When Hussein Ahmed was applying for a loan as a freelancer, he encountered a familiar roadblock: the lack of a predictable salary to show evidence of income. Without this information, it’s hard for banks to grant credit.

Ahmed told Bank Innovation he founded Oxygen to solve this problem: to offer financial services and credit to freelancers who would be ignored by traditional banks.

“They were saying, ‘We are so sorry, but we can’t verify your income’,” Ahmed recalled, reflecting on his experience as a freelance applicant for a loan at The Lending Club. “That took me on the route of trying to collect the two last years of tax returns, plus Schedule C and Schedule K of the IRS forms. They started questioning what income to consider, as big banks [typically] consider 1099 income as hobby income.”

For digital banking startups, freelancers are an untapped market. Some reports estimate the total number of U.S. gig economy workers to be as high as 57 million, or 36 percent of the total U.S. workforce.

Oxygen, which launched in 2018, is part of a growing number of fintech companies serving the needs of gig economy workers. Other companies focusing on this market include Qwil, which offers capital for freelancers, yet-to-be-launched digital banking service Cogni and Earnin, which offers payday advance services.

According to Ahmed, Oxygen is differentiating itself from competitors by using bank transaction data in credit decisions – a factor most banks don’t take into account – along with interest rates it considers non-predatory. Oxygen uses transaction data in addition to traditional credit scores, and credit applications are carried out digitally through the app.

Oxygen doesn’t have a banking license, but it’s worked with Evolve Bank since it was established to offer banking services. Customers can get a free bank account and, if they want access to a line of credit, they pay a flat monthly fee of $29.99 plus the interest rate. Oxygen has three sources of revenue: interchange fees, interest on deposits and interest on credit, all of which are offered as part of a bundle of services. Lines of credit typically are between $1,500 and $2,000, with interest rates varying by customer but generally falling between 8 percent and 36 percent.

Oxygen’s model of credit decisions based on transaction data still is early in its evolution for banks and financial services companies in the U.S., according to Leslie Parrish, senior analyst at Aite Group and a former employee of the Consumer Financial Protection Bureau.

“Banks are only scratching the surface of potential uses of transaction data to make credit decisions for consumers,” Parrish said, in an email to Bank Innovation. “The information in a monthly account statement is a more robust and current version of a credit report in many respects. The data can be used to verify income and project the residual income available to put towards a loan payment.”

For their part, credit bureaus are slowly moving the needle on credit decision models. For example, late last year, FICO rolled out a new score called UltraFICO, which takes into account consumer-contributed data.

If banks adopt this model on a large scale, it could present a risk for fintech platforms like Oxygen. “It’s something [incumbents] have to keep an eye on, as it’s the bigger picture of where money is going,” said Carlos Carvajal, chief marketing officer of banking technology company Kony. “The question I have is what’s to stop Chase or Bank of America from being able to replicate [Oxygen’s] model.”