Five ways financial institutions can better serve the self-employed

Since well before the global COVID-19 pandemic, digital transformation has been on the minds of leaders across every sector of the economy—from retail to financial services and more. In banking, it's moving at an unprecedented speed—and its acceleration is only expected to continue.  

While there are still many unknowns ahead as we approach the end of the year and head into 2021, one thing is for sure: financial institutions need to hone in on better serving the self-employed entrepreneurs, gig workers and freelancers in the workforce.  

Self-employed banking customers are underserved    

The self-employed segment is the fastest-growing segment in the world. And in North America, it's predicted that by 2026, more people will be earning their income from self-employed work than traditional salaried work.

But despite its growth, this segment is still widely underserved by banks and credit unions. Over 50 percent of those who are self-employed use personal banking exclusively to run their business. But why?                

Over 50 percent of those who are self-employed use personal banking exclusively to run their business.

Simply put, their financial institutions aren't offering services that meet their unique banking needs—needs that are more demanding than that of a consumer but often not as demanding as a traditional business banking relationship. They've been left in a bit of a no man's land.

Many financial institutions have disregarded the self-employed, citing that they're not profitable. But that couldn't be farther from the truth. This segment presents a huge opportunity—with 11 percent making over $75,000 annually and 6 percent making over $100,000.                 

This segment presents a huge opportunity—with 11 percent making over $75,000 annually and 6 percent making over $100,000.

While many of the self-employed have taken a hit over the course of the current pandemic, this remains a critically important segment that needs the appropriate support and guidance from their financial institutions. They need access to the financial capabilities that help them proactively manage their spending and cash flow, so they're prepared in times like these. 

Ahead of the pandemic, the gig economy was clearly on a sharp rise — on track to comprise 43 percent of the U.S. workforce by the end of 2020. Like small businesses, this presents an unprecedented opportunity for financial institutions to attract new relationships and expand existing ones, providing customers with the tools and guidance necessary to manage both their personal and business financial health.

So, what do FIs need to focus on now?  

Top five features to prioritize  

1. Security    

Just like consumers and business owners, self-employed professionals need to know their money is secure. Features like business-specific card management and controls can put them in the driver's seat by allowing them to set spending limits, enable or disable card transactions by merchant type or even freeze their card—by simply logging in to their online banking or mobile app.  

And cardholders are more likely to use a card they trust. Having control of when and where their cards can be accessed provides users with increased confidence to move that card top of wallet—increasing revenue for the financial institution.

2. Expense reporting and receipt capture    

With the year-end tax requirements of this segment, having the ability to save, store and manage receipts in one location (and digitally) is invaluable for any self-employed worker.  

With a feature like digital receipts, paper and electronic receipts can be stored in one place for easy recordkeeping and warranty information, budgeting and year-end tax reporting. And users can also export purchase information and receipts into an expense report. 

FIs also benefit from getting access to purchase-level data that can help cross-sell additional products and services related to life stage events, for example.

3. Invoicing    

Self-employed professionals also have a critical need to issue invoices and receive payments for the services they offer—even better if they can do it right from their mobile banking app.  

But for many, their primary financial institutions don't offer these capabilities to users straddling the line between personal and business banking. So, like other features absent in personal banking (which over half of these workers are using), a large majority are relying on separate third-party solutions for invoicing capabilities.  

The lack of this feature just further increases the risk of attrition for this profitable customer base.

4. Lending    

Quick and frictionless loan origination is vital for those looking to grow their business. Applying for and quickly getting an answer on a loan application is often essential to their long-term success. And, financial institutions run the risk of their customers going elsewhere for speedy and convenient lending options they can't obtain from their primary financial institution. 

5. Cash flow insight and advice      

According to Javelin, 72 percent of businesses say having an accurate cash flow projection is a top priority for managing their business. But most are going outside their financial institution to get it—with 35 percent using third-party tools like QuickBooks and 53 percent doing it manually using Microsoft Excel or good old-fashioned pen and paper.  

Many self-employed workers (i.e., gig workers) have inconsistent or unpredictable income patterns making cash flow management critical to their financial wellness—and key to managing any business. 

The landscape is getting more complex and competitive, leaving financial institutions that ignore this underserved segment vulnerable. But by partnering with the right fintech provider, financial institutions can often leverage pre-integrated third-party solutions to offer capabilities that support self-employed workers as part of an integrated digital banking solution.  

These five essential capabilities can help self-employed individuals better manage their financial lives and build stronger long-time connections and loyal relationships with their primary financial institution. 

What experts are saying about how the self-employed manage money  

In a conversation with Lou Carlozo of the Bankadelic podcast, Doug Brown, SVP & GM of NCR Digital Banking, and Corey Gross, CEO and co-founder of Sensibill provide additional insights into the digital acceleration prompted by the pandemic. They share how financial institutions can better serve consumers, gig workers and businesses alike. 

During the interview, Brown told Carlozo, "We have aged probably seven years in the past three months of COVID, in digital terms. And people's awareness and utilization of these capabilities and functionalities make their lives better and make them more successful financially." 

Listen to the podcast now.