Fast access to funds can provide peace of mind and resilience in times of volatility

October 21, 2020 | By Shari Krikorian

Times are tough for many people right now as the economic repercussions, in addition to the health impacts, of the coronavirus pandemic disrupt lives and livelihoods around the world.

The World Bank and International Monetary Fund have revised down predictions for global GDP growth in 2020, and most recently forecast a 5.2% decrease as a result of the pandemic. In real terms, this means key pillars of the global economy — small businesses, many gig workers and consumers — are more financially fragile today than they were before.

In fact, a vicious cycle of shocks has reverberated throughout the global economy. As businesses closed, unemployment across many sectors increased. These job losses precipitated the loss of primary and secondary income for households, decreasing retail spending. This, in turn, further endangered the financial viability of small and medium-sized businesses, forcing even more to close.  And the cycle continues.

We don’t yet know how the impact of COVID-19 will reshape the global economy, although we continue to monitor the changes closely to provide governments and businesses with actionable insights to aid their long-term recovery. But in the short term, we know that providing small businesses, gig workers and consumers with fast, convenient, on-demand access to their money can provide hope and resilience in times of volatility.

For small businesses, faster access to proceeds can provide the ability to cover critical business expenses. For gig workers, faster access to wages can enable them to meet their most important day-to-day needs. And for consumers, faster access to emergency funds — whether that is a loan during a time of acute need, an insurance pay-out after an accident or humanitarian aid after a disaster — can help them to weather the storm.

Helping small businesses get back on their feet

Across the globe, small businesses regularly experience cash flow constraints that undermine their financial viability. The pandemic has only accentuated those pressures. For small business owners, particularly merchants that were forced to temporarily shutter their stores, cash flow is likely more restricted today than ever before. When small businesses experience financial stress, it can mean they can’t pay their staff, restock inventory or keep their lights on.

"SMEs will play a vital role in the global economic recovery. But first, they have to make it through these difficult times."

Small and medium-sized enterprises, which even before the pandemic made up over 90% of the world’s businesses, provided about two-thirds of all jobs and contributed an estimated 55% of global GDP, will play a vital role in the global economic recovery. But first, they have to make it through these difficult times.

At Mastercard, we’re working with financial service providers to provide small businesses — cafés, restaurants, and countless others that are essential to the health of the global economy — with faster access to their proceeds. This provides them with the working capital they need to meet their most critical business expenses and better position them for the difficult recovery ahead.

Helping gig workers take control of their finances

Workers in every corner of the global economy have been impacted by COVID-19. According to the Organisation for Economic Co-operation and Development, global unemployment rates skyrocketed to almost 9% of the global labor force (as high as 20% in Colombia and around 15% in the U.S., Greece and Spain) amid national lockdowns with evidence of spiraling inequality among many demographic groups, notably young people aged 16–25. Gig workers, including rideshare and delivery drivers who find job opportunities via digital platforms and whose services helped many of us safely stay-at-home during the height of the pandemic, have been particularly hard hit.

Despite the key role gig workers increasingly play in consumers’ and businesses’ lives as home delivery service providers and remote freelancers, many continue to experience volatility in pay and benefits. In addition, traditional financial services are not always sized to their needs. Overdraft fees, minimum monthly deposit requirements and limited access to affordable credit can often exclude them from critical financial products and services.

said receiving wages at more frequent intervals would help them manage their finances more effectively.

But quick, convenient, on-demand access to wages can materially improve the lives of gig workers who are financially insecure. More than half (52%) of respondents to a recent Mastercard survey said receiving wages at more frequent intervals would help them manage their finances more effectively. For gig workers, fast access to wages is even more important, with two-thirds indicating this need. In fact, 85%  of gig workers in the U.S. said they would work more often if they were paid faster, and a significant proportion said they would be willing to pay a fee to receive their earnings on-demand.

Mastercard is working with some of the world’s largest rideshare and home delivery gig platforms to provide workers with near real-time access to their earnings, ensuring they have cash flow to meet their most important needs. In the U.S., we’re also supporting Evolve Bank and part-time job scheduling platform Branch to enable early wage access to hourly workers. Solutions like this, which can help gig workers better manage their financial lives, can promote financial wellness in the long-term.

Helping consumers meet urgent needs

The World Bank has more than doubled recent estimates to suggest up to 150 million people could slip into extreme poverty by late next year as a result of the pandemic. Mastercard’s recent global state of pay research, conducted from July – August 2020, shows that many are already struggling to make ends meet. In fact, 58% of survey respondents said keeping up with financial commitments such as bills and loan repayments is a burden at the moment.

When people and households lack financial resilience, it can mean they can’t put food on table for their families, purchase school supplies for their children or pay important bills. When money is tight between paydays, more than one third (35%) of people that responded to our survey said they’d gone without non-essential items, and one-fifth (20%) said they’d missed a bill payment or made it late.

Nearly half of our respondents said they had borrowed money to cover costs, with many seeking support via credit cards and short-term loans. These "non-traditional credit facilities" often have high interest rates and demanding terms that further stress those that can least afford it. Thankfully, there are other suitable sources of credit.

In the U.S., we’ve teamed up with MoneyLion to launch a mobile banking service called RoarMoney, which provides an on-demand deposit account to people with access to interest-free cash advances and cashback rewards. We’re helping other U.S. partners provide consumers with near-instant access to borrowed funds in times of need. And we’re powering a similar solution for small businesses, providing flexible financing on short term loans and lines of credit. Funds are instantly available to withdraw when a business needs to bridge cash flow gaps.

We’re also supporting a wealth of open banking-enabled services to help people who would otherwise be excluded from traditional sources of finance determine their eligibility for credit — and access it more quickly. These solutions provide people with the funds they need to get back on their feet quickly. And a range of bill payment solutions from Mastercard and partners can help people pay back what they’ve borrowed faster and more easily, helping to affordably relieve them of burdensome debt.

"People who need support in [emergency] scenarios often have far greater concerns than money, but... we can make sure having access to funds isn’t one of them."

Access to affordable credit can help people weather chronic crises, but what of acute crises? When people experience a crisis, quick and convenient access to funds — whether that is an insurance disbursement to repair a car or humanitarian aid after a natural disaster — can provide both a financial lifeline and peace of mind.

When a person’s car breaks down, for example, the unexpected cost of repairs can cause them short-term financial difficulties with potentially long-term negative effects, including the loss of a job. For a gig worker in the ride share industry, having to wait to repair their vehicle translates to lost earnings and can contribute to missing rent or not paying a bill.  And when a natural disaster strikes, people who are displaced from their homes often need real-time access to aid to pay for food or shelter for their families.   

Through our partnership with insurance providers, we can provide people with faster, more convenient access to insurance pay-outs, and in partnership with charities and other non-governmental organizations, we enable people displaced from their homes to receive humanitarian aid in near real-time. People who need support in these scenarios often have far greater concerns than money, but thanks to solutions like these we can make sure having access to funds isn’t one of them.

On-demand access to money is a cornerstone of financial wellness

In these troubling times, helping small businesses, gig workers and consumers take control of their finances is more important than ever. The journey to financial health is a long and complex one, but giving small businesses, gig workers and consumers faster, more convenient access to money on-demand can help them to escape a vicious cycle of financial fragility and instead set them on a more virtuous circle to financial wellness.

Having the certainty of knowing their money will be available to spend from their card, their digital wallet or their bank account when they need it most is just one way we can help overcome the financial challenges of the months and years to come.

Shari Krikorian, Senior vice president for real-time funds transfers, Mastercard

Shari Krikorian is responsible for the product strategy and commercialisation of Mastercard Send™, a new frontier in faster, better push payments.