Startups are leveraging online apps to bridge the gap between citizens and the unorganized sector, providing opportunities and benefits to the informal economy [a680444e]. Examples include Uber, TaskRabbit, Rover, Wonolo, HopSkipDrive, Turo, and iGaming apps. These platforms connect individuals with job opportunities, such as ride-sharing, freelance labor, pet sitting, and car rentals. They offer flexible work schedules, payment systems, and safety measures. The informal sector contributes significantly to the global economy, and these startups aim to tap into its potential while addressing issues of exploitation and inequality. The government should collaborate with these companies to protect gig workers and ensure their rights are upheld [a680444e].
Serial entrepreneur and investor Dr. David von Rosen-von Hoewel argues that the next fintech unicorn will be a product that facilitates small cash payments in the informal economy. While big tech companies like Elon Musk's X and Alphabet are making strides in online payments, there is an opportunity for a nimble European startup to own the space. The informal economy, where cash is still dominant, is the last area resisting digital transactions. Fintech firms have made progress in moving towards a cashless society, but they have not convinced consumers to abandon cash entirely. Innovation in the fintech sector has slowed, and established firms are struggling to find new markets. The challenge lies in monetizing the remaining physical transactions in the informal economy, which require non-exclusive and convenient solutions. The opportunity for fintech lies in creating products that allow for the transfer of money to anyone without them needing specific technology or accounts. This would enable cash transfers in the informal economy to be simple, instant, and without the need for personal information exchange. While big tech firms have the capabilities, they may be too slow to offer the required bespoke service, leaving room for agile European startups to profit from the informal economy and complete the transition to cashless societies. [e738ebfa]
The shadow economy, also known as the underground economy or informal economy, is estimated to be worth trillions of dollars. One expert suggests it could be as much as 10% of the US gross domestic product, making it the third-largest economy globally [c2b147e5]. The shadow economy includes economic activities that are not reported to the government, such as cash exchanges for goods and services. It can involve street vendors, musicians, babysitters, farm workers, and more. The exact definition of the shadow economy varies, but it generally refers to economic activities that are not covered by formal arrangements. The shadow economy can provide opportunities for less educated workers, people of color, women, and undocumented immigrants, but it also hinders tax collection, distorts macroeconomic statistics, and prevents workers from obtaining benefits and protections. Properly accounting for the shadow economy could raise the GDP and lower the unemployment rate. The US shadow economy is estimated to be about 10% of the country's GDP, generating $2.5 trillion worth of economic activity. However, measuring the shadow economy accurately is challenging due to its nature of avoiding detection and measurement. The shadow economy has implications for policy-making, including interest rate setting by the Federal Reserve. Some employers keep workers off the books to avoid taxes and workers' compensation, while workers in the shadow economy may not receive benefits or have recourse if they get hurt on the job. The informal economy is often hidden but benefits society in various ways. [c2b147e5]