If California has its way, gig workers will be employees

Employer-ContractorLast week, one day after I posted about the payments aspect of the rapidly growing gig economy, the California State Legislature passed Assembly Bill 5, colloquially known as the “Gig Economy Rights Bill.” The bill will require the likes of UberLyft, and other gig firms to bestow employee status upon gig workers, who are currently treated as independent contractors. Indications are that California Governor Gavin Newsom will sign it into law.

If the idea gains national traction, as trends originating in California have a habit of doing, the gig economy will undergo important, costly changes. Per NPR:

The move is likely to have major ramifications for on-demand delivery and ride-hailing companies such as Uber, DoorDash and Lyft, which classify most of their workers as independent contractors. 

The bill’s fans include no less than Bernie Sanders and Elizabeth Warren. Not surprisingly, labor unions are also on board. Altruism aside, unions surely see in gig workers a large pool of potential members. 

The new law will also have an effect on the payments industry.

Payments are a major feature of gig economy apps. Shifting the burden of payroll accounting and management to gig firms will require overhauling that feature. That’s because contractors receive a fee, not a salary, freeing payers from the morass of calculating and filing income, Social Security (including matching employee contributions), Medicare, and unemployment taxes, and other expenses. As it stands, gig firms need only collect fees, take their cut, and pass on the remainder to workers. At least in California, that’s about to change.

Not to be overlooked is that gig firms needn’t concern themselves with minimum wage laws for independent contractors. Gig firms pay fees, not wages, and there are no minimum fee laws. Don’t like working for what the gig firm pays? No shortage of people will line up to take your place. In that way, some argue, the gig economy exploits a loophole that reintroduces the pre-union, pre-minimum wage era depicted in John Steinbeck’s The Grapes of Wrath. The New York Times commented:

… the bill is as much a starting point as an endgame: It will drive a national debate over how to reshape labor laws fashioned in the industrial era of the 1930s to fit a 21st-century service and knowledge economy … Just as federal labor laws were promulgated to help the country recover from the Depression, the imperative to extend basic guarantees like a minimum wage stems from the staggering income inequality in California, the state with the highest poverty rate in the country.

All of which helps explain why California gig workers tend to be all for the bill. And why, as the Times also observed, “Labor leaders cheered in the balcony and lawmakers embraced on the floor of the California Senate” at the bill’s passage.

Passage of Assembly Bill 5 won’t eliminate costs that gig workers hope to escape.

It will simply remove costs from workers to gig firms. According to the BBC, “Some estimates suggest costs for those firms would increase by 30 percent if they have to treat workers as employees.” And, of course, gig firms will not simply eat the increase. They will pass it on to customers in the form of price increases. 

Assembly Bill 5 has been in the works for some time, and gig firms haven’t been sitting around waiting to be acted upon. In a pre-emptive strike last June, reports CNBC

… the CEO of Uber (UBER), Dara Khosrowshahi, and the cofounders of Lyft (LYFT), Logan Green and John Zimmer, wrote an op-ed in the San Francisco Chronicle arguing that being required to classify drivers as employees instead of independent contractors would “pose a risk to their businesses” and ignored two important points.

“First, most drivers prefer freedom and flexibility to the forced schedules and rigid hourly shifts of traditional employment,” Khosrowshahi wrote. “And second, many drivers are supplementing income from other work.”

And now, CNBC continues, challenges are already in the works:

AB5 has attracted staunch opposition from gig economy companies, as it could upend their traditional business model of hiring inexpensive contractors. In an effort to push back against the bill, Uber and Lyft proposed establishing a $21-an-hour minimum wage for drivers in California. The ride-hailing companies, as well as Doordash, have also pledged $90 million on a ballot initiative for the 2020 election that would exempt them from AB5.

The IRS provides guidelines for distinguishing employees from contractors. They are at best foggy. Criteria include the type and extent of instructions given, evaluation systems, training, financial control, equipment investment, and “… how the worker and business perceive their interaction with one another.” 

So from an IRS standpoint, whether gig workers are employees or contractors falls into a gray area. California seeks to make it black-and-white.

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Instant payment in a gig economy

ecommerce-2140604_1280More than a few factors account for the explosion of the gig economy. Perhaps most obvious is the fact that that rapid technological advances in the payments industry have made it possible. Another is the yearning many experience for independence and self-employment. Yet another is the relief the gig economy holds out for the unemployed and the underemployed. And there’s the change of pace it offers the bored-at-home.

Not to be overlooked is the solution the gig economy offers people who aren’t fond of being stiffed. Every year, bad checks alone cost merchants—and, therefore, consumers—an estimated $15 billion. The problem is big enough that some jurisdictions establish their own worthless check units.

But gig workers needn’t worry about bad checks or, for that matter, shoplifters and dine-and-dashers. Gig apps collect payment the moment an order is placed, all but eliminating the danger of being stiffed—not just for gig workers, but also for merchants for whom gig workers deliver. The payments feature of the gig economy lowers the cost of goods sold. Or, to put it another way, it increases profits.

Notwithstanding up-front payments to gig apps, many workers must still wait for payment from their gig app. Delayed payment can present a challenge for workers who rely on their gigs to make ends meet. And it’s a delay that, given the availability of instant payment, needn’t exist.

Which is why a number of gig apps now provide same-day payment to gig workers who want it. These include, among others, Uber, LyftGigwalk, and DoorDash. Altruism may account for part of the offering, but not entirely, for the gig apps take a larger cut in return. Gven the number of gig workers who willingly pay it, the increase appears not to be onerous.

Gig apps aren’t the only ones looking at more timely payment for workers. People who work for companies that have signed on with the app Even can access earned pay prior to payday. Employees pay a monthly membership fee to use the app, but according to Even’s home page there are no other charges:

We do not charge fees outside our monthly subscription … We do not charge interest on money you owe us … We do not sell you credit cards or bank accounts you don’t need. We do not earn interest on any money you’ve saved with Even.

Advances commensurately diminish the amount employees receive when payday finally arrives. The Even app, therefore, is not a means of spending more, but of being able to cover expenses that come due before payday.

To date, the biggest employer to play ball with Even is Walmart. As of this writing, over 300,000 Walmart employees subscribe to the service. The number of subscribers versus active users is likely close, because Even automatically un-enrolls anyone after two months of non-use.

A newer development in the gig economy is the practice of offering advances against anticipated earnings. A survey conducted by PYMTS.com and Mastercard found:

More than 84 percent of workers living paycheck-to-paycheck are interested in pay advances—to the extent that two-thirds of them would consider switching to gig platforms that offered them and more than half would be willing to pay fees of 1 percent or more.

It also found that:

More than 53 percent would use pay advances to cover bills and expenses, however, to a similar degree, they also believe that early payment would reduce overall financial stress and provide greater financial flexibility.

The data are not to be ignored, but one should put only so much stock in the percentages. Of those who claim they would switch, the number who actually would switch remains to be seen. As for gig workers reporting that they are “interested in pay advances,” and that advances would “reduce overall financial stress”—well, one could hardly expect anyone to say otherwise.

If you cannot help but wonder if there’s a resemblance between gig advances and the payday loan business, you’re not alone. PYMTS.com reports that New York State’s Department of Financial Services (NYDFS) “… has announced it will lead a multi-state investigation into alleged violations of state regulations of the short term lending industry, specifically in the area of payroll advances.” Yet:

The firms under investigation at present, however, arguably aren’t payday lenders—at least under the strict legal definition of the term. Instead of “loans,” these firms instead offer “payroll advances” which are designed to give consumers access to wages they have already earned ahead of their next paycheck. The NYDFS, however, is concerned that some of these firms have swapped out high interest for membership fees and “tips” that ultimately add up to being the equivalent of usurious and other illegal interest rates.

The article specifically cites Earnin. NYDFS seems to suspect that Earnin’s tips, membership fees, and charges for access to certain features may amount to onerous usury in a new suit of clothes. This one will be interesting to watch.

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Launched your own cryptocurrency lately?

Crypto coinsI shall open with a rhetorical question:

Is anyone not looking into launching another crypocurrency? 

Right now, CoinMarketCap lists 2,346 of them, from giants like Bitcoin to not-giants like Onedex.

But today’s rhetorical question is more about the fact that, besides Facebook, JP Morgan and Walmart are in, Goldman Sachs is taking a serious look, and speculation is mounting that Amazon will sooner or later have no choice but to jump in as well.

Facebook’s Libra is by now old news. After all, I wrote about it clear back in July, an eternity in crypto-life. Libra is also plagued by critics, among whom U.S. House Financial Services Committee Chair Maxine Waters may be foremost. According to PYMTS.com, Waters …

… met with government officials in Switzerland about Libra, and said she remained concerned about the viability of the currency, according to a report by Reuters. Waters released a statement on Sunday (August 25) saying that despite meeting with the regulatory body for the proposed cryptocurrency, the implications of a large tech company providing a digital currency for billions of people still troubled her.

Yet Quartz’s cryptocurrency reporter Matthew De Silva went so far as to suggest that Facebook is “late to the party.” He pointed out that when WeChat and QQ parent Tencent launched its own QQ Coin in 2005 …

… they were initially designed to pay for online services and games in the Tencent ecosystem … But shortly after Tencent launched its virtual money, QQ Coin escaped its control. In 2006, a year after the digital unit launched, “online game sites beyond Tencent started accepting QQ Coins as payment.

But, as I said, giants are eager to unleash their own cryptocurrency.

Goldman, J.P. Morgan, Walmart … et tu, Amazon?

In an interview with Les Echos reported by TheNextWebGoldman Sachs CEO David Solomon said his company is doing “… extensive research on the concept of tokenization.’”

Solomon expressed his belief in the potential of blockchain-based digital currency in enabling frictionless cross-border payments. Similar to J.P. Morgan, Goldman Sachs believes such a currency will need to be backed by actual fiat currencies.

Speaking of which, you may recall that J.P. Morgan announced in February that it was …

… the first U.S. bank to create and successfully test a digital coin representing a fiat currency. The JPM Coin is based on blockchain-based technology enabling the instantaneous transfer of payments between institutional clients.

CNBC report observed, “While J.P. Morgan’s Jamie Dimon has bashed bitcoin as a ‘fraud,’ the bank chief and his managers have consistently said blockchain and regulated digital currencies held promise.”

Despite repeated denials from Amazon Pay VP Patrick Gaulthier, reports Market Realist’s Margaret Patrick, rumors persist that Amazon may enter the cryptocurrency arena: 

The rumors started in November 2017, when Domain Name Wire reported the company had registered three blockchain- and cryptocurrency-related domain names. This news may not necessarily prove the technology giant’s interest in the cryptocurrency field, however. Domain Name Wire proposed the company may have registered the domains to protect its brand name.

Notwithstanding, Patrick continues,

Amazon has launched its own fully managed blockchain service for the development of scalable blockchain networks. The company has also developed a fully managed ledger database, Amazon QLDB, which can be used to develop blockchain applications. This capability, coupled with the company’s broad customer base, makes it one of the most eligible companies to enter the cryptocurrency space.

A game-changer for Amazon may exist in the fact that Walmart has applied for its own digital currency patent. CCN’s P. H. Madore snarked earlier this month …

The only thing that could make this better for the retailer and crypto adoption is if Walmart acquired Facebook … The move might be interpreted as part of the company’s larger strategy to compete with Amazon.com by leveraging its mammoth distribution network. Sorry, Facebook. If you thought creating Libra was a big deal, whatever Walmart does in terms of virtual currency will be much, much bigger.

Market Realist’s Mayur Sontakke wrote:

Based on the patent filing, Walmart Coin looks a lot like Facebook’s Libra. Both are set to be a stable coin. While Walmart Coin is to be pegged to the US dollar, Libra is to be backed by a reserve of high-quality, low-volatility assets denominated in major stable currencies around the world. Both coins target low-income households with little or no access to banking.

The face of Bitcoin, it seems, has launched a thousand ships. Believe it or not, Bitcoin has been around for a decade. During that time, the U.S. dollar value of a single Bitcoin has ranged from .03¢ to $20,000 and everywhere in-between. As of this writing, CoinMarketCap puts a Bitcoin’s value at about $9,500. Of course, by the time I type the period at the end of this sentence, its price will have changed again.

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The darker side of P2P

legal-1143114_1280Thanks to peer-to-peer payment, fondly abbreviated to P2P, it’s now possible to split tabs at restaurants and reimburse friends for odd expenses without having to handle currency. And, much to my kids’ joy, extended family members can send birthday cash faster than ever, without resorting to checks and envelopes.

But lunch buddies, friends, and grateful nieces / nephews / grandchildren aren’t the only ones singing P2P’s praises. PYMTS.com recently reported:

Peer-to-peer (P2P) payments continue to gain popularity among consumers, with two of the biggest providers, Zelle and Venmo, reporting ongoing and significant gains. But amid that growth is a fresh trend that could present challenges for law enforcement—the use of such payment methods for illicit transactions, including drug deals.

PYMTS.com references a LendEDU poll of over 1,000 millennials, which found that nearly 32.5 millennials admitted to having used Venmo for illicit drug purchases. Examples include Schedule II controlled substances (Adderall®, for instance), marijuana, and cocaine. And in a follow-up poll last year, 21 percent said they’d used Venmo for illegal gambling.

It’s reasonable to suspect that the real numbers are higher. Even in anonymous surveys, people tend to overstate their virtues, understate their vices, and simply recall incorrectly. Moreover, much has changed since the surveys were conducted in 2017 and 2018, respectively. The use of P2P for individual drug and gambling transactions has no doubt increased overall, tracking with societal tolerance. And since the surveys were taken, Zelle has become an increasingly significant player in and has likely expanded the P2P market. 

Not to be overlooked is the fact that the studies focused on millennials. Granted, millennials are P2P’s most-frequent users, but there’s no reason to think that other demographics lack sufficient smarts to figure how to use P2P for the verboten. 

Verboten via P2P 

Reimbursing a friend for a quarter-gram of weed is one thing. The larger problem is the increase in P2P payments for more serious, more harmful activities, such as human trafficking.

If you think it might be risky to pay for the illicit via a P2P app, you would be right. Most P2P providers have strict policies against and enforce penalties for certain types of transactions. Besides shutting down accounts and freezing funds, they may share, as Zelle discloses, “… information collected or accessed from you and about you with … law enforcement, government agencies, and other authorized third parties …”

I need hardly point out that P2P transactions leave an electronic trail. By overlaying data, it’s possible to identify drug trafficking operators, including Dark Web operators using onion routers like Tor, and even including, to an extent, deals paid in cryptocurrency. 

The United States government in particular is cracking down, as evidenced by the Treasury Department’s newly released, 12-page “Advisory on Illicit Activity Involving Convertible Virtual Currency.” The document’s purpose is …

“… to assist financial institutions in identifying and reporting suspicious activity concerning how criminals and other bad actors exploit convertible virtual currencies (CVCs) for money laundering, sanctions evasion, and other illicit financing purposes, particularly involving darknet marketplaces, peer-to- peer (P2P) exchangers, foreign-located Money Service Businesses (MSBs), and CVC kiosks.”

The Treasury Department Advisory lists 30 “Red Flag Indicators of the Abuse of Virtual Currencies.” Here’s a sampling:

• A customer receives multiple cash deposits or wires from disparate jurisdictions, branches of a financial institution, or persons and shortly thereafter uses such funds to acquire virtual currency.

• A customer receives a series of deposits from disparate sources that, in aggregate, amount to nearly identical aggregate funds transfers to a known virtual currency exchange platform within a short period of time.

• A customer’s transactions are initiated from non-trusted IP addresses, IP addresses from sanctioned jurisdictions, or IP addresses previously flagged as suspicious.

The type of criminal activity the Treasury Department looks to intercept is on the level of money laundering, human trafficking, and terrorist financing. The occasional, casual transaction may—may—be harder to detect. Paying a neighborhood weed dealer might be indistinguishable from repaying a loan between friends.

But with the volume of data generated daily, and with AI’s increasing ability to sort and correlate, I wouldn’t count on it.

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Cogito ergo digital payment
Implants, butt readers, and mind control

Press to paySomeday the payments industry may rely on thought alone. PayPal founder, serial entrepreneur, and rich dude Elon Musk recently announced that his company Neuralink plans within a year to have a device that allows people to use their minds to work a computer. 

It’s too soon to get excited—many a Musk project has fizzled—but the dream is reality-based. In 2005, Matthew Nagle became a formidable Pong player by means of microelectrodes buried deep in his brain. The hope is to give Nagle, who is paralyzed from the neck down, and people like him greater independence and communication ability through computer use. Neuralink’s technology will likewise insert microelectrodes in the brain. 

Musk didn’t bring up banking specifically, but it’s not much of a leap, especially since (1) Musk has a background in payments and (2) Neuralink aims to connect users to an iPhone app. 

Biometrics as the butt of jokes … and in butts

Biometric technology is showing up in many places and forms. The first phone with a fingerprint scanner was the Pantech GI100. That was in 2004, when the iPhone was still three years away. Other iterations of fingerprint authentication followed, but it was in 2013 that Apple that made it famous by including it on the iPhone 5S.

Screenwriters love to use biometrics to comedic effect. In the 2018 movie The Spy Who Dumped MeAudrey (Mila Kunis) replaces her lipstick with a deceased bad guy’s finger in order to use his phone. I guess it didn’t occur to the writers that once Audrey unlocked the phone, she could have reprogrammed it with her own fingerprints; and that a severed finger isn’t of much use for unlocking a phone anyway.

Sometimes biometric ID begs mockery. Like when Tokyo’s Advanced Institute of Industrial Technology installed 360 sensors in the driver’s seat of a car. This enabled the seat to recognize the car’s owner—I swear I’m not making this up—by the shape of the owner’s rear end. That’s great for vehicles, but I don’t expect to see Butt ID used to authenticate payments anytime soon. I believe the average consumer would sooner revert to cash than sit on a point-of-sale reader.

Swedish fingers at the forefr0nt

But right now in Sweden, people are signing up for a biometric ID device so fast that the country’s main manufacturer is having trouble keeping up with demand. The product is a chip embedded under the skin, usually in a finger. NPR reported,

The chips are designed to speed up users’ daily routines and make their lives more convenient—accessing their homes, offices and gyms is as easy as swiping their hands against digital readers … Around the size of a grain of rice, the chips typically are inserted into the skin just above each user’s thumb, using a syringe similar to that used for giving vaccinations.

And, according to cybersecurity company Kaspersky

Facial recognition is a part of everyday life in Chinese cities, where it’s used for routine purchases, and London is famously dotted with CCTV cameras. Now, New York, Chicago, and Moscow are linking CCTV cameras in their cities to facial recognition databases to help local police fight crime … Facial recognition cameras are already at work in … airports throughout the world, including those in Helsinki, Amsterdam, Minneapolis-St. Paul, and Tampa.

PYMNTS.com has noted that Facebook is “… working on a system …

… that will let people type with their brains,” the company said … “Specifically, we have a goal of creating a silent speech system capable of typing 100 words per minute straight from your brain—that’s five times faster than you can type on a smartphone.

Apocalyptic warnings

Hollywood comedies aside, all of the above generate apocalyptic warnings based on everything from finger amputation, to identity theft, to HIPAA violations. Swedes appear not terribly concerned, but citizens of other countries may not take reassurance from knowing that the founder and CEO of Sweden’s leading chip manufacturer Biohax was not trained in medicine or technology—but in body piercing.

Yet it’s not as if developers haven’t anticipated and planned for security concerns. Per NPR,

Osterlund says personal microchips are actually more difficult to hack than many other data sources because they are stored beneath the skin. “Everything is hackable. But the reason to hack them will never be bigger because it’s a microchip. It’s harder for someone to get to, since you put it in you,” he says.

And, per Kasperksy:

… biometric technology still offers very compelling solutions for security, as the systems are convenient and hard to duplicate. They make a good replacement for user names as part of a two-factor authentication strategy that incorporates something you are (biometrics), something you have (like a hardware token) or something you know (like a password). That’s a powerful combination, especially as IoT [Internet of Things] devices proliferate.

And there’s the convenience factor. There’s something to be said for having to carry around only one device—or one finger—to access myriad apps. In Sweden, consumer convenience is driving embedded chips. The rest of the world may not be far behind.

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