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Financial services are not designed to cope with the increase in the number of self-employed

The pandemic has caused an indisputable and significant change in the way people work and earn a living. The number of people identifying as “self-employed” increased by more than a third as the importance of balance and flexibility at work became a priority, and people realized they could earn a living. returned home under changing circumstances. But even before Covid hit, the freelance sector in the UK was growing steadily year on year. Today, 4.4 million people identify as self-employed in the UK according to research from the University of Hertfordshire.

The changing world of self-employment

In today’s digital world of online work and with the rise of the creator economy and gig platforms, there are many options for people who want to have a varied career and even specialize in more than one profession. at a time. The opportunities are endless and as a result, people’s source of income is becoming more and more diverse. 48% of gig workers in the UK do this as a scramble to supplement their income from other sources and 52% rely on gig work as their main source of income.

Diversified income has many advantages, such as the flexibility to focus on certain jobs if an income stream becomes stagnant and the greater financial security that comes with it. However, in the expectation of greater financial freedom and security, it is discouraging for many self-employed people to find themselves faced with unequal access to financial services. More than a quarter (28%) of self-employed people in the UK struggle to access the financial services they need, according to new consumer research from Tink. Additionally, one-third of self-employed people (33%) believe their employment status has been a barrier to obtaining a mortgage, and 31% believe it has affected their ability to obtain credit.

The challenges freelancers currently face

Since gig workers’ income comes from different sources from month to month, financial institutions consider this irregular income as a risk when deciding to grant a mortgage or a loan. Employees benefit from what is considered a stable income, easier to verify and assess for financial institutions. Simply put, the self-employed have more to prove and the current system of verifying an individual’s work data does not make it any easier.

Financial institutions currently operate manually to verify a worker’s income and employment data. With multiple revenue streams, this data is separated and dispersed from one platform or paper record to another. This makes it difficult for financial institutions to verify an individual’s employment and income data, making it difficult to make decisions such as granting mortgages. This slow and risky process means that self-employed people face a long journey of delays, and sometimes obstacles, when proving their creditworthiness to financial institutions. Often, financial institutions do not have the time, resulting in workers being denied access to financial services and business being lost in the process.

Financial services must be accessible to all

On-demand freelancers need a fair chance to prove their creditworthiness to financial institutions. One thing that needs to change is the way credit scores are calculated. Today’s calculations are outdated and do not take into account the new work habits and multiple incomes that self-employed workers can accumulate. The Financial Conduct Authority (FCA) must play a role here to help revise the rules that financial institutions must follow to make credit score calculations a fairer assessment for the self-employed.

Similarly, financial institutions need to broaden the way they analyze data. They need a way to do a thorough and comprehensive analysis of a worker’s activity and earnings to reflect the truth. This requires adopting a fully digitized process to achieve complete visibility and transparency of multiple, dispersed data sets in real time while eliminating the bottlenecks of manual processes. Automation plays a key role in consolidating and standardizing data to avoid cumbersome manual processes. This can help save a lot of time and money spent analyzing data to inform financial services decisions. By speeding up the process, business conversions such as selling mortgages can be accelerated with the ability to verify data much faster than before.

By automating the process, it also provides greater data security as it provides a central and monitored system to analyze the data. It provides greater transparency to ensure data reliability and protect against fraudulent documents. Adoption of technology platforms can also allow individual workers to retain ownership of their own data, providing permission to share on-demand access to data without sharing the data itself. Gig platforms can also do more to facilitate the inclusiveness of financial services by facilitating the sharing of their employee data and on the basis of consent.

As the number of self-employed people continues to grow, it is essential that financial organizations are ready to meet their financial demands and are ready to try new technologies in order to meet customer needs. By having clear visibility of worker records in one place, rather than scattered across various jobs and projects, financial institutions can feel more confident in their decisions and can back them up with data. And with more informed decisions come happy customers, and digital processes will undoubtedly be the gateway to that success.

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