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Fintech and the gig economy: a win-win combination for financial inclusion

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Belvo Communications

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Fintech and the gig economy: a win-win combination for financial inclusion

Workers in Latin America are increasingly turning to gig economy platforms –like Uber and Rappi– as a source of income. While fintech startups are creating new products and services to address their financial needs. Together with the rise of Open Banking initiatives, this combination could help increase financial inclusion for a growing portion of workers in the region, who are often excluded from traditional banking services. 

In 2019 Uber, 99, Rappi and iFood became, together, the largest private employer in Brazil, according to a recent report by venture capital firm Atlantico. The rise of these platforms that connect short-term and freelance workers with users through apps is becoming widespread in Latin America. And the trend has been accentuated by the COVID-19 pandemic in 2020.

Food delivery company iFood almost doubled its number of couriers in four months during the crisis. And Rappi total sales in Latin America grew 113 percent between February and July this year. The pandemic has also had a huge impact in the rise of e-commerce and digital payments in the region. And internet and mobile adoption in Mexico and Brazil is now growing faster than in India or China.  

This context offers large opportunities for tech penetration in the region. According to the same report, despite the pressing unsolved issues –such as poverty and widespread inequality– the region presents today a “fertile soil for innovation”. This is due, according to Atlantico, to a growing class of emerging entrepreneurs who are tackling some of the region’s biggest problems. “While the gig economy is creating jobs and new income sources, digitally-native banking, healthcare and education companies are delivering access to the masses at higher quality and lower prices,” the report states. 

Fintech tailored solutions 

Fintech companies are starting to tackle this market by building products tailored to the specific needs of these workers who, often –and like around half of the population in Latin America–, still lack access to banking services

“For example, gig workers without a regular income stream often have difficulty getting approved for loans or other banking services through traditional channels,” explains CB Insights. Some examples of companies addressing this issue are Lana or Heru, who are developing personalized solutions for these workers. These usually connect the workers’ apps with digital wallets that they can use to manage their daily financial needs. For example, making online payments and even accessing a wider range of financial services, like credit and loans. 

On the other side, gig economy platforms themselves are starting to create their own financial platforms. Or even partnering with financial institutions to provide their employees with banking products and services directly onto their apps. In this line of work, Rappi recently partnered with Mexican bank Grupo Banorte, to launch a new financial platform for their users. 

Connecting the dots through Open Banking

These efforts could help improve gig workers financial wellbeing and inclusion, but there are still several challenges to overcome to make it a reality. 

One of them being the access to data. More often than not, financial companies don’t have enough information about these users’ financial behaviour. This makes it harder (when not impossible) to create efficient risk models that could grant them access to better products and services. The situation is true both for banks, for whom users with little or zero financial official activity are virtually nonexistent –and thus non eligible to access their services–; and for fintechs, who don’t have access to the information they need to provide potential customers with better offers. 

Although, while these users might not have registered activity linked to a traditional banking account, they do make financial transactions that are now being recorded in the digital platforms they use to receive their salaries, withdraw money from stores or even make payments. This is why the growing adoption of gig economy platforms represents a huge opportunity; as collecting the information from these apps could help both fintechs and banks have a wider and more realistic overview of users’ real financial activity. 

New sources of data thanks to gig economy

A key element to make this happen is the adoption of Open Banking schemes. This allows users to share their banking data with third parties on a voluntary basis through an API. And it can work in many directions: whether that is users sharing the information they store in new digital platforms with banks and other fintech companies, or the other way around. That’s known as Open Finance: a model where financial data that doesn’t necessarily come from a bank can be shared with multiple parties to foster the development of new products and services. 

Thanks to this –by connecting gig economy platforms, such as Uber and Rappi, with financial solutions–, workers can gain access to new benefits and coverage. This is creating a win-win scenario both for end users and the growing ecosystem of financial innovators in Latin America. 

Nonetheless, as of today, only one in three fintechs have significant expertise in Open Banking. This is partly due to the current irregular regulatory framework in Latin America for the development of fintech solutions under this new paradigm, which is advancing fast, but still has many challenges to overcome. 

But also, due to the lack of an infrastructure in the region that allows for these connections to happen. Which is exactly what Belvo is trying to change. 

More inclusive fintech services

The company has created a comprehensive API offering that allows any developer building financial (and non-financial) solutions in Latin America to easily and reliably extract their clients’ financial data from several sources and connect them with their apps. This includes both banking and fiscal information, but also data from gig economy platforms like Uber and Rappi. 

This provides companies with one-of-a-kind data, not accessible anywhere else, to create better, more inclusive services. This is the case for Heru, a startup offering a financial platform for riders in Mexico. The company is using Belvo’s platform to access bank and fiscal data for some of its users and run it through their models.

“We couldn’t have started Heru without Belvo’s support to access reliable, consistent and uniform financial data. Its full coverage of bank, fiscal and gig economy platforms has been instrumental to us”

Mateo Jaramillo, Heru’s CEO

A gig economy API

Belvo’s Gig Economy product is live in Mexico and Brazil. In these countries clients are already accessing users’ data from Rappi and Uber to build their products. It’s also now available in beta mode for customers in Colombia. And will soon be available in Peru, Chile and Argentina. 

This new paradigm of secure data exchange between companies is changing the way fintech startups can create business models in the region. And it could lead to a more inclusive and democratical financial ecosystem in Latin America

The role of gig economy companies in fast-changing Latin America’s financial ecosystem is one of the main topics of our Open Finance Trends in 2021 report. Learn more about these new models by downloading it here 👇

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