The rise of artificial intelligence (AI), machine learning (ML) and automation, the proliferation of internet-based technology platforms, and the move toward more entrepreneurial sources of income are combining to fundamentally shift the ways people work and earn a living. But whether this shift will lead to greater prosperity and equality will depend on us. Today, we have the opportunity to build new financial services to better serve the needs of those in the new global workforce who may be particularly underserved by existing products and services.
Today’s financial services were primarily designed to serve people who were employed in a 9-5 job by a single employer, often for their entire careers. Payments, savings and wealth management systems, for example, were set up based on the notion of a stable, bi-weekly income. But changes in the way money is earned must be accompanied by changes in the way money is paid and managed. By making these changes, we can work to enable the financial health of a new generation whose incomes are variable, and who have more personal responsibilities related to things like retraining and retirement.
Consistent with our mission to democratize financial services, we’ve been focusing on the fact that that the way people work in the future will impact the way the financial services industry needs to serve them. Accordingly, PayPal commissioned the first global survey of its kind, interviewing 100 global experts and surveying of 8,000 people across eight countries, to understand how financial services need to evolve to better support people as they earn and spend their income.
From the survey findings, we found four key trends that are expected to shape the global workforce in the coming years, and identified ways that the financial services industry will need to evolve to meet these changing needs.
1. The online platform economy is growing rapidly, and workers engaged in the platform economy need new financial tools to meet their needs.
Over 90% of net employment growth from 2005 to 2015 in the US was in the “alternative work” category, which means that nearly all of the 10 million jobs created between 2005 and 2015 in the US were not traditional 9-5 jobs. People are increasingly likely to earn an income through online platforms. PayPal, too, has seen similar trends, as the total payment volume of platform companies that use PayPal grew on average 47% year-over-year (YOY) between 2014 and 2018.
This growth in the platform economy is providing workers with many financial benefits, including better resilience to cover expenses even if their main income source is lost. However, income earners on these platforms still have significant unmet financial needs. For example, 51% said they had paid a bill late and incurred fees over the past 12 months.
Faster access to income could enable these workers to better manage their financial lives. A total of 63% of platform economy workers surveyed said they prefer to receive income from work more frequently (defined as daily, weekly, “when I sell/produce something” or “as soon as the work I do is complete”). PayPal has seen similar trends. For example, real-time payments to platform economy workers through PayPal’s recently acquired Hyperwallet platform have increased by more than 200% YOY.
2. Automation, ML and AI will cause job churn while income is likely to become more variable and uncertain; workers will need retraining and access to new types of credit and savings.
Two-fifths of the world’s jobs could be automated within 15 years, and a recent McKinsey study found that 75-375 million people may need to switch occupational categories in the next decade and learn new skills.
But people and families aren’t financially prepared. In our survey of 8,000 people, we found that only 38% of workers in jobs that are at a high risk of automation have savings to cover six or more months of expenses if they lost their primary source of income.
The financial services industry will need to build solutions that encourage short-term savings and create new credit offerings that are forward-looking, which can enable workers to retrain for new positions or take on more entrepreneurial endeavours in a rapidly changing economy.
3. Entrepreneurship is an increasingly important path for income generation, yet entrepreneurs and small businesses need faster access to funds, better financial management tools and credit to help get their businesses up and running and to smooth out income fluctuations.
For a variety of reasons, people are turning to more entrepreneurial activities, like starting their own business, to earn a living. While the study found that small business owners are more financially resilient and confident about the future than traditional 9-5 workers, only 46% of small business owners surveyed reported making consistent income each month, compared to 72% of all survey respondents. In addition, 55% of small business owners reported paying a bill late over the last 12 months, a higher percentage than any other demographic group studied.
To help alleviate some of this, 77% of small business owners said they would prefer receiving their income more frequently, a key recurring theme that emerged from the survey. New solutions are necessary to meet these changing needs. With the recent launch of Funds Now, for example, PayPal is aspiring to make immediate access to funds the norm rather than the exception for small businesses. Still, more needs to be done.
We also need to build better financial management tools and credit solutions for these small business owners to help support them as they continue to increase economic opportunity, jobs, diversity and the overall health of our communities.
4. Millennials demand greater flexibility in the workplace and digital tools are their preferred method for managing their financial lives. We need more robust, end-to-end digital tools for financial management.
Of the millennials surveyed, 34% said they have multiple jobs, compared to 25% of Gen X-ers. Millennials favour flexibility and seem comfortable with more frequent job transitions. A 2016 Gallup poll in the US found that 21% of millennials reported changing jobs within the year – more than three times the number of non-millennials. Like respondents from emerging markets, millennials are 16% more likely to prefer receiving their income through digital payment apps as compared to their Gen X counterparts. Interestingly, survey respondents in Brazil, China and India were 54.5% more likely to prefer receiving income from work via digital payment apps.
To better serve this emerging demographic of workers, the financial services industry needs to democratize access to robust digital financial management tools that can account for multiple income streams and help workers prepare for and manage volatility in earnings.
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Innovations to the financial services industry must prioritize the goal of building financial health and resilience for individuals, families, businesses and communities. A staggering 1.7 billion people in the world still lack access to formal financial services, and billions more are underserved by the traditional financial system. Building up these individuals’ ability to pay and be paid, manage expenses, save for emergencies, access credit and plan for their future is where financial services reform should focus.
We are going to be living in a world where technology will drive the future of work and the future of financial services. But it is important to remember that it will be human beings who will make choices about how technology is built and utilized. If we fail to make thoughtful and responsible choices in financial services that benefit people’s financial health, then the challenges of the future of work may only be magnified.