By Akshay Rawat

The gig economy thrives on flexibility. For platform creators, however, building a smooth and secure payment system for their gig workers can feel anything but flexible. Friction in the payment process can frustrate independent contractors, hinder growth, and expose the enterprise’s platform to compliance and security risks. Yet, when executed optimally, the payment process can boost lead generation and retention while lowering costs.

Payment processing evolution

New product and technical strategies have been developed to empower a platform and the valuable gig workforce, from designing the flow of funds to onboarding strategies that motivate workers to get their first job to paying them based on their preferences. The gig workforce has grown substantially, with a significant shift occurring after the COVID pandemic. From 2017 to 2023, the combined number of people performing gig work—occasionally, part-time, and full-time—has increased 76 percent, and the gig economy is expanding three times faster than the rest of the combined U.S. workforce. While many individuals work gigs as a secondary source of income, nearly a third of all U.S. workers earn their primary income through gigs. The benefits extend further. Unemployment is lower than it would have been without the increase in the gig landscape, and unemployment insurance and payments are also reduced, as are personal debt levels.

This evolution is having a significant impact on payment processing technology. Independent contractors seek faster, easier payment opportunities, meaning companies who hire these individuals are focused on financially feasible ways to address these demands. Companies offering earned wage access (EWA) programs are still on the rise, allowing people to access part of their paycheck before payday, and Congress is advancing a bill to support the popularity of this service. Access to low-cost, fast payment solutions enables gig companies to pay workers more frequently. Weekly, daily, or even instant payments after job completion are a big differentiator in attracting and retaining gig workers.

Real-time payments (RTP) and FedNow payments take place electronically from bank to bank, even on holidays or weekends, and can be fully processed instantaneously, 24 hours a day. An increasing number of banks are adopting RTP and FedNow, enabling gig companies to offer faster earning access and supporting the independent contractors who prioritize RTP when choosing opportunities. Because many in the gig workforce lack traditional bank accounts, platforms increasingly provide alternative payment solutions like prepaid cards or digital wallets to ensure financial inclusion.

The rapid adoption of social peer-to-peer (P2P) apps like Venmo, Zelle, and CashApp demonstrates that independent contractors want to receive their earnings via diverse payment methods. Payment solutions integrate with personal finance apps and tools, allowing workers to track their income, expenses, and savings seamlessly. Through the rise of supporting financial gig products, such as 1099 NEC forms for taxes and employment benefits, more independent contractors are being provided benefits similar to those of full-time workers.

Challenges and best practices

Organizations face many challenges when offering gig work, from payment options to cash flow, customer support, and fraud. With research and planning, these issues can be mitigated or even eliminated.

To attract and retain independent contractors, it’s increasingly important for gig companies to offer multiple payment methods so individuals can receive earnings in their preferred manner. The challenge is designing a gig payment product that customers can use to issue payouts to workers independent of the payment method preferences of earners while implementing the details of each payment method, such as recipient account verification, settlement time estimates, bounces, and underlying fees. RTP and FedNow are still limited options, and not all financial institutions offer Zelle. Stitching together various methods allows organizations flexibility in payment options to satisfy the workforce. DoorDash offers weekly direct deposits, daily cash-outs, prepaid debit cards, and cash on delivery where applicable.

Companies using a hybrid workforce of full-time W2 and 1099 gig workers often pay workers with the same frequency—twice a month—which is not optimal for gig work, where workers expect their pay soon after the job is finished. This is because most payroll systems only either do fixed schedules and amounts or variable schedules and amounts well. Further, these worker types have differing tax compliance, legalities, work protection, and benefits requirements. It is crucial for companies operating with such diverse workforce types to adopt platforms that utilize the features of both worker types and maintain compliance. This can be achieved by leveraging modern platforms such as ​​Deel, Onpay, Paychex, and ADP, which are designed to solve these problems at scale.

Cash flow is one of the largest unresolved issues plaguing this landscape. Gig service consumers pay by credit card, which takes days to settle, though gig workers are paid nearly instantly. This causes a lag, which makes tracking cash reserves difficult. Implementing real-time, low-balance notifications so administrators are notified when balances drop below a specific threshold signals the company to fund their account. Utilizing statistics and machine learning algorithms to leverage past payment patterns and predict the cash reserves a customer needs to maintain to back their payments is critical since gig work can have significant peaks during holidays, around events, or weather anomalies. Because shortfalls can occur, especially in the early days of a business, implementing a contingency plan to borrow funds to quickly and temporarily plug the shortfall is vital. Certain payment platforms, like Checkr Pay, provide this feature for a small fee.

High payment volumes naturally lead to high volumes of payment reversal requests, impacting customer service. These reversals and bounces can come from consumers contesting a service performed by a worker or a worker entering incorrect banking information. This contributes to a higher operational effort for customer service for debugging dispute resolution, and often, the reversals cost the gig business money to execute. The fast movement of money makes reversals difficult, as the earner may have already spent those funds. Mitigating these challenges takes only a few steps: employing services to verify bank information, clear articulation and easy accessibility of terms of service and dispute resolutions, implementing user feedback systems, and considering an escrow program for larger products or services.

Fraud is another crucial focus area. Some individuals commit identity fraud by creating fake profiles or impersonating others to offer services, secure jobs, or engage in transactions. Others may intentionally misrepresent their qualifications, skills, or experience to secure jobs or charge higher rates; this includes falsifying reviews or feedback to enhance their attractiveness to potential customers. Service non-delivery is another common type of fraud where people may accept payment for services they never intend to complete or might deliver services of a significantly lower quality than what was agreed upon.

Decrease service non-delivery by encouraging customers to rate and provide feedback on their experiences with workers and rewarding workers for consistently delivering high-quality services with bonuses, higher visibility, or priority task access. Delay payment transfers to new earners on the platform, reducing the delay time as their marketplace reputation increases. Establishing fair and transparent dispute resolution mechanisms to handle complaints and conflicts between workers and customers is also vital. Use advanced fraud detection tools to monitor real-time transactions; these systems can identify and flag unusual activity that may indicate fraudulent transactions, allowing proactive intervention before a payout is processed.

The best practices in the gig economy are rooted in the following key performance indicators (KPIs), which are divided into three main categories.

1. Product. A shorter time to the first payout improves the onboarding experience and builds trust. This is key to converting leads into workers and is a primary KPI on most gig platforms. Faster payment processing times and accurate payouts further enhance worker satisfaction.
2. Technology. Transaction success rates measure the percentage of payment transactions processed successfully without errors or failures. A high rate indicates a reliable payment system, while optimizing costs per transaction can reduce the operational cost and that of scaling to a large number of transactions in the future. Additionally, a robust fraud detection system is essential for minimizing financial losses and protecting the organization and its users.
3. Operations. Efficient dispute resolution processes contribute to customer satisfaction and retention. Monitoring customer support tickets that track the number of inquiries or complaints related to payment issues is critical. A decrease in these tickets can indicate improvements in the payment system’s efficiency and user-friendliness.

As the gig economy steadily grows and expands, the balance between worker retention and payment security remains challenging. Still, new and improved tools are regularly developed to mitigate common issues and create smooth transactions. In coming years, some processes and applications may involve lower fees as more companies embrace the gig-related workplace of the future, and real-time fraud detection will further evolve. The landscape might also see a rise in the surge pricing trend based on supply and demand as organizations investigate the possibilities. With many upcoming trends and advancements—both foreseen and unexpected—businesses cannot afford to fall behind the competition.

About the Author:

Akshay Rawat is an engineering lead at Checkr Pay, where he creates payment platforms that cater to the unique requirements of gig workers and platform operators. With more than 20 years of industry experience and entrepreneurship, Akshay specializes in engineering scalable fintech systems. Connect with Akshay at LinkedIn or at [email protected].