Beyond credit: 3 emerging opportunities for fintech startups in the gig economy

Gig work is projected to generate a gross volume of ~$455 billion globally by 2023. Gig work has been a large and significant part of the blue-collar and informal working sectors in emerging markets across the world, from factory and construction workers to security staff and domestic workers, to other daily wagers. In India and Kenya, where IndiaStack and mobile money (respectively) have powered fintech revolutions, the gig economy is growing rapidly. India’s gig gross volume is projected to grow by 115% by 2023. Kenya’s projections show a growth by 48.7% in the same timeframe.

The growth of the gig economy means the growth of an entire segment of workers. They are a burgeoning group that will constitute tomorrow’s middle class. Kenya’s online gig workforce stands at roughly 36,500 and is estimated to grow 33% by 2023. Offline gig workers are estimated to be 5.1 million, which is a large proportion of the population. In Uganda, gig workers are the second largest employment segment, yet they are viewed as having a low social standing. 

In India, they are the fastest-growing employment segment. One startup has estimated that numbers of blue-collar digital gig workers in India will grow at 21% CAGR, and that more traditional blue-collar gig workers account for 250 million workers; almost 20% of the Indian population.

Fintech startups and investors have recognized the opportunity presented by this emerging segment and are now exploring products beyond the standard high-interest loans that financial institutions can offer them. Digital credit, though profitable and growing, is after all only the tip of the iceberg!

At a recent Catalyst Fund event, experts from India and East Africa suggested that fintech startups and digital platforms should consider three additional opportunities: offering additional financial services; supporting skill-building and structured paths to career formalization; and expanding to serve adjacent populations.

The gig economy presents new opportunities for fintech startups

Even as the number of gig workers continues to skyrocket, they remain woefully underserved and financially vulnerable. Initial evidence suggests that while these workers have regular employment, their incomes are inconsistent, they have little control over wages, and they lack access to the regular controls and benefits of formal employment. Relative to white-collar workers like designers or developers, blue-collar gig workers in the ride-hailing sectors, for example, fall into lower-income brackets and have limited savings to smoothen fluctuating incomes. They are therefore especially vulnerable to poor working conditions, creating concerns about their financial health. 

These gaps present a clear opportunity for fintech innovation, especially with the rise of digital work and platforms. Gig workers are accepting and completing jobs through platforms, thereby creating a wealth of data that includes their work history, digital transactions, and data points on income and expenditure. This data is a valuable resource for financial service providers, which can use it for customer profile assessments and to design customized products that might be suitable for these workers. 

Beyond offering access to data, these gig workers are a promising target segment for fintech startups as they are more comfortable with digital channels for personal or work-related purchases. While they still avoid banks, they have been quick to adopt digital lending apps. Furthermore, they have clear financial needs that could be addressed by fintech services. For example, delivery workers for digital platforms in India have reported that they often run out of funds by the end of the month and need flexibility in paying bills until their next payout. Similarly, drivers have noted that their state-provided health insurance helps cover hospital costs, but they might waste an entire day waiting in lines to get their check-ups and reimbursements. They see value in life insurance to protect their families, but find that they cannot afford what’s in the market. 

All of these challenges present ample opportunities for agile fintech startups to offer tailored solutions.

Opportunity 1: Additional financial services

While digital credit providers have already started targeting gig workers, few providers have tailored those products or looked to other financial services like savings, investment, or insurance. Instead, gig workers must rely on traditional financial products that are ill-suited to their particular income streams (fluctuating) and ways of purchasing (digital). For example, even the credit solutions on offer are quite traditional in their design – periodic repayments of a certain amount with interest – which doesn’t necessarily align with the income patterns of gig workers.

“The gig economy is different from other formal players, and so financial institutions, regulators, etc. need to be more innovative and not use cut and paste approaches… Whatever’s provided in the market right now is not tailored for the gig market.” – Gituku Ngene, Youth Impact Labs

KarmaLife is an exception to this trend. An Indian startup offering products that can improve the financial resilience of blue-collar digital gig workers, KarmaLife started by offering tailored credit and payment solutions. Instead of offering standard loans and EMIs, they leveraged UPI to provide gig workers an instant credit line they could use for everyday needs like fuel costs, mobile repairs, or to send money home to family. The instant nature of this quick, refillable credit helps gig workers smooth their incomes and provides a buffer credit to support them when they are running low on liquidity. Karmalife is also exploring other services related to insurance and other auxiliary services, which they plan to introduce soon.

Another Catalyst Fund portfolio company, Turaco, offers micro-insurance in Kenya and Uganda at monthly premiums of ~$2. The startup has partnered with digital ride-hailing platforms like SafeBoda to offer their drivers tailored life and health insurance coverage, including hospital cash back payments, which help mediate unforeseen shocks like sickness and accidents. The claims can be made digitally via their mobile and they don’t have to wait in lines and lose a day’s worth of work to get their cash back.

Opportunity 2: Skill-building

Fintech startups are also recognizing that gig workers are a diverse group of people with diverse needs. For example, some gig workers are youth who are just starting their careers, living either alone or with families, while others are the primary earners for their families. Many gig workers are migrants from smaller cities or villages. Each of these profiles has different needs, aspirations, and skills and capabilities that startups can target with tailored financial services, but almost all gig workers want a pathway to larger, more stable incomes.

Both Youth Impact Labs and Acumen India also support the idea of understanding gig worker aspirations. Acumen noted that offering gig workers skills financing, and helping them set a learning path that meets their aspirations, would set a strong foundation for growth. Education can improve the uptake of financial products but also grow incomes and opportunities. Meanwhile, innovators need to think about how their services can support various gig workers in building their skills and climbing up their career ladder.  

For example, SafeBoda in East Africa serves boda-boda drivers by deeply understanding their financial and non-financial needs and then designing appropriate services for them. They learned that their drivers have short-term and long-term aspirations, but have trouble meeting these goals for various reasons – lack of understanding of how to plan financially, a paucity of funds, and few available channels for meeting their goals. SafeBoda developed a driver wellness program designed to address some of these challenges. They started with financial literacy training to help drivers understand how loans and insurance work. Then, they offered small-asset financing and insurance to their drivers and helped them open savings accounts. Through this program, they found that their drivers were much happier with the financial tools on offer, and felt more confident about their work. 

SafeBoda also created third-party gateways for drivers to access various services, including higher education, to help meet personal growth goals. KarmaLife’s strategies include helping micro-entrepreneurs linked to platforms like Uber access affordable and flexible working capital to grow their businesses. This means supporting their growth aspirations by affording them opportunities to build their skills.

Opportunity 3: Adjacent populations

“We have to design multi-functionally and think of the adjacencies.” – Rishi Razdan, Acumen India

Although digital gig workers are a unique new segment, they share needs and habits with other underserved populations, like other informal, daily-wage laborers. In order to address these adjacent segments, startups would need to expand their services to the non-digital, more unstructured gig-workers, like factory and construction workers, or domestic workers.

Youth Impact Labs pointed out that adjacencies could also mean new geographies, like rural areas, where startups will need to build solutions that can overcome infrastructure challenges like low connectivity and smartphone penetration. They also mentioned that the skill-level may be significantly different from that of workers in urban areas, which means they would need to focus on localized skill-building and training to enhance worker productivity.

There are limited examples of startups that have already expanded to support adjacencies; however, various innovators have begun to experiment with this. Paymenow, a startup that offers low-income South Africans early access to wages that they have already earned, partners with employers ranging from those in mining, to financial services, to logistics and call centers. Their offering has an in-built feature that teaches and guides their users to become more financially literate and resilient to unforeseen expenses. Their approach of expanding across sectors has given them deep insights into the needs of different worker segments.

Serving women is another type of adjacency. KarmaLife and SafeBoda both serve relatively few women because gig work remains predominantly male-dominated. KarmaLife’s approach is to serve women directly by ensuring their services can reach the likes of factory and domestic workers.

For innovators exploring adjacencies, Acumen India and Youth Impact Labs both recommended exploring partnerships to learn more about the target segments and also to leverage existing channels and relationships to test the products on and iterate till they see traction.

Conclusion

The next generation of innovators is turning their sights to new products and populations that can benefit from app-based financial services and opportunities. These innovators have started experimenting with more tailored credit and payment solutions, begun offering other financial services like savings and insurance, and also begun exploring non-financial benefits. As we learn more about the blue-collar gig economy in different markets, startups should focus on how to support their aspirations. This includes skill-building for existing gig workers, but also for those who see gig work as a strong economic opportunity to rise beyond their current social standing. Finally, leveraging this powerful tool to offer services to adjacent gig worker populations would be the key to scaling up in this sector. 

Here are some questions that innovators should consider when thinking about designing for this space: 

• How can you design products that are tailored to the target gig worker segment? 
• What beyond credit can you offer to this segment to improve their financial health? 
• What does growth mean for the gig workers you serve, and how can you help? 
• For those that are marginalized in this segment, how are you making sure that your product is built such that they can be fairly included as well?

We also offer the following resources for innovators as they think about the questions posed above while designing their solutions for this segment: 

• Three emerging opportunities for the digital economy (a learning brief)
• Mapping the needs and lives of iWorkers, a new category of workers – those whose livelihoods are enabled by digital commerce platforms through which they sell goods and services, and do so in a variety of forms.
• Example of an additional financial service, as announced by a tech company in Rwanda, which allows drivers to get a mortgage to own their homes as they drive for the company

Let us know where you’re at with your journey!