenges freelancers currently face
With gig workers earnings coming from different sources from one month to the next, financial institutions consider this irregular income a risk when deciding to grant a mortgage or a loan. Those on payroll benefit from having what is considered a stable income that is easier for financial institutions to verify and assess. To put it simply, independent workers have more to prove and the current system of verifying an individual’s working data does not make it easy.
Financial institutions currently operate manually to verify a worker’s income and employment data. With multiple income streams, this data is separated and dispersed from one platform or paper record to another. This makes it painfully time-consuming for financial institutions to verify an individual’s employment and income data making it difficult to make decisions such as granting mortgages. This slow and risky process means that independent workers face a long journey of delays, and sometimes barriers, when proving their solvency to financial institutions. Often, financial institutions do not have the time which results in workers being denied access to financial services and business being lost in the process.
Financial services must be accessible for all
Self-employed gig workers need a fair chance to be able to prove their solvency to financial institutions. One thing that needs to change is the way that credit scores are calculated. Today’s calculations are outdated and don’t take into account the new work habits and the multiple incomes that independent workers can accumulate. The Financial Conduct Authority (FCA) must play a role here to help revise the rules that financial institutions have to follow to make credit score calculations a fairer assessment to independent workers.
On a similar note, financial institutions need to expand the way they analyse data. They need a way of doing deep and complete analysis of a worker’s activity and earnings to reflect the truth. This requires adopting a fully digitised process to gain full visibility and transparency of multiple dispersed data sets in real-time whilst eliminating the bottlenecks of manual processes. Automation plays a key role in consolidating and standardising the data to avoid going through painful manual processes. It can help save significant time and money spent on analysing the data to inform financial service decisions. By speeding up the process, business conversions such as selling mortgages can be made quicker with the ability to verify the data much faster than before.
By automating the process, it also provides greater data security as it provides one central, monitored system to analyse data in. It provides greater transparency to guarantee the reliability of the data and protect against fraudulent documents. The adoption of technology platforms can also empower individual workers to remain the owner of their own data, giving permission to share on-demand access to the data without sharing the data itself. Gig platforms can also do more to facilitate inclusivity of financial services by making their workers’ data sharing easier and on a consent basis.
As the number of independent workers continues to rise, it is vital that financial organisations are prepared to deal with their financial requests, and are willing to try new technology in order to fulfil customer needs. By having clear visibility of workers records in one place, rather than scattered across various jobs and projects, financial institutions can feel more confident in their decisions, and can back them up with data. And with more informed decisions, come happy customers, and digital processes will no doubt be the gateway to this success.
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Abhinav Paliwal CEO at PayNet Systems- A Neo Banking Software Platform
12 August
Raktim Singh Senior Industry Principal at Infosys
09 August
Alex Kreger Founder & CEO at UXDA
Steve Morgan Banking Industry Market Lead at Pegasystems
08 August
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