The opportunity is ripe for neobanks and fintechs offering targeted services for gig workers, freelancers and microbusinesses, a labor market that has spiked in number since the onset of the COVID-19 pandemic.

Despite that growth, freelancers, independent workers and microbusinesses — defined as businesses with typically one or two but fewer than 10 employees — are often overlooked by traditional banks, John Waupsh, chief executive officer at Nerve, a neobank that serves musicians, told Bank Automation News.

In addition to business debit and personal savings accounts, the Austin, Texas-based Nerve, which was launched in September, also offers free access to 55,000 ATMs “perfect for the traveling musician.” It’s one example of how to target services and products for this labor segment, and other fintechs and neobanks are discerning the business case for doing so.

Digital banking app Oxygen, which is now part of API platform and financial data network Plaid, this month released a study that found more than one-third of Americans had “picked up a new passion during the pandemic,” and of those, nearly three out of four “are looking to convert their side hustle to a regular job.”

Notably in that study, 88% of respondents said they consider themselves a creator or freelancer. San Francisco-based Oxygen, which targets its app at “free thinkers, rebels and entrepreneurs,” pointed out that the U.S. creator industry is valued at $100 billion. The company has raised a total of $23 million in three funding rounds, according to Crunchbase.

Similarly, New York-based small business neobank NorthOne, also part of the Plaid network, offers services specifically designed for freelancers, and Miami-based small business digital banking platform provider Novo has partnered with $574.4 million Middlesex Federal Savings bank in Somerville, Mass., to deliver banking services for small business owners, entrepreneurs and freelancers.

Cashing in on gig economy opportunities

Neobanks, fintechs and others are honing in on the gig worker for financial inclusion — or the availability of appropriate, affordable and timely financial products and services — as well as the opportunity to net new customers that may grow their businesses.

“Gig economy or, said another way, ‘opportunistic businesses’ are popping up all over the place,” Ryan Cantor, chief product officer of Thryv (Nasdaq: THRY), told BAN. The Dallas-based small business management software provider offers its ThryvPay online payments platform in 48 states.

“Often, these are the beginnings of a growing small businesses, starting with a single solopreneur looking to provide goods and services and establish themselves in the marketplace,” Cantor said. “Systems, processes and risk profiles looking or configured to support established businesses have a hard time servicing these individuals who aren’t yet at that level but need access to the right tools and services to get there.”

Learning how to reach this burgeoning economic population and provide the necessary tools to help it advance is key. Not surprisingly, timely payments was found to be an issue for many gig workers in a recent report examining microbusiness trends by financial management software provider Wave.

Polling 1,000 U.S. microbusiness owners, Toronto-based Wave reported that one in four had waited more than a year to get paid for some work, or in some cases hadn’t been paid at all. Seventy percent of these business owners said they had waited between one and six months to get paid for work.

However, among these microbusinesses, 84.1% of invoices were paid on time if they had digital payments enabled, compared with 68.7% of invoices paid on time without digital payments enabled, Wave found. The fintech, founded in 2009, has raised a total of $79.8 million over 11 funding rounds, according to Crunchbase.

Meanwhile, a partnership between popular meal delivery service DoorDash and digital banking app and payment card provider Payfare starting this month is enabling automated earnings payouts after every “dash.” The Toronto-based Payfare was founded in 2015 and has raised $51.5 million in one funding round, Crunchbase reports.

Small businesses reluctant to adopt new tech

Small business owners are reluctant to adopt new technology and many “are wasting so much time doing finances manually,” according to a study that included 4,200 small businesses in six countries by New Zealand-based small and midsize business accounting software provider Xero.

That may be even more pronounced in the U.S., where only half of business owner respondents said they are open to taking risks when making business decisions. About two-thirds of respondents said they do not have a payroll system, expense management system, inventory control system or debtor management solution, and 50% said they don’t have an accountant.

Xero was founded in 2006 and has raised a total of $681.4 million in nine funding rounds, according to Crunchbase.