Traditional financial services tied to legacy management systems and outdated risk models are failing to meet the demand of today’s changing marketplace. Approximately 35 percent of the U.S. workforce were freelancers last year, and even before COVID-19, that number was predicted to rise to 50 percent by 2027. This growing demographic of drivers, couriers, designers, photographers, and more in the “gig economy” are finding themselves systematically underserved or excluded by financial institutions.
The flexibility and independence associated with gig work are the positives of this shift to more independent work. However, aberrations in week-to-week earnings are penalized by traditional providers of financial services and are sources of anxiety for those working in the gig economy. Traditional lenders and financial institutions rely on outdated risk models, indicators and eligibility criteria, and gig workers are often flagged as high credit risk and are either charged exorbitant rates or turned away.
There have been a few advances in helping non-salaried workers borrow money fairly. One example is PayActiv, a low-fee payday advance app for part-time employees. Employers can offer PayActiv as part of their benefits package, which helps them seamlessly allow users to borrow against their next payroll at a nominal fee. PayActiv helps its users avoid predatory lenders and cycles of debt – but a downside is that it doesn’t scale for individual consumption, so it is only available to workers of participating employers.
Solving these real problems for individuals can be a driver for wide scale adoption of blockchain technologies, offering greater empowerment and transparency often lacking in closed platforms. As the traditional eight-hour shift or 9-5 desk job evolves, practical use of blockchain technologies can balance the power dynamics between closed platforms and independent workers servicing them.
The benefits for trust between parties and increased transparency for economic transactions offered by blockchain has been well documented on these pages. However, the chicken and egg scenario that plays out with nascent technologies are a barrier to adoption to those understandably skeptical of those offering utopian futures.
Changing the status quo means those working on blockchain technologies need to clearly demonstrate practical and near-immediate benefits to its users. It cannot just be abstract theory. Strategies that do not recognize this dynamic will continue to struggle. Empowering independent workers and breaking down the walls of closed platforms needs to show real-life, real-time value. By solving the problems of today, it addresses the skepticism and builds the trust proponents of blockchain technologies are promising.
Blockchain based financial technology should empower independent workers to create a new financial future for themselves that respects, recognizes, and understands how they work and make a living.
That is why Moves was created to lend money at affordable rates to independent workers by using an alternative data model. The data model is used to produce a summary score called the Verifiable Confidence Interval, or VCI, which is hosted on The Open Application Network. Because this blockchain network is secure and immutable, it guarantees the authenticity of the VCI and provides an opportunity for third parties to transparently contribute to or consume the VCI in the future.
The medium-term potential to combine trusted blockchain data, behavioural economics, and a more complete picture of customer characteristics will empower customers and bring additional niche products to the market as the greater insight offered reduces the risk. Rather than rely on the outdated credit score system, a decentralized finance model enables companies to establish better customer relationships and provide more tailored and affordable products over time that will allow individualized offerings to scale.
To those with a stable, recurring pay cycle and affordable access to credit, this may sound underwhelming. Yet the continued demand for exploitative payday lending services and the debt cycle it traps too many in demonstrates the need for solutions that instead empower independent workers. Companies like PayActiv are a good start, but we need more to assist the independent workers and freelancers of the world.
