Investors step into 'digital footprint' of gig economy, financial inclusion, digital ID

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Large investment houses see an opportunity to improve financial conditions for contract workers, accelerate evolution away from cash to digital payments, expand the smartphone as a commerce device and streamline user experience.

Flourish, a new fund launched in March that focuses on impact investing in fintech, is part of The Omidyar Group, funded by Pam and Pierre Omidyar, eBay’s founder. As part of the financial inclusion initiative at Omidyar Network, the group had already invested in challenger banks and other financial inclusion plays, but found a need that warranted a specific focus on fintech. It spun out with $200 million of existing assets under management and a new commitment of $300 million for investment.

Flourish joins the likes of KKR, Bain, TPG and Goldman Sachs, which are looking to make investments in companies that meet certain environmental, social or governance criteria, according to the Center for Financial Inclusion.

“There are literally one billion working adults that have a digital footprint with access to a mobile phone and social media,” said Tilman Ehrbeck, managing partner at Flourish. “Yet there are hundreds of millions of small enterprises that can’t get traditional credit.”
The fund is looking for developers and entrepreneurs who are active in digital identity, mobile and emerging data analytics, which Erhbeck said can address pain points in payment processing and provide credit and identity risk intelligence that’s missing from traditional underwriting and authentication systems.

“In a lot of countries the majority of people are on smartphones and it generates a lot of data,” Ehrback said. “There is a way to reach consumers and SMBs that have been outside of the traditional economy.”

Reaching these businesses will depend on connectivity and portable authentication, Ehrback said, adding his firm will seek investments in digital ID and similar technology.

Digital ID is seen an important step in financial inclusion because it provides seamless access to different services such as mobile money, e-commerce, banking, or — in the case of gig workers — their payroll.

There’s also a trend of wealth moving over more channels to more diverse audiences. For example, the Center for Financial Inclusion estimates that in the U.S. alone, $40 trillion in wealth will transfer to women and millennials over the next 30 years. More than $1 billion per day in digital payments are processed via mobile money apps globally, GSMA reports. And the World Bank estimates that 85 percent of adults in China use digital apps for payments.

At the same time, companies such as Uber and Grab are generating billions in new payment streams, and creating a need for alternative payroll services.

But there is still a lack of interoperability and standards for the underlying technology that drives new transactions and security, which is hindering overall growth. And even in markets with dedicated inclusion initiatives, such as India, cash payments still dominate and much of the country remains underserved.

Flourish is looking for companies that can bridge these divides with a specific focus in financial technology.

“We decided we need a different approach to reach more people with payments and financial services at lower cost and with better service,” Ehrback said. “So we are doubling down on the momentum that we have built.”

Digital ID, social media and AI can all drive portable ID, which can feed credit underwriting for small businesses and payments for e-commerce, Ehrback said.

Flourish’s early investments demonstrate a focus on underserved clients, gig workers, security, blockchain and small-business payment technology.

Bon provides a payment card and financial services for contract workers in India. Steady is another gig economy payments and services company based in the U.S.; while other investments such as Chime focus on payroll flexibility, Propel offers government safety net payment and budgeting, and Hummingbird is a regtech company that focuses on anti-money laundering technology. Hummingbird counts mobile point of sale provider Square and blockchain company Circle among its clients.

“That’s the kind of thing we’re excited about,” Ehback said. “If you’re an Uber driver, you need capital. A company like Bon and Uber can underwrite the driver and give him working capital and a debit card to make payments for gas and other supplies…with business controls for the payments. And when a driver gets paid his or her salary, he or she is right in the payment stack.”

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