For lenders, the rise of 1099 and gig work is creating new challenges — and new opportunities



The past three years have seen the emergence of a new world of work.  Whether driven by necessity (the economic pressures of Covid, struggles with inflation, the need to make ends meet) or choice (flexility, autonomy), millions of Americans have embraced non-standard work. Estimates suggest that the majority of U.S. workers will be gig, 1099, or freelance workers by 2027. Data from Steady shows that 60% of W-2 employees are already making significant income from 1099 work in addition to their other jobs.


To be sure, there’s plenty of value in a side hustle or the flexibility of non-standard work. But not receiving a W-2 or paystub puts non-standard workers at a distinct — and troubling — disadvantage.


Today, the bulk of the country’s infrastructure — from financial services to safety net benefits — are still built to serve the W-2 workforce. Never is that more evident than when examining the experiences of a 1099 worker trying to access credit. From personal or car loans to credit cards and mortgages, underwriting at the majority of the country’s financial institutions is designed for workers with W-2s and paystubs.


Nonstandard earners, on the other hand, are often required by lenders to furnish numerous disparate documents for underwriting — a cumbersome, labor-intensive, inefficient, and error-prone process for borrowers and lenders alike.


Too many 1099 and gig workers are asked to share documents from their previous year’s tax returns (hardly a real-time indicator of income); bank statements of their earnings (which can be disparate and unstructured); or year-to-date income documents from all income sources (no easy feat, particularly for workers who may be driving for Uber, delivering for Instacart, and receiving Venmo payments for childcare or house cleaning).


The sad outcome is that this unfairly high bar turns non-standard workers away from appropriately priced credit options, oftentimes from the very institutions they bank with. Consequently, they find themselves resorting to payday lenders and other predatory practices, further burdening their financial health. Lenders, on the other hand, are wasting time with lengthy income verification processes — while also missing out on opportunities to expand their portfolio to the fastest-growing segment of the labor force. These income verification barriers stymie efforts to promote inclusive lending practices, thus widening the gap between the haves and have-nots.


It doesn’t have to be this way. And the silver lining is that some forward-thinking lenders are already changing the game.


Emerging technologies and new forms of data are enabling financial institutions to verify non-standard workers’ income in real time, opening up an entirely new sector of the addressable market. Consider the work of Telhio, which is using an innovative “Income Passport” tool to cut the process of income verification from days or weeks to minutes, and enable 1099 workers to leapfrog the painful processes that previously held them up. The result is that non-standard workers across the state of Ohio have a new resource to access financial products that had historically been out of reach. At the same time, the lender is able to better support and lift up its community, driving economic growth and mobility throughout the region. It’s not just about streamlining a cumbersome process. It’s about enabling lenders to grow their portfolio and driving inclusion — supporting workers and families who have spent far too much time being overlooked by the existing system.


In the years to come, the non-standard workforce will only continue to grow. The lenders who succeed in this new world of work will be the ones who recognize that thanks to the rise of new technologies and alternative data sources, it’s now possible to support these workers in ways that it has never been before.


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