Financial institutions in the US have remained stuck in a bygone era. They have not innovated quickly or deftly and are failing to meet the needs of the fastest growing segment of workers in the US - well over one third of US workers already work in the gig economy and these freelancers are driving growth in our economy.
Legacy financial institutions are systematically failing people building micro-businesses independently and on the rails of labor marketplaces (like Dolly or Thumbtack). These delivery people, drivers and workers providing a range of home services lack access to appropriate and affordable credit, relevant insurance and other financial tools which can propel their growth.
The massive changes to our economy precipitated by COVID-19 have suddenly escalated the importance of getting financial services designed for today’s requirements into the hands of the estimated 60 million independent workers in our country.
Challenges and opportunities
Over the past decade, I have worked at the forefront of financial services innovation in the US and globally. I have been leading the design and delivery of financial products and providing guidance to startups and established businesses. I have been exploring how to most effectively reach the one-third of adults globally who are beyond the reach of traditional financial services.
I draw three main conclusions about financial services in the United States:
- The United States lags far behind the rest of the world in financial services innovation;
- Recent innovation in our country has been incremental and is converging on derivatives of traditional banking products;
- There is a massive and rapidly growing segment of people who remain largely beyond the reach of our existing financial institutions.
The lack of appropriate financial services has been an impediment to growth of our economy. The urgency of addressing these market gaps today cannot be understated, and presents a compelling opportunity. Indeed, putting appropriate financial services into the hands of the tens of millions of people building micro-businesses can be the unexpected engine to fuel growth of our economy.
The US lags far behind in financial services innovation
Our outdated financial institutions and credit allocation systems were built around the concept of a traditional employer / employee relationship. Indeed, most institutions developed in a time when people stayed with a single employer for life. Traditional financial services have only been slowly adjusting to the concept of multiple employers over the course of a person’s career (for example, 401k portability is surprisingly new).
The assembly line aggregated for efficiency in the 1910s; technology has disaggregated for efficiency in the 2010s: breaking tasks into more specialized activities delivered by different providers. As a result, the concept of “employer” has been turned upside-down, and today an “employer” can change daily for tens of millions of self-employed people in our economy.
Our existing financial institutions have not, and can not, keep up with the pace of change.
Recent innovation has been incremental -- and is converging
The inability of financial institutions to keep up with the pace of change has long been recognized. Financial technology companies (fintechs) have aggressively entered the market to deliver services more efficiently and creatively than traditional banks.
Fintechs have done a good job identifying poorly-served populations, but they have largely focused on incremental improvements to traditional financial products and services, such as credit on terms which better align with pay cycles, entirely online bank accounts, controllable debit cards, and easier ways to save. These are valuable, especially if a worker has a regular salary, but tend to be modernized versions of traditional products.
As these neobanks have expanded, they have converged around a common stable of products. However, their services continue to be designed around legacy concepts. Their products largely fail the tens of millions of people working on labor marketplaces who are building micro-businesses.
Fueling the growth of micro-businesses
The nature of work in our country is changing in fundamental ways. Labor marketplaces are converting millions of workers into millions of micro-businesses. Accelerated by COVID-19, we are at an inflection point, as recently unemployed people flood the labor marketplaces, and consumers have embraced delivery and a range of on-demand services. As supply and demand both surge, micro-businesses will play an increasingly essential role in driving our economic recovery.
It is imperative that we enable the growth of these micro-businesses with the tools they need to thrive. This includes credit which is flexible and affordable, designed around how a micro-business earns. Micro-insurance, aligned to the specific jobs people are performing, is similarly important. And these tools need to include point of sale financing and affiliate discounts, today reserved for either traditional businesses or individual consumers.
What we are doing about it
At Level, we are on a mission to deliver the tools to power the growth of these tens of millions of micro-businesses. Built from the ground-up around specific, clearly defined customer needs, we build products specifically designed to power the growth of micro-businesses.
Our first product, the Level Advance, which takes a novel approach to credit scoring and enables flexible repayment, has boosted the income of our customers by more than 50%, while reducing costs and increasing revenue of our labor marketplace partners. As we expand our partner base and range of products, we seek to shape the intersection of the future of work with the future of financial services.
At this unprecedented moment in the arc of our economy, micro-businesses will play a defining role. Level is at the forefront of innovation to enable them to succeed, and we are thrilled to empower this movement with Level tools.
It is our hope that, after another decade in financial services, we can say that the US no longer lags, that innovation is widespread and that micro-businesses have realized their full potential. This is just the beginning.