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A slice of a new pie: how banks can leverage tax to get a slice of the gig economy
Financial Services
Fintech
the Optimizer
5 minutes
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A slice of a new pie: how banks can leverage tax to get a slice of the gig economy


TL;DR

  • The gig economy represents a $455 billion opportunity.
  • Tax insights enable bespoke financial solutions for gig workers.
  • New products could range from retirement to lending.
  • Embedded solutions offer fast turnaround without the overhead.
  • Banks can compete with fintechs by implementing embedded tax.


Introduction

The rapid advancement of technologies like artificial intelligence (AI), blockchain, and big data have given a fresh, exciting vibe to the world of finance. There's tough competition amongst finance companies to capture a larger market share. This competition has resulted in a greater variety of tailor-made products and more efficient services to meet the needs of a diversifying consumer base.


As we look ahead in this exciting era of personal finance, one expanding market is becoming too large to ignore – the gig economy. With a dynamic workforce breaking away from old-school employment norms, gig workers have unique financial challenges that have caught many financial institutions feeling unprepared to capitalize on the market shift. These financial institutions are always looking for the next big product or feature, but are still struggling to address the growing $455 billion market at their doorstep.


Integrating tax into large financial institutions' product suites is imperative, as it provides invaluable insights for addressing the specific needs and challenges of the expanding gig economy. Financial institutions can secure a significant share of this rapidly-growing workforce by building enduring products that confidently address the unique needs of gig workers.The 455 billion dollar question is: How?


The changing landscape of the gig economy

The gig economy is more than just a trend. It’s a seismic shift in employment models that offers flexibility and freedom to millions of workers worldwide. But the financial needs of this group are vastly different from W-2 employees. Many companies are not equipped to serve both, leaving the profitability of the gig economy market largely untapped. Financial institutions previously offered surface-level perks for gig workers, such as low-fee digital banking and easy access to funds. This approach treats gig workers as an afterthought rather than a unique market segment.


While fintech companies have aggressively targeted the gig economy, it's essential to recognize that large financial services organizations, particularly legacy banks, have the depth of resources to compete. From savings and investment options to insurance products, gig workers need flexible financial planning tools and lenient credit requirements. The financial institution that can create the best solutions to these problems will be first to enjoy a goldmine of deposits and sticky customers. 


Ways to leverage tax 

Building products around income patterns

Gig workers have a financial flow distinct from regular 9-to-5 workers. With tax, banks can pinpoint when gig workers earn more due to seasonal demands or when they face leaner quarters. Banks can suggest unique savings plans or investment opportunities in high-earning periods and offer tailored expense tracking or flexible overdraft options during slower months. By adapting to these fluctuations, banks can transition from just service providers to essential financial allies for gig workers.


Large financial institutions can use tax to devise unique cash advance policies tailored to gig workers with a data-driven approach that aligns with each gig worker's circumstances and repayment capacity. This ensures a more responsible and sustainable lending practice while providing crucial support to gig workers when their income is low.



 Building products for retirement 

 Financial institutions can read into gig workers' retirement savings behavior and analyze self-employment contributions and deductions. With this knowledge, product managers can develop innovative retirement savings and investment products designed to accommodate the irregular income streams inherent to the gig economy. This flexible approach to contribution options would automatically adjust based on the gig worker's fluctuating income levels, making retirement savings more accessible and adaptable.


These products can offer flexible contribution options, personalized risk-tolerant investment portfolios, and dynamic retirement calculators, all aligned with gig workers' unique needs. They would analyze insights from tax to identify peak earning periods and propose suitable retirement savings strategies, ensuring gig workers can optimize their contributions during the higher income and stay on track even during leaner periods. Financial institutions can leverage tax to provide personalized retirement planning advice, helping these customers make well-informed decisions about their long-term financial security. 


Building holistic lending products

Traditional lending models often sideline gig workers due to their inconsistent income patterns, but by leveraging tax, financial institutions can revolutionize their approach. With embedded tax, institutions can create loan products with flexible repayment terms tailored to a gig worker's income flow. Rather than relying on static monthly repayment expectations, these new loan products could dynamically adapt based on the worker's earnings, ensuring repayment terms remain manageable and fair. 


Institutions can adjust their credit scoring models to create a comprehensive view of a gig worker's creditworthiness and develop new models that accommodate their unique financial landscape. In doing so, they position themselves as champions for a new, inclusive era of lending. Lending services are big-ticket items, and by creating a new system, banks can secure the future customer as the workforce transforms.


Conclusion

As we step into this exciting era of personal finance, the gig economy is a rapidly expanding market too large for large financial institutions to ignore. Integrating tax into their product suites provides invaluable insights for addressing the specific challenges of gig workers and could lead to securing a significant share in a growing market. Tax gives a holistic view of these workers’ financial situations, empowering product managers to design flexible financial solutions. 


For financial institutions who want to avoid building from scratch, embedding existing tax products proves advantageous. This streamlined approach grants quick access to transformative information, accelerating the addition of hyper-personalized financial experiences to their offerings. With insights from tax as a transformative tool, financial institutions can confidently seize the opportunity to own a piece of the booming gig economy market and reshape the future of finance.


This content is provided for informational purposes only and should not be construed as tax, legal, financial, or other professional advice. Rules and regulations vary by location and are subject to change, so please consult with an expert if you need specific advice. Any data shared is subject to applicable law and consent.


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