Freelancers are amongst the millions of self-employed individuals who struggle to access financial services. Research reveals that they are twice as likely to be rejected for a mortgage than their employed counterparts solely because of their employment status.
In recent years, millions of individuals have diverged from traditional employment paths in favour of freelance opportunities. PeoplePerHour recorded over 1.5m registrations since the start of the pandemic - an enormous 63% increase from the year prior.
Despite the flexibility freelancing creates, nearly half of freelancers don’t have equal access to financial services since credit scores and payslips remain a primary means of income verification. Not only does this leave freelancers financially underserved, but it also restricts lenders from serving an incredibly lucrative freelance economy.
The lack of financial infrastructure
Ever since the gig economy gained prominence during the 2009 financial crisis, freelancers have had to rely on the same fragmented workflows when managing their businesses - even today.
Late payments remain a significant business and financial challenge for freelancers. Although the late payment culture has caused issues for years, the pandemic largely exacerbated it. One report discovered that 31% of businesses continually fail to pay their freelance workers on time every month.
Without the right financial tools and infrastructure, freelancers have no choice but to take hours out of their work day to chase unpaid invoices. This provides fintechs with an opportunity to not only reimagine how freelancers get paid, but offer a solution that helps them effectively manage their business in one centralised place.
The solution to unpaid invoices
Denario, an integrated payment management platform, is one fintech company leveraging open banking to reimagine how freelancers handle unpaid invoices. Using Denarios platform, freelancers can upload an invoice and send it to their customers via a branded payment request link.
They can then set up customised reminder workflows plus schedule automatic follow-ups to save the time usually spent chasing late payments. Moreover, Denario matches expected payments to invoices, automatically reconciling them to streamline the bookkeeping process for freelancers.
Rethinking creditworthiness
Although access to financial services remains the biggest challenge for freelancers, this is starting to change as innovative lenders unlock new solutions and ethical lending practices by rethinking the entire income verification process.
Through the power of open banking, lenders can access real-time financial information pulled directly from the freelancer’s bank account. Accessing reliable income and expenses data straight from the source enables lenders to assess a freelancer’s creditworthiness and determine whether they can genuinely afford a mortgage or loan.
The future of banking for freelancers
Open banking has the potential to transform how freelancers interact with their money - whether that’s reimagining financial management or unlocking access to fairer financial services. As open banking gains more traction in the freelance economy, the fintechs who are first to innovate will be the ones to reap the rewards.
