How U.K. challenger banks are trying to cash in on gig economy payments

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While the gig economy has become more prevalent in recent years, the traditional banking market has provided few innovations for tackling the various payment-related challenges faced by businesses which utilize these workers.

Last year, the Office of National Statistics revealed that more than 15% of the U.K.’s working population are self-employed. These self-employed freelancers are a cornerstone of many small and medium sized (SME) companies, with surveys undertaken by digital marketplace PeoplePerHour finding that 67% of SMEs rely on this workforce.

As a result, challenger banks such as Cashplus and Metro have been working on new solutions aimed at making it cheaper and more efficient for SMEs to make mass payments simultaneously to their vendors.

“Right now, the end-to-end payment process is slow and expensive for businesses,” said Nick Biggam, commercial director at Cashplus. “There’s a knock-on impact from that for both gig economy workers, and other small businesses that are receiving payments.”

Cashplus has recently launched a new Payments API, which allows SMEs to initiate payments for a variety of platforms including payroll, lending, and accounting, all at the same time. The company says this has the potential to save businesses both time and money.

“Traditionally, someone running payroll has to generate a payroll file with one piece of software, import that into their banking system, and then pool back the reports needed for reconciling that process,” Biggam explained. “It’s a laborious process, and depending on the volume of payments, some of this may involve data re-entry with inefficiencies and opportunities for errors around that. Plus there’s the basic cost of making those payroll transactions which tends to be quite expensive for small businesses, typically around 65p per transaction.”

Cashplus says the transaction fees from using its Payments API are at least 50% cheaper than those of most high street banks. In addition, the API is integrated with a number of leading payroll software programs, enabling customers to initiate payments instructions directly from within their own system, and cutting down on the number of steps involved.

“Instead of having to generate a report describing all the payments and then either submitting it to online banking, the Faster Payments service or Bacs service, it means you just have to click on a button and it all happens,” said Barry Florida-James, managing director of JustAccounts, the first company to use the Payments API. “The main benefits are efficiency, and immediacy.”

At the moment, it is only possible to use the API to initiate payments from a Cashplus account, but in future, it may support a range of providers through Open Banking. And while Cashplus and other challenger banks are currently focusing on deploying such technology across the many small SMEs and sole traders operating in the gig economy, they also foresee wider applications.

“In total, 12 percent of U.K. payments are employment-related payments,” Biggam said. “So we see some major opportunities in this space, but there’s also several other verticals where there may potentially be an interest, such as businesses involved in credit and lending, as well as insurance payouts.”

Clients like JustAccounts are also hoping that Cashplus’ technology will help pave the way for traditional banks to develop their own time-saving and cost-cutting solutions for SMEs, but they accept that this may take time, partly due to perceived security risks.

“It’s not a priority for them,” Florida-James said. “They also have to trust us, as the risk is that if our systems aren’t built to the same standards as theirs, it could make them vulnerable. In theory, because they’ve opened up their API to us, they’ve opened another door into their internal systems, and if we didn’t secure it well, it could potentially be an easier door for a hacker to get in. But I think they will get there in a few years time.”

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