The Gig Economy’s $1.2T Digital Payments Potential
A smart entrepreneur dropped out of college, identified an unmet market need and created an entirely new market segment.
He did it by establishing a platform that matched an underutilized source of supply with a growing demand for services. One of his platform’s competitive advantages was the centralized payments platform he created to remove the friction involved in paying suppliers.
The idea took a couple of years and a pivot to get going, but soon, the S-curve kicked into high gear. This entrepreneur’s platform grew into a multibillion-dollar global business as measured by annual sales and ignited what is today a half-a-trillion-dollar global industry.
This entrepreneur wasn’t one of the familiar big tech giants, even though the storyline is both familiar and similar.
His business was not that high tech — at least not by today’s standards.
The entrepreneur was William Russell Kelly, and the platform he created 72 years ago is known today as Kelly Services, the temporary staffing agency once synonymous with temporary office workers known as the “Kelly Girls.”
Russell Kelly Office Service, established in 1946, gave birth to the idea of what the modern-day, on-demand gig economy platform would look like — even though no one used that term at the time to describe the model he created. Kelly’s company supplied office workers to local businesses, on demand, in need of a temporary workforce — igniting the $480 billion category known today as temporary staffing and workforce management services.
The Demand for On-Demand Work
Fast forward 72 years, and 35 percent of today’s workforce participates in what we now call the gig economy, according to the PYMNTS Gig Economy Index published last week, with the support of Hyperwallet. Some sources estimate that gig economy workers could swell to as many as 50 percent of the workforce over the next two years.
That may not be too far off.
Based on the work we’ve done over the last couple of years, we’ve seen the percentage of gig worker participation swell too — this quarter by nearly 9 percent year over year. More than 37 percent (37.2) of workers said they receive 40 percent or more of their income from gig economy jobs, accounting for $1.4 trillion of total U.S. personal income in 2018 (I’m getting to the $1.2T in the title of this piece, so hang in there).
For this latest report, we surveyed 10,000 consumers to get a clearer understanding of how the gig economy has evolved over the two years we’ve been tracking it. We wanted to comprehend the motivations of a gig worker and to gain more clarity about what services they perform and for whom.
What we discovered is, just like the vein William Kelly tapped 72 years ago, the majority of workers who participate in the gig economy, skilled and unskilled, do so because they can make extra money to pay bills (19 percent) or to save for things like an annual family vacation or a kid’s wedding (17 percent).
Only 15 percent of all gig workers said gigs were their primary source of income.
Nearly 60 percent of gig workers found their gigs via a digital marketplace. These marketplaces are highly valued by these workers because they provide leads in near real time. Fifty-five (55) percent of gig workers said they used one platform primarily to source those leads. This changed as the nature of the work and skills required became more specialized. In those cases, workers used multiple platforms to source their leads.
Unfortunately, fewer than half — 46 percent — of these gig workers said they were very or extremely satisfied with the services provided by those digital marketplaces.
One of those reasons can be traced back to the problem William Kelly solved 72 years ago that many of today’s digital gig economy platforms still haven’t cracked: an efficient way to match the real-time nature of the work performed by these gig workers with a more efficient — and even real time — way to be paid.
A Gig Platform Pivots — and Cracks Payments
Russell Kelly Office Service opened its doors in 1946, right after the end of World War II. Kelly, the son of a wealthy oil executive who died prematurely in 1928 when Kelly was a college senior, was forced to leave college before graduating to support his mother and six siblings. Over the next 18 or so years, Kelly worked in companies that had embraced business technology — such as it was at that time — and helped them use those new technologies to streamline their businesses.
One of those jobs involved helping the Army solve a mission critical procurement problem during World War II. The Army was facing long delays in getting food to the troops because they couldn’t pay their suppliers in a reasonable timeframe. War or no war, payments to suppliers were often months late, so suppliers stopped sending food. Kelly was part of a team that devised a centralized payments platform that got money to suppliers in just eight days, drawing on his experience years earlier working in accounting and supplier payments at the largest grocery store chain, A&P, to save the day.
At the end of war, Kelly was in search of the next big thing. The U.S. economy was booming, and Kelly saw a huge demand for helping local businesses use new technology to operate more efficiently as they grew.
The latest technology at the time was an adding machine called a comptometer and an electric typewriter.
Kelly bought several of each and opened his doors.
At that time, Kelly Services was a “service bureau” where local businesses would drop off the work they needed done and pick it up the next day, completed.
Kelly’s workforce consisted of American housewives, many of whom had acquired basic bookkeeping, administrative, typing and organizational skills in secretarial schools. These stay-at-home moms were raising their kids but wanted an opportunity to make extra money, on a part-time basis, while the kids were in school, but only when their schedules permitted. Kelly tapped into this trained and conscientious workforce to build his business.
It all worked well — until it didn’t.
Companies began to realize they needed to invest in the tech that would make their businesses more efficient and competitive — and did, which meant they no longer needed to outsource their work to an off-premise provider with the same technology they now had in their businesses.
What these businesses needed was access to a trained and reliable workforce to keep their businesses moving when there were temporary staffing gaps. That’s when Kelly pivoted his business model from one that had the businesses come to him to get their work done to one that sent a trained, on-demand, reliable temporary worker to businesses when their own workers went on vacation, were out sick and/or left the firm.
That’s when gig economy 1.0 took off.
These temporary workers, known famously as the Kelly Girls, were sent to offices to perform secretarial and other administrative, accounting and bookkeeping services. Russell Kelly Office Service gave part-time housewives a way to earn money that was otherwise unavailable to them. They welcomed the platform because it gave them the flexibility they wanted and needed while making it easy to find work. In fact, they really didn’t have to look hard at all. The work came to them once they passed Kelly’s screening criteria.
Businesses welcomed it too.
In Russell Kelly Office Service, they found a reliable source to access trained, vetted and qualified workers — on demand — without any permanent strings attached, or the requirement to train them in basic office skills for a day or a week’s worth of work.
Or the hassle involved in paying that temporary workforce.
The company’s secret sauce, in addition to its trained, on-demand workforce, was eliminating the hassle of paying them. Kelly billed the businesses for services performed based on timesheets workers completed and turned in at the end of their assignments, along with a fee. Russell Kelly Office Service paid its workers within seven days of Kelly’s regular payroll period — and still do — upon receipt of those timesheets.
Kelly’s model soon expanded to other cities using the same formula and ignited other complementary businesses.
Secretarial schools became even more popular in the 1950s and 1960s as women sought to burnish skills they could turn quickly into a reliable stream of temporary work through what would become, in 1966, Kelly Services. Some of those jobs often led to full-time employment at companies following a temporary stint.
The Gig Economy Long Tail: High-Tech Talent. Low-Tech Payments.
Like many platform businesses — digital or otherwise — Kelly Services scaled by going market by market to build a critical mass of skilled workers to satisfy the demand of local businesses with temporary staffing problems. Back then, that was a competent team of administrative professionals with the right skills who could step into any business, at any time, and perform those tasks.
Today, that’s increasingly the gig worker with more technical skills — the long tail of the gig economy that consists of skilled and trained web developers, nurses, lab technicians, doctors, engineers, computer scientists, architects, security officers, even CFOs and lawyers who could be living and working anywhere in the world.
Digital platforms and advances in software, communications and other tech make it much easier to create a critical mass of skilled workers to complete ad hoc projects in the event of a staffing shortfall, or to provide highly specialized skills to a business when it wouldn’t make economic sense for the business to hire on a full-time basis.
Our Index supports that claim. Fifty-four (54) percent of specialized gig workers were hired not to fill a temporary staffing shortfall but to fill in an organization’s current knowledge or skills gap.
What seems lacking is paying this specialized, highly technical, on-demand workforce in a manner befitting the digital payments age.
Overall, fewer than 20 percent of gig workers (18.4 percent) were paid via the digital platforms that source their leads, and for many highly skilled workers, that percent was fewer than 5 percent. With gig workers expected to earn $1.4 trillion in 2018 through gig economy platforms, that leaves roughly $1.2 trillion ($1.14 trillion to be precise) of market potential for these digital marketplaces to digitize — and monetize — payment for those gig jobs.
The Gig Economy’s $1.2 Trillion Digital Payments Potential
Gig workers told us that, today, they were paid one of four ways: check (40 percent), cash (39 percent), direct deposit (34 percent) or PayPal (32 percent). Prepaid cards, at 11 percent, were used infrequently — in part because gig workers didn’t want to be paid that way.
How they were paid depended on who paid them.
Gig workers said when they worked for SMBs, they were paid via check (52 percent), PayPal (38 percent) or cash/direct deposit (37 percent).
Enterprise businesses paid their gig workers using direct deposit (45 percent), check (43 percent) and PayPal (40 percent).
Consumers paid gig workers using cash (47 percent), check (41 percent) and PayPal (37 percent).
And with the exception of government and some enterprise businesses, few workers were paid using prepaid/payroll cards.
But here’s where it gets interesting.
Eight-four percent (to be precise, 84.3) percent of all gig workers said they would do more gig work if they were paid faster.
This is the 35 percent of the workforce with the capacity to do more and would if payments frictions were eliminated. Remember, they are working another job (or jobs), like doing gig work, because it’s a flexible way to supplement their income to pay bills or to save for a special event. These workers earn, on average, as much as 40 percent of their household income this way.
This pay-me-faster, pay-me-better sentiment was relatively consistent across income bands — workers with an annual household income of $150,000 and those with an annual household income of $50,000 were equally interested in being paid on demand and via digital payment methods for the work that came their way through a digital platform.
These are also the people who were paid via check most of the time — thus the interest in being paid faster — but who also reported a 70 percent satisfaction rate with being paid that way. That’s orders of magnitude higher than the average consumer who, 96 percent of the time, said they hate getting checks for any kind of payment. Period.
So, why the desire to be paid faster if 70 percent of gig workers said they’re happy with getting a check?
If it means getting paid, and the choices that a business offers for payment is check or check, most gig workers will take a check. They’re free for them to accept. Checks are also the most ubiquitous form of payment businesses large and small have and use to pay vendors. Gig workers, for most companies, fall into the category of vendor.
As a vendor, gig workers are paid like a vendor via the accounting department — and not the HR/payroll department — and via a procurement process tied to the receipt of an invoice. That invoice triggers an internal process that leads to a payment via a 30-, 45- or 60-day cycle — only after someone at the company has agreed the work was completed to everyone’s satisfaction.
Many of the digital platforms that source leads for these more specialized gig workers are set up today to handle digital payouts to credit cards, and maybe PayPal accounts and only if there is a way for a payment to be triggered that way via an invoice that accompanies that payment. Most enterprises aren’t set up to pay using a credit card or PayPal and may not want to be. Gig workers don’t want to be paid that way either, especially on invoices that can run several thousands of dollars and where a fee of 3 percent is material to them.
Our study found that 39 percent of gig workers who didn’t use digital marketplaces to source leads said the reason they didn’t was because of the fear of high fees associated with being part of that platform, including how they’re paid.
The gig economy may have developed its contemporary label thanks to the rise of Uber, Lyft, on-demand delivery drivers and the digital platforms each of these players created to match supply with real-time demand.
But we suspect it will be the long tail of the gig economy that will increasingly become the tailwind for the gig economy’s future growth.
For that to happen, a few things must happen first.
To start: giving buyers access to a marketplace of specialized and vetted talent who can do the job. Russell Kelly Office Service then and Kelly Services today hires workers as Kelly employees after they meet specific requirements. Only then are those workers placed in temporary roles with Kelly’s corporate clients that match their skills and availability.
Today’s gig marketplaces must do a great job of aggregating the right number and level of skilled workers. They must also do a great job of vetting those they allow on their platform and put in place strict governance measures that includes verified ratings and rankings so companies can be sure the workers they’re hiring via those platforms can do the job well.
Then, these digital marketplaces must innovate how payment is made to those workers by creating a model that eliminates the frictions that exist today.
That’s particuarly challenging when gig workers perceive that the status quo isn’t so bad and that faster often comes with expensive baggage.
To #KillTheCheck in a gig economy world increasingly defined by specialized workers with higher billing rates and invoices that trigger payment, digital platforms must give gig workers a choice over how they want to be paid. That means being open to new business models to support how digital payments can be made above and beyond what is currently on the table today.
The marketplaces that understand that, and the digital payments players that help them close the gap by expanding choice, are well-positioned to cash in on the trillion-dollar-plus opportunity that the gig economy offers today and in the years to come.
Those that don’t, might find themselves on the wrong side of that choice, particularly when those who do will use how they pay their workers as their competitive advantage, just like William Russell Kelly did 72 years ago.