You can still find glimmers of hope in an increasingly inequitable world. One bright spot is the world of fintech, which is creating a wider, more inclusive tent for those who want access to financial services. Innovators have done that by focusing on the pain points in today’s financial system.
Craig J. Lewis, a Black entrepreneur who is CEO of Gig Wage, sees fintech as the on-ramp to the digital economy. “If I told you I wanted to start a bank, I wouldn’t be in business today,” he says. “The power of fintech companies is that they can take a different perspective from the traditional top-down banking world.” His company builds modern payroll, payments and banking tools so independent contractors (1099 workers) can get paid quickly and transparently.
Lewis is laser-focused on the huge swath of American workers who work in small businesses, and freelancers of all types – including artists, plumbers, and housekeepers. Of the estimated 143 million workers in the U.S. economy today, 75 million have some sort of 1099 job. “That means somewhere north of 40% of the US workforce is at least to some degree paid with a 1099 tax form, not a W2,” Lewis says. Today these payments to what he calls “independent, alternative workers” are made with a variety of essentially duct tape solutions. Most small businesses can’t afford a tech-intensive Uber-or-Lyft type of payment infrastructure.
The byproduct when companies like Gig Wage systematize how gig workers get paid is a more inclusive and diverse system that offers independent workers the audit trail they need to get access to credit cards, loans, or other essential financial tools.
Micropayments, Subscriptions and the Creator Economy
Another catalyst for the new economy will be the ability to make micropayments. All of us have been caught in the frustrating cycle of the “subscription web,” in which we pay full price subscriptions to media like The Wall Street Journal, Disney Plus, Netflix and many others, when all we wanted was one article or movie.
Dropp is focused on creating a closed blockchain-backed system of micropayments that supports both conventional national currencies and cryptocurrency. These micropayments are meant to enable the unbundling of subscriptions into tiny transactions that can happen every day (a tip, a newspaper purchase, a charity donation). Dropp is specifically designed for micropayments of $20 and below. Today the cost for a merchant to support such transactions is high.
Sushil Prabhu, Dropp’s CEO, says solutions like his are “made for the creator economy.” You can pay merchants or content providers five cents, fifty cents, or five dollars. With Dropp, you might purchase 30 minutes of Wi-Fi access, rent a scooter for 10 mins, buy a cup of coffee, or pay for weather data in an application. This helps more people get included in the economy. Today. if you don’t have a credit card, you have a much harder time participating in much of the financial system. Prabhu’s proposition is to get merchants and users into a single closed system, where Dropp’s merchants can unbundle their offerings, offer more affordable pricing, and do great volume.
Access to Wages
For Jeanniey Walden, financial inclusivity is all about having money when you need it. She’s the chief information marketing officer of DailyPay, which works with businesses to offer their workers immediate access to their earned income. ” Why do we need to wait two weeks to get paid,” she asks. It’s what she calls, “one of these invisible rules around money.”
According to a report issued by Plaid in conjunction with the Harris Poll called The Fintech Effect, we’ve arrived at mass adoption of fintech. The report found that nearly nine in 10 Americans use some kind of fintech app to help manage their financial lives. In 2021, the percentage of U.S. consumers using tech to manage their finances jumped 52% over 2020. More people now use fintech than use video streaming services (78%) and social media (72%). That makes fintech among the most widely adopted consumer technologies outside of the internet itself (93%).
“Fintech has accelerated the digital road maps of financial institutions,” says Raja Chakravorti, who is responsible for financial access at Plaid. The company, which says its “mission is to unlock financial freedom for everyone,” builds the infrastructure that helps consumers connect their financial institutions to fintech companies. Chakravorti explains that the Plaid tech stack enables smaller financial institutions like local credit unions and lending organizations get access to the same tech large organizations have. “Forty-five million people in the US are credit invisible,” he says, ”and disadvantaged because they don’t have access to things like credit scores, for example.” During the pandemic, he says, great trust was built with local financial institutions, but many don’t have the digital infrastructure to support their customers. Plaid gives them the tech stack they need to reach everyone, even the underbanked.
Plaid’s report with the Harris Poll teased out the implications of fintech’s mass adoption. “People,” the report said, “gravitate to fintech for speed, ease and convenience, but it is the strong benefits and positive outcomes that are cementing fintech as the primary way of managing money moving forward.” People that Plaid and Harris surveyed reported that fintech saved them time (93%) and money (78%), helped them make smarter financial decisions (73%), and reduced financial stress (71%).
(This column is based on a panel Raskin moderated at CES 2022 called Fintechs: The Promise of Inclusivity and Diversity.)