Visa, Mastercard land multiple partnerships to steer gig payments

Fintech startups have been a natural fit for the gig economy, leading Visa and Mastercard to seek them out as partners to maintain relevance.

Mastercard, for example has just signed a partnership with Evolve Bank & Trust to use Mastercard Send for interest-free pay advances to hourly and gig workers. The move is an attempt to compete with payday advances as well as serve the disparate payroll needs of contractors.

The card brand cited internal research that found U.S. gig workers received $236 billion through pay advances in 2018, as well as research from McKinsey that found 27% of workers in the U.S. are now engaged in an independent or alternative work arrangement as their primary job.

“The segment is growing and all signs show it’s going to continue to grow,” said Jess Turner, executive vice president of product and innovation in North America for Mastercard. “Just a few years ago, the opportunity to be a mini-entrepreneur didn’t exist.”

Beyond payday lenders, the gig economy has attracted the actual employers — Lyft, for example, offers Express Pay — contending mainstream payment services do not meet the diverse financing needs of its contract workers.

Fintechs are also actively attracting investment. Flourish, a new VC, focuses on the gig economy. And Radical Ventures just poured new investment into Sensibill, a gig economy payment company. Another startup is Extend, which provides travel and entertainment payment services for companies that use contract workers and freelancers.

These new firms and investors join a market with existing gig economy companies such as Tipalti, which provides a variety of gig economy services and recently expanded to accommodate mergers between companies that use a critical mass of contract workers.

In this environment, the card brands are adding partners to address the varying needs and diverse range of work.

Mastercard’s new partnership with Evolve, for example, reaches other third parties that serve business needs for contractors.

“We see that the need for new payments tech for gig workers is often the small expense where the cash is needed immediately,” said Atif Siddiqi, CEO of Branch, a Minneapolis-based company that provides financial services for hourly contract workers. Branch has partnered with Evolve to expand payment capabilities and will expand push payments by accessing Mastercard Send.

The contractors often have supply requirements that are as varied as their pay, requiring a more frequent flow of funds, Siddiqi said.

“There’s a weekly pay variance, so what they need is budgeting tools that match their cash flow,” Siddiqi said. “These workers often have an unexpected bill that has to be paid quickly."

Mastercard’s Evolve partnership follows on other deals. Mastercard partnered with Stripe in 2018 to allow businesses on Stripe’s platform to generate single-use virtual card numbers to serve on-demand businesses with a series of specific one-off payment needs.

Also in 2018, Mastercard partnered with Square to extend digital payments for small businesses in specific municipalities such as New Orleans and Cleveland; and Care.com, to add real-time payments and budgeting to Care.com’s online services for caregivers.

Visa’s collaborations in the space include a partnership inked this year with NetSuite to provide push payments for contract workers; and PayActiv to support real-time disbursements to PayActiv's micro-merchant users.

"The gig economy has fundamentally shifted people's expectations for how fast they can get access to their earned wage when they need it, all driven by convenience and cash flow needs," said Bill Sheley, Global head of push payments at Visa, in an email, citing research from Career Builder that found 78% of working Americans live paycheck-to-paycheck. Sheley added Visa has also recently partnered with Lyft and Postmates to support push payments for contract workers.

Many of the collaborations take advantage of the card brands' push payment services, which is a natural fit for gig economy payments, according to Rick Oglesby, president of AZ Payments Group.

“They can become more involved in push payments. Traditional network payments are transaction ‘pulls’ where a merchant charges a card,” Oglesby said. “Payroll payments are pushed from the payer to the payee. This is a new, very large and high potential opportunity for the card networks.”

There’s also an opportunity to become facilitators for global faster payment initiatives. Through their debit networks, the card brands are equipped to enable real-time or near-real-time payments which are suited for the gig economy, Oglesby said. “The card brands can [also] enable payment splitting arrangements,” Oglesby said. “Many gig economy solutions involve a single payment form a singer payer to single payee, yet the payment needs to then be split between a gig worker and the labor marketplace.”

Contract workers require a heavy focus on prepaid programs for different kinds of contract work, and there’s also an intersection with financial services tastes of younger consumers who don’t want a traditional banking relationship, according to Turner.

“It’s a broad segment so we have to think through how to add and do different things,” Turner said. “Bundling what we do as a B-to-B-to-C company with what these partners are able to do has been a big part of how we’re responding to the gig economy.”