Gig Economy

A “gig” refers to short-term or temporary work, originally tied to musicians’ engagements but now encompassing various industries. The gig economy is expanding rapidly, with individuals engaging in Gig working either as a primary income source or alongside traditional jobs. Its growth is driven by flexibility, additional earnings, and creative fulfilment. The gig economy today encompasses fields such as beauticians, tutors, contractors, and drivers. Its rise is fuelled by technological advancements, the e-commerce boom, and increasing demand for flexible services.

Types of Gig Workers

Gig workers can be categorized based on the technology used to secure work, which includes

• Platform-Based Workers: These use digital platforms for tasks like ride-hailing, food delivery, and online free-lancing.
• Non-Platform-Based Workers: Operating outside traditional employer-employee relationships, they include casual wage earners in sectors like construction and agriculture.

Reasons for the Growing Popularity of Gig Work

There are several reasons for the increasing acceptance of gig work by both employers and employees. From the perspective of Gig workers, platform-based gig work has low entry barriers due to the lower skill requirements for many of the roles. In countries like India, where platforms such as Uber, Zomato, Ola, Urban Company, and YouTube are rapidly expanding, there is a high demand for Gig working individuals with minimum qualification criterion. The availability of technology needed to do Gig working at affordable rates also helps the cause for Gig working, low cost smartphones with high-speed internet and digital platforms facilitates remote/gig working.

Gig work offers flexibility in terms of both working hours and days. It also provides independence in how tasks are completed, this flexibility attracts individuals towards Gig working. For many, gig working presents an opportunity to earn extra income by utilizing their individual skills. Also, flexible working hours provide time for Up skilling or learning additional in-demand skills.

From the perspective of employer/organisation, it offers flexibility and saves cost  as companies now can hire skilled gig workers with without adding them to their payroll, which saves them from various expenses such as insurance, medical coverage, and retirement benefits. Through gig economy, organizations can get access to wide array of talents in the industry. The diverse skills and expertise brought by these individuals can significantly benefit the organization. Human resource planning becomes more manageable with gig workers, especially in industries where cyclical trends are observed. Businesses can supplement their workforce with gig workers during upswings in demand.

Challenges in the Gig Economy

For Workers:

• Inconsistent Income: Unpredictable earnings require careful financial planning.
• Lack of Job Security: Contractual roles limit workers’ bargaining power.
• No Benefits: Most gig workers lack insurance, pensions, or emergency support.
• Legal Protections: Workers often lack unionization rights, occupational safety regulations, and fair employment practices.

For Employers:

• Finding Talent: Locating skilled workers can be challenging.
• Commitment Issues: Short-term contracts may lead to lower worker engagement.
• Planning Difficulties: Long-term strategies are harder to implement with a transient workforce.

Gig Economy Overview

The size of the gig economy is hard to quantify, particularly for non-platform-based work. In India, there were an estimated 7.7 million gig workers by the end of 2023, projected to grow to 23.5 million by 2030. Globally, the gig economy was valued at $415 billion in 2023, expected to reach $920 billion by 2031, with a CAGR of 14.5%.

Banking Challenges for Gig Workers

Traditional banking products are often unsuitable for gig workers due to:

• Irregular Earnings: Many workers lack stable income or credit history, limiting access to loans. As the present models for credit assessment requires stable income.
• No Safety Net: Workers face challenges in saving for emergencies, retirement, or lean periods.

Opportunities for Banks

Banks can develop products to address gig workers’ unique needs:

1. Savings and Investment Solutions:

• Flexible Plans: Savings based on a percentage of income rather than fixed amounts.
• Lean Period Funds: Dedicated savings bucket to be provisioned for lean periods.
• Tax Provisioning: Automatic tax deductions to simplify compliance.

2. Credit Solutions:

• Flexible Repayments: Loan repayments tied as fixed percentage of their monthly earnings instead of keeping the amount fixed as in normal case. This might lead to flexible tenures.
• Overdraft Facilities: Quick credit options for lean phases in the form small overdraft facilities.
• Financial Literacy Programs: Educating workers on managing loans and savings and importance of financial discipline.
• Contingency Planning: Offering insurance and pension options alongside credit products to cover for contingent situations like medical emergencies.

Challenges for Banks

• Risk Assessment: Profiling gig workers are difficult due to irregular income and lack of credit history. New models using AI and additional data sets are needed to be created for an alternative risk assessment method.
• Product Development: Designing flexible savings and credit products requires innovative algorithms and analytics.
• Regulatory Hurdles: Loan products with flexible tenure and repayment would need approval from regulator.
• Diverse Worker Profiles: The gig economy includes both highly skilled professionals and low-skilled workers, requiring tailored offerings for a diverse segment of customers.

Offering for Gig workers Available in India: Presently, there are limited offerings available in India. HDFC Bank has launched the GIGA platform targeting gig workers by offering both saving and loan products. Additionally, there are a few fintech companies providing services specifically tailored for gig workers; examples include KarmaLife which offers microloans in partnership with SIBDI, as well as Money Logi – an app that provides loans to gig workers with no credit history at competitive rates.

Conclusion

Gig economy is defining a new way in which people are getting work and also doing work. A similar shift is needed in the banking products and services in order to support and provide the necessary financial infrastructure for Gig workers. The probable solutions which are discussed are more or less to address the issues of irregular income, with the probable solution being flexible deduction or repayments. Additionally there is a need to address the retirement planning and exigency requirements of the Gig workers. A favourable regulation from the government with thorough industry consultations can be a huge boast for the social security requirement of the Gig workers.  As Gig working finds more and more acceptance, it will surely throw a huge challenge for the banking sector to develop products that find more acceptances. The future promises abundance of opportunities for collaboration and innovation in the financial services industry as the Gig economy continues to redefine the employment landscape.

Written by

Harsh M Sankhala

Research Officer

SBIIT, Hyderabad

MB 9821761095