This week’s Future of Fintech is on the future of gig work, discussing how big the gig worker market is, how the pandemic changed the market, why fintech for gig workers is particularly important, & opportunities in this space.
Guests for this week include:
- Trent Bigelow, CEO of Abound
- Sean Engelking, Co-founder and CEO of Starship
- Kristen Anderson, Founder & CEO of Catch
- Hooman Radfar, Founder & CEO of Collective
Highlights from Future of Fintech: Gig Workers
This interview has been lightly edited for length and clarity.
How has the pandemic affected the gig worker space?
SEAN (Starship HSA): A lot of us have seen changes from proposition 22 as state labor law changed in California on election day. We've gotten fewer rideshares, we've ordered more food. Everybody's using QR codes now. You can connect these trends not just to the pandemic, but also to legislative changes.
HOOMAN (Collective): At Collective, we work with knowledge workers. It was counterintuitive, but a lot of our members’ income went up. I saw a huge, corresponding shift where a lot of enterprises shifted into contract work.
We've grouped gig workers, but knowledge workers are different from rideshare workers. Are the tools that are being built for this economy standardized between segments?
KRISTEN (Catch): They’re fairly different markets. We serve on-demand income workers: whether that's retail, food and bev, or more traditional gigs. These are people who aren't getting benefits from the work that they're doing.
The similarity in our businesses is that we serve them directly as consumers. The pandemic brought about a huge need for people to earn income in different ways. The direct-to-consumer approach is so important because we need to serve people no matter how they're earning income.
TRENT (Abound): Think about the different types of independent workers. It's difficult to sort them into four categories, but I'll try.
Everyone tends to think of the gig economy. That's the first group. It tends to be lower income. Then you've got creators. You're not getting paid for your time, you're getting paid for your ideas and content. Then you've got independent professionals. Everybody from a real estate agent, to an attorney, to a graphic designer. The last category includes millions of merchants, whether they're on Amazon or Shopify. The independent economy is so much more than just the 'gig economy.'
HOOMAN (Collective): Some of the tools can be horizontal, but everyone's going to need insurance. Everyone's going to need taxes. But I do think there are some very critical needs. As an example, ridesharing is a specific segment. There's a lot of churn, they have to track their miles. The way they look at taxes is fundamentally different. Even physicians and nurses – all of these segments have vertical marketplaces for freelance, part-time work.
When you guys are going out to talk to VCs, how do you size the market?
KRISTEN (Catch): Never take for granted that VCs can understand a specific market as well as founders. It's very easy for VCs to immediately track to super successful gig marketplaces, like DoorDash, Uber, Lyft, and Postmates. This is much bigger than that.
We don't use the word “gig” in our pitches or our market sizing. We serve a lot of W2 workers: people who are working two part-time jobs where they don't get benefits from either one. There’s a much broader market.
HOOMAN (Collective): We have had a good amount of interaction with the venture community. The blocker is almost never the size of the market.
Around the gig side, you have to be careful how you label it. Let's say you're looking for people who are solopreneurs, who are making over $100,000. That's three to four million people. We make sure that our initial serviceable opportunity is clear. Sub-segmentation is a tool you can use to get venture capitalists to believe where you're starting.
KRISTEN (Catch): Then go-to-market becomes the bigger question.
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I'd like to talk about go-to-market for a second. How do you effectively find and target consumers?
KRISTEN (Catch): Direct-to-consumer is hard and expensive. Finding people who are independent is difficult. It costs a lot of money, so you have to have a model that you can monetize quickly. For a lot of these markets, health insurance is a core component of monetization. But that's a tough one to monetize on fast.
The question then becomes, “what is the best way to access these people?” B2B or B2B2C is a natural choice. For example, I think Catch has roughly 1500 different payment sources. If you're going B2B2C, you have to serve all of those different segments.
HOOMAN (Collective): The starting point for go-to-market is segmentation. For us, we have a very tight audience that we work with. It's large, but it's congruent enough. We can then keep our messaging tight and rely on certain channels. The more horizontal you are, the harder it is. That has helped us with getting referrals. Members talk to and refer other members, and that's become a big driver for us.
If you say “gig worker,” a lot of folks don't self-identify as that, whether they're a driver or freelance artist. If you're too broad, it becomes challenging. You have to be very disciplined about your segmentation, and then you can go channel by channel.
SEAN (Starship): The issue for us is how do we build the brand that we want people to be seeing? How do we hit metrics in the short term, but also how do we meet a broader end goal without diluting the entire message?
Go-to-market, for us, has been taking familiar models from an existing industry. Can we take a familiar model and use it in a similar way, but targeted to a different customer? We're able to rely on something that does exist in the world and that people understand.
Can the gig worker market drive new ideas for fintech?
KRISTEN (Catch): Do you fundamentally believe that the winning neobanks are going to be niche? Or do you think that they’re going to be broad players: replacements for Wells Fargo, which is a bank for everybody, and not quite as driven on the market side?
Neobanks are going to show the way. The portable benefits space is going to be behind because we've got so much more complexity. On the product innovation side, there's just a massive need. We'll see whether or not the specificity of segmentation works at scale. Beyond that, to scale, you have to serve outside of a single segment or persona.
TRENT (Abound): It's early days for neobanks. A lot of Abound’s customers are Neobanks, and I am amazed at how vertical and niche they're getting. We're not just talking about neobanks for independent workers. This is a Neobank for creators. This is a Neobank for YouTubers. This is a Neobank for a very specific YouTuber.
Founders are seeing opportunities to build with a very narrow focus, probably because they come from that space, and they understand a specific financial need that is going unmet.
HOOMAN (Collective): Banks are a good bellwether and they're showing the shift. Traditionally, banks were characterized by geography, and then they aggregated by larger geographies. With the shift online and the downfall of retail, the neobank started as an internet bank, but now it's becoming audience-specific.
The question is what's the carrying capacity? When you're looking at innovation, there are going to be core horizontal services that power the stack. Vertical providers are looking at whether they go from a neobank angle to becoming a bundled service provider, almost like banks used to be in the ‘60s. You'd go there to get your mortgage or car loan.
People don't do that anymore, but there's a rebundling that's occurring, enabled by embedded fintech. How far will we go down the rabbit hole?
SEAN (Starship): When it comes to HSAs, we saw a fault line. There was an island that was just about to break away, and our view is to focus on that. Typically we were bundled with insurance, retirement, and reinsurance products. All that got blown up. Then we got re-bundled with different providers. The billion-dollar question is really, is that the way to do it?
What's the future in this space? What interesting opportunities are coming up on the horizon?
KRISTEN (Catch): The ability to earn income on demand: there are more ways for people to earn income however they want, whenever they want. You can monetize assets. That leads to some fundamental changes in how we think about what income is. How does that affect policy? So much policy in this country has been built around the idea of the workplace as somewhere you put in your 40 years, as a single income stream with an HR department.
Companies, tech companies specifically, will lead the way for insurance companies and the public sector. We need to get ahead on what it means to be able to earn income differently. If any of you have ever earned 1099s and tried to understand what your quarterly taxes and penalties are supposed to be, you know it’s a complex system that does not acknowledge how people are starting to earn income more frequently.
This is a much broader conversation that we're all a part of. How should we frame society around the fact that income is available on-demand and is not tied to a 'job'?
Do we think regulation is going in the right direction here? AB5 seemed like it was a complete disaster in California.
SEAN (Starship): It will happen in fits and starts. We're going to see good and bad examples pop up, and this typically happens whenever there are big changes. We saw this with the shift from pensions to 401ks, and we even saw this a bit in my industry. There was something called the medical savings account, then there were FSAs, and the HRS, and now the HSAs. This is over the arc of 15 years.
That's the most optimistic view on regulations I've ever heard. Let’s say I want to offer lending to gig workers. How can I determine how much they make and apply it to my lending decisions?
KRISTEN (Catch): The challenge with 1099 and independent work is that there is no consistency in those sources. Part of what's powerful about our engine is that we can get individual income scores. That's how the core of our system works on the tax withholding side -- you can say all of these sources are income, so set aside for all of them. As Catch grows, we can create customized knowledge on what someone's income looks like. There’s not a simple answer, but having data for longer is a must-have to be able to do that.
TRENT (Abound): There's cool stuff coming from aggregators, like Plaid, as they move from the old world of scraping data to direct API connections with open banking. Plaid is thinking big here, about how there are going to be limitless enrichment layers. I hope there are some founders here that are thinking “maybe I don't have to build an app or infrastructure. Maybe I can build an entire business just on enriching another ecosystem's infrastructure.”
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The Mercury Team