It is the time when not only tools but even definitions should be redefined.
The digital economy is on the rise in India and eventually many people are choosing freelance or gig work to earn their living and to get work satisfaction. Few have left their well-paying job to do so, while many started it because they didn’t get a job for a long time, got unemployed, could not work due to family commitments etc to name a few big drivers. People who got success in this pursuit got addicted to it and never wanted to go back to a full-time job but decided to pursue their passion and profession. Many who did not get much success, got bored, got stuck, got a wonderful job offer etc and left their passion and interest, to join an employer.
People who are in a job, get a loan easily due to the fixed salary date and amount, however, it’s not true for a gig worker or freelancer who follows his/her passion. They get evaluated based on their income tax return and not on their potential to earn money from the virtual assets which they have created. And if they mention that they have an online business and not a regular income they are mostly denied a loan. Thanks to COVID-19, we realised that even a fixed looking job can end at any point with no surety. However, in the pandemic, people who were working on the virtual assignments, online etc did not get much affected unless their parent industry got threatened.
Lockdown increased the time spent at home or time on the internet, which means more internet consumption, ultimately more content consumption. And who benefited from the entire process? The content creators, bloggers, YouTubers, movie creators, online teachers etc. They observed an upsurge in their subscription and income which further motivated them to create more content. Entire world economy changed, and we started exploring the new normal, which was virtual. But one thing did not change. The business became digital, but mindset could not leave the legacy systems, and banks and traditional lenders still believe that a job is more secure than a gig.
With the reducing cost of smartphones and the internet, India is getting into Bharat and vice versa, this cultural and technological transfusion between the two worlds is creating a new and digital India. Technology is reaching everywhere, and we can see a lot of talent, unseen and unheard actors, and professionals on TikTok, youtube, Facebook, bloggers, WhatsApp, Instagram, etc. These social media tools become their medium of expression and distribution. We all appreciate it and share it with our network creating a viral loop and increasing their reach and confidence.
Now, these talents want to touch newer heights however they are restrained by the limited availability of finance to them. Most of the traditional lenders and credit bureaus still rely heavily on salary slips, income tax returns etc. However, many gig workers do not make it to the minimum slab of the income tax return and hence are not required to file the return, but they need capital to break that slab and earn more. Through this concept note, authors want to develop a model which can be used to assess the earning of a gig economy worker as collateral and provides enough comfort to lenders that their money is safe.
Imagine a person who is earning an average of Rs. 15,000 per month from Youtube, blogging or by selling their courses online. If s/he wants to use these assets as collateral with any traditional lender, we know most probably it will be a big no. But what about these platforms, can Youtube, blogging websites and course platforms assess the past earnings and extend a line of credit to these freelancers and gig workers. And as collateral, they can take the right of these virtual assets on which their entire business works on. These virtual collaterals are the raw material for these social media platforms on which they run their business empire.
Single Party Model – These social media platforms extend a cash advance to these people when in need, depending on their past earning and potential etc
Two-Party Model – Social media platform ties up with a lending company, where the platform helps to get control on the virtual collateral and date for underwriting and the lender provides loan at an agreed rate of interest. The platform also shares a % risk.
Three Party Model – Platform provides information for underwriting, the second party provides a specialised service in assessing the worth of virtual collateral, the third party provides the money. Here the second party’s role can be taken up by the third party as well. All three/two share a % risk.
While reading the article, some thoughts like these would have come into your mind. Let us try to understand what the concerns are behind this proposed system, and how can we overcome it.If you are an entrepreneur, give special attention to this section in order to brainstorm more about this proposed credit system.
1. The rise and rise of Social Media – If we go back a few decades, who could have thought that people might actually earn through social media platforms. When Facebook was launched, it was just used to keep up with friends and family. However, social media content writing and marketing sounds like a lucrative career option these days. Making memes was considered a hobby. But now companies are hiring people who can make good memes for their social media page. Even NFTs sound like a good career option now. Similarly with time, it might be possible that banks start considering the channels of content creators as social collaterals and assigning a relevant number according to its actual worth.
2. Fintech firms are becoming more innovative – if you need credit assistance these days, the available options are wide. Banks are no longer the only source of credit. So, there are a lot of options available to an average borrower. Given how new age fintechs (Like Cred) use social media to advertise their product, it is highly expected that this might be the next big thing in digital lending. The best part here is that one does not have to rely on legacy institutions like banks to secure credit. It is seen that usually these legacy institutions are the last to adopt a new age idea.
3. Change in mindset – earlier, salaries were considered the most secure form of cash flow for an individual. However, with the pandemic, one has realised that any business might be forced to shut or any employee might be forced to resign. So, the cash flow of a salaried person is as insecure as that of a gig worker or content creators. This is why people are giving up on their legacy job hunt and turning towards the gig economy to earn extra bucks. They are even becoming content creators across various social media platforms like YouTube, Instagram, Facebook, Twitter and quite recently Telegram. There are full fledged courses available on why one needs a digital audience. So, as a higher number of people who want to take loans belong to a certain category, it is pure innovation and business shrewdness to come up with different forms of products (or offerings) for them. If one business or firm successfully implements it, others will follow for sure. And if we look at some of the best fintech companies across the globe, we will find that they took up one pain point of the customers or users and built their products on that. Famous examples include Stripe, Zerodha, PayTM, Klarna and more.
New age Fintech firms have proved that anything is possible especially in the pandemic. With the growing number of digital content creators in the world, we first saw creator agencies coming up. Then came up digital marketing firms or channels (or accounts on Twitter, Instagram, etc). Creators are taking to different sources of earnings like affiliate marketing. To disrupt this creator economy, this new form of lending might be the next big thing. To keep up on the same, follow this space. We are keeping an eye on it and we will be more than happy to reach you first.