How Can Financial Services Support Platform Workers?

Digital platforms that match sellers and service providers with buyers have been transforming the livelihoods of millions of low-income people in emerging markets. Workers are using platforms to deliver groceries, drive customers, provide salon services and perform many other services in cities as diverse as Mumbai, Lagos and Jakarta. Platforms have already scaled remarkably, creating and growing jobs and incomes. This type of work is creating a more inclusive workforce, with a greater involvement of students and women compared to traditional work. Several platforms have even formed partnerships with financial institutions and fintechs to offer financial services to their workers.

For the financial inclusion community, this raises questions around the extent to which financial services can improve the livelihoods of platform workers. Below are three reasons why we believe these are important questions to answer, and why CGAP is researching them as part of a broader, multi-year effort to understand the role of financial services in enhancing the livelihoods of low-income households. (For a more detailed exploration of these issues, see this slide deck.)

Platform work is growing rapidly in emerging markets

It’s hard to put an exact number on how many platform workers there are in emerging markets.

Part of the challenge is that there are many definitions of platform work. Add to this the fact that worker numbers aren’t clearly declared by platforms or well-captured by governments, and it becomes even harder.

What is clear is that although platform work represents a small part of the labor activities in emerging markets today, it is rapidly growing, especially in Asia. In four of the most populous countries globally, an average of 1 in 3 workers use platforms to find work (see chart below). BCG estimates that in India, the platform economy could service up to 90 million jobs in the non-farm economy, transacting over $250 billion in volume of work. The numbers are much smaller in Africa. i2i estimates there are 4.8 million platform workers across eight African countries, corresponding to just 1 - 3% of adults who have earned an income from platform work.

Platform workers often have multiple jobs, frequently using platform work as supplementary income. In this way, platform work expands labor force participation, especially for women and students who may only be available for part-time work to supplement household income.

Platform work isn’t necessarily “good” or “bad,” but many workers face risks that are not being addressed by platforms

Debates about platform work tend to revolve around whether it’s “good” or “bad.” But the reality is that platforms are proliferating, and the question for the financial inclusion community is whether and how financial services can help workers enhance the opportunities and reduce the risks of this work.

For the most part, the conversation around whether platform work is “decent work” (to use the terminology from SDG 8) takes place in developed countries, where the move to gig work has eroded social safety nets associated with formal employment. But the situation is different in emerging markets. Most platform workers in such countries come from the informal context, where the alternative is not formal employment with benefits but irregular, low-paying, unregulated work with few if any protections.

While there’s still much to learn about why workers in emerging markets engage with platforms, it’s clear that many workers do see value in platform work. Flexibility, autonomy and higher unit pay are some of the most frequently cited benefits of platform work. The past year has seen an influx of reluctant platform workers who lost their jobs during COVID-19 and have taken advantage of the low barriers to entry and flexibility of platform work while looking for better opportunities.

Regardless of why workers enter platform work and what benefits they receive, platform work also exposes workers to unique risks. COVID-19 has exposed the vulnerabilities of platform workers who became essential workers delivering goods to people at their homes. Some platforms have taken measures to help workers by offering financial assistance, sick leave and personal protective equipment. But most platform workers have not received such assistance, and the vast majority do not have adequate protection for risks surrounding security, health and safeguarding of assets.

Considering the complex reality of platform work in emerging markets, the important question isn’t so much whether platform work is good or bad: it’s whether there are ways to make it better.

Financial services could potentially make a difference

In emerging markets, where many people do not already use traditional financial services, platforms have been quick to see the potential of financial services for their workers. Platforms have detailed data on worker income that could be used to design tailored financial services to help workers and sellers be better prepared for unforeseen but highly probable events, such as vehicle repairs for e-hailing drivers or tool replacements for handymen. Platforms in Latin America and Asia have moved faster than Africa, with well-established services like Mercado Pay and GoPay offering a host of payment services. Even in Africa, where platforms tend to be newer and smaller, a third of platforms offer some financial service, according to research from i2i. In many markets, credit for buyers as well as sellers and workers is becoming available.

However, there is little publicly available information on the design, uptake and impact of these financial services.

More research is needed on this front to identify promising solutions worth scaling. For platforms, there is a need to understand how offering financial services for workers and sellers affects activity and retention, generates new sources of revenue, and ultimately impacts profitability. For fintechs and other financial service providers, it will be important to shed light on the viability and scalability of early business models that target platform workers and sellers. For workers, it will be important to know how financial services impact livelihoods, activity and income.

What CGAP is doing

Although we hypothesize that financial services can improve the livelihoods of platform workers, this work must be built on a strong understanding of these workers and the risks and opportunities they face in their everyday lives. CGAP is conducting qualitative research with platform workers across five countries: India, Indonesia, Kenya, Nigeria and South Africa. In the coming months, we plan to publish case studies about existing financial services and their value propositions. Over the next few years, we will explore and test new and improved features and solutions in partnership with providers.

Want to learn more about the role that financial services can play in supporting platform workers? This slide deck highlights the existing evidence base and identifies knowledge gaps that researchers, development partners and funders can help answer.