There's a cash gap the gig economy is missing
The International growth of the gig economy requires hyper-local solutions, a challenge many fail to appreciate. This isn’t just in how a company articulates its value proposition locally.
Even more important is their ability to facilitate payments across local geographies, especially in developing economies where preferences can differ considerably once you cross a border. One common thread across most emerging market countries, however, is a tendency of both merchants and customers to favor cash transactions. This presents an obvious conundrum for P2P platforms traditionally reliant on digital or mobile payments to get their cut.
It’s clear the gig and sharing economies have come of age. It could even be argued that, collectively, these “economies” have become a vibrant and diversified ecosystem unto itself.
Consider a hypothetical business trip. An individual could stay at Airbnb, take an Uber to a local WeWork office, accept freelance assignments via Fiverr, eat lunch delivered by DoorDash, and secure a Lyft back when they punch out. Combined, these companies, which have either gone public or are expected to pursue an IPO soon, have been valued at north of $170 billion. Such rapid growth, over such a short period of time, requires a global strategy from the outset. This is particularly true in the gig and sharing economies, where the winners and losers are being distinguished by those who can scale across both developed and emerging markets and those who can’t.
Many entrepreneurs and founders may be inclined to kick the can in dealing with the complexity to facilitate cash payments. But those that do want to move forward, often find a capacious landscape whose demographics create one of the most appealing backdrops for peer-to-peer platforms. Among freelancers, the gig economy provides a seamless way to find work and leverage the “search and discovery” capabilities of P2P platforms.
Consumers, meanwhile, are drawn to reduced friction in accessing desired goods or services. And while policymakers in higher-income countries have resisted the gig economy’s rapid development, in emerging markets platforms that can “formalize” high rates of informal employment are being embraced – shifting a significant portion of the economy back into the tax base. Not to be overlooked, many P2P platforms are proving to be effective in empowering underrepresented communities to find work and earn a living.
To be sure, entrepreneurs are likely to discover there’s a catch. It takes form as a fairly steep learning curve to understand local preferences as it relates to payments. At best, it creates a governor impeding how quickly a platform can scale; at worst, it can stall efforts altogether. Consider, for instance, that in Brazil barely a quarter of consumers’ e-commerce payments utilize international credit cards, whereas in Uruguay – just across the southern border – international credit comprises 40% of the e-commerce payment mix.
If there is a common thread across the EM payments mix, it’s the ubiquity of cash payments, which on one hand creates a significant gating factor but on the other hand represents a major opportunity to leapfrog into EM and gain a competitive advantage.
To be sure, there is no one optimal way for digital platforms, when transacting in cash, to secure bookings and then ensure the platform, merchant, and relevant tax authorities all receive their due. The complexity only becomes more pronounced for high-volume/low-value services, such as delivery. And depending on the specific business-layer logic of the application, other snags will also arise. Certain ride-hailing companies, for instance, require the platform to process its commission before drivers are allowed to pick up new customers. This isn’t a problem for digital payments, but represents yet another complication when transacting in cash.