How Can Embedded Financial Services Better Serve Platform Workers?
The original version of this blog was posted on the Consultative Group to Assist the Poor (CGAP) website and is the second in CGAP's Financial Services for Platform Workers: The Current State and Word Ahead blog series. This post was authored by Leena Datwani and Elizabeth Munee Kiamba. To learn more about this topic, join USAID for a webinar August 4, 2022: Platform Work and Financial Inclusion: How Can the Development Community Extend Finance for Gig Workers?
Platforms hold extensive data on their workers that could support more customized product design, and their digital rails could seamlessly deliver financial services. What kinds of unique product features and operational efficiencies might financial services embedded within platforms enable?
The platform ecosystem, for reasons mentioned above, has the potential to enable improved financial services design and delivery for its workers. In an effort to shed light on the unique features and delivery mechanisms that platform-based financial services could offer platform workers, CGAP, in collaboration with BFA Global and Digital Futures Lab, assessed existing credit and insurance products in East Africa and India targeted to platform workers, and conducted extensive interviews with the platforms and financial service providers (FSPs) offering such products. Findings from this assessment revealed features and delivery mechanisms that could pave the way for more access and greater value for workers from such financial services.
Platform data can be leveraged to customize products for workers
For instance, real-time visibility into the patterns of a worker’s platform earnings is enabling some lenders to set credit limits more dynamically – adjusting them higher as the worker demonstrates their earning potential or attendance and revising them downwards when a pattern of lower earnings or attendance is detected. If such loans based on scoring work data are proven to be less risky than regular loans, they could also help lower the costs of such services for workers over time. For insurance products, per-worker customizations are less common, but platforms can negotiate group policies and design new products suited to their workers' needs based on insights generated by data – policies and products not otherwise be accessible on the open market.
FSPs connected to platforms can ease and accelerate registration for their services by auto-filing existing information on workers who have been previously vetted and given unique identities by the platforms with whom they work. This process is convenient for the worker-as-a-customer and increases operational efficiency for FSPs. Given that platforms need to maintain a large network of workers to make their service viable, FSPs can immediately access a large customer base and register them at a relatively low cost.
Visibility on earnings, coupled with close tech integration via application programming interfaces (APIs) could also enable FSPs to operate financial services efficiently once workers are registered. In the products assessed, automatic deductions for loan repayments or insurance premiums from regular earnings was a common feature. Automatic deduction from platform earnings for loan repayments helps the lender manage credit risk and lower collection costs. For the workers, it simplifies the process (as long as the worker is earning enough on the platform) by eliminating the need for them to proactively make a repayment.
Similar efficiencies can be applied to savings products as well, based on observed earnings and automatically prompted regular goal-based savings or investments. However, such products are largely unavailable to workers today.
Despite the immense potential embedded financial services offer platform workers, there are a few caveats to temper the opportunity.
Platform data and rails alone are not sufficient to ensure the successful delivery of financial services to workers
For one, while platform workers are digitally savvy, literate, and possess smartphones and digital financial accounts, many still lack the confidence to conduct financial transactions through their smartphones. Extending similar principles of customer-centric UI/UX from the platform apps while keeping the worker in mind is key, alongside some in-person support for complex products. To have a significant impact on uptake and usage of financial services offered, platforms and FSPs experimenting with embedding financial services must focus on worker-centric UI/UX that simplifies transactions, increases transparency, explains terms clearly, and enables ease of use.
While the potential of embedded financial services for workers is real, our assessment also shows that success in embedding financial services hinges greatly on a worker’s relationship with and perception of the platform. Take the case of SafeBoda, a ride-hailing platform in Uganda working to develop trust among its workers. The platform developed an ecosystem that provides drivers with relevant support throughout all stages of their platform journey – from onboarding support to bonuses for outstanding performance to redress mechanisms in case of complaints. These efforts have built drivers' trust in the platform, and Safeboda found that drivers using embedded financial services were 60% more likely to stay engaged and execute three additional rides per day (on average) than other drivers.
Contrast that to a food delivery driver in India who said he would not avail of credit offered to him through the platform he worked on because he lacked confidence the platform could offer any support. He worried the platform would not be available to answer questions should he have any because “The platform does not care about its workers; it only wants us to make deliveries on time.”
We would also be remiss not to acknowledge that delivery of financial services through platforms may increase and/or give rise to new types of consumer risks. Awareness of these potential risks needs to be kept front and center throughout the design and delivery of financial services for platforms. CGAP’s recent report on DFS risk underscores the importance of proactive measures that maintain consumer trust in digital financial services and ensure positive outcomes. This trust, once broken, can be extremely difficult to regain and for low-income customers may mean an end to DFS usage altogether.
Knowledge is still nascent, and more research needs to be done to generate evidence that the provision of financial services offered through platforms will actively support workers to capture opportunities and face the challenges of platform work. The myriad experiments underway globally that examine appropriate and suitable financial services for platform workers – including those that CGAP and its partners are undertaking – will contribute to the understanding of the impact of new features and efficiencies on platform work.
CGAP discussed this topic in detail on June 7, 2022, at “Financial Services for Platform Workers: Fulfilling the Demand” and shared more about the experiments GCAP is conducting with its partners.
This blog is part of a broader CGAP effort over the coming months to work with platforms and financial services providers to pilot new financial solutions for this small but fast-growing segment of the economy that is transforming livelihood opportunities for low-income communities. Visit www.cgap.org/platform-workers for more information, and see CGAP's paper and reading deck for a deeper dive into the ideas introduced here.