Supporting the informal worker: The role of banks and credit unions

Informal workers, whether they be street vendors, buskers, or a host of other non-traditional roles, have a unique way of working that translates into very different banking needs. Fortunately, today’s new digital tools make it easy for banks and credit unions to provide relevant financial services to informal workers, encouraging long-lasting relationships and deposit growth.

The Problems Facing Informal Workers

Informal workers, non-traditional workers, freelancers and members of the gig economy—no matter what you call them, they all have one thing in common. They work ungoverned by any formal arrangements to dictate hours, pay or duties.

Informal workers are free to operate as they please, often moving from place to place or adjusting operations on the fly to meet business demands. In some countries, more than eighty percent of the workforce is reliant on informal work, and yet many remain underserved by financial institutions.

There are a variety of reasons for this. For one thing, work hours or locations for the informal worker do not always coincide with bank branches, making it difficult to deposit earnings into a checking account. When deposits are made, they are not always immediately available either, leaving informal workers strapped for cash.

When it comes to lending, informal workers can face similar challenges. Due to the nature of their work, it is common for the informal worker to lack the necessary assets and financial history to secure a loan.  For those who do qualify for financing, rates are high to account for the extended risk. In this environment, informal workers must often make do with their own resources or borrow from family and friends, seriously limiting their potential for growth.

Payments, however, may be the biggest challenge that the informal worker faces. In a world where debit and credit card usage is on the rise, many banks and credit unions meet the needs of small businesses like these through consumer platforms that lack products and services for making and receiving modern payments.

There is good news though. Advancements in technology and digital solutions now make it possible for banks and credit unions to offer the informal worker an increasing array of financial products and services.

Providing for the Banking Needs of the Informal Worker

As a small business owner, I understand the value of online and mobile services and how new advancements make it possible for banks and credit unions to suit the needs of informal workers.

In my side business, we often rent temporary stalls at events and markets to sell products. At these pop-up locations, cash transactions are rare, so we use a mobile card reader to take card payments. While our business is primarily online, technology like this allows us to operate as a physical store whenever we want, wherever we want.

In addition, funds are transferred to us within two business days, so we always have positive cash flow. Rapid access to sales income is critical to small business owners who might otherwise have to borrow to keep every day operations humming along.  

By offering services like these, banks and credit unions encourage a traditionally unbanked or underbanked working segment to open accounts. Once a financial history is established, informal workers can more easily gain access to financing and other benefits that help them grow their business operations.

Discover more in the Redefining Finance series