As Crook observes:
while this in-the-moment working arrangement can be sustained in the short-term, only thinking about the now may lead to long-term financial issues.
because:
For years, traditional lending has focused on assessing stable consumer income to determine financial risk. Those with full time and stable jobs will fare better. But ‘gig economy’ workers clock up individual hours which – from a credit risk modelling perspective – may not be seen as joined up, consistent or predictable.
It’s an age-old problem. While the freelance / gig / sovereign professional economy has boomed in recent years, overly conservative bank, stuck to their risk-averse playbooks, have failed to move with the times.
Daniel Pink highlighted the problem in his book Free Agent Nation way back in 2001.
However, in many ways, the security of “”full time and stable jobs” is an illusion. An employee who loses their job has no network or process to fall back on. If a freelancer with a portfolio of clients loses a client, he or she has a basket of other clients to fall back on; the risk is spread. And, if the sovereign professional is an interim manager or “super-temp” they have an established network of agency relationships to help them towards the next project.
There is a clear market need for a solution. Crook suggests that:
it is possible some agile lenders will see this as an opportunity. Instead of examining the consistent hours an employee works, it’s not inconceivable to think they may begin tracking how many years someone has worked in this way and the overall hours they’ve been paid for.
Pink’s solution, at least at the higher earning / larger lending end of the scale was the issuing of shares or bonds, citing examples like Bowie Bonds and the fact that boxers (amongst other athletes) fund their own training by selling shares in “themselves”.
Whichever way it goes, the lending market needs to adapt and, in all likelihood, the solution won’t come from traditional banks at all. A player like PayPal – who have already disrupted small-business funding with their PayPal Working Capital product – will take a sensible, reality-based view that recognises that a sovereign professional’s established free cash flows are at least as secure as the historic wages of an employee.
(Disclosure: PayPal is a client of my business, Burning Pine)
Photo by Tim Evans on Unsplash
