Payday loan lenders have been vilified in the media for a long time now. Accused of predatory lending standards with outlandish interest rates, consumer advocates, elected officials and bureaucrats are looking to impose new regulations on the bad credit loan business.
But will payday loan lenders vanish through regulation? One company may have a free market solution to consumers needing quick cash to cover an emergency, repair or vehicle breakdown.
The purpose of these loans is to help consumers pay their utility bill, purchase a new refrigerator or cover the rent until their next paycheck in two weeks. What if consumers could access their accrued earnings, or wages, in the event of an unforeseen event? This is where a payroll card enters the picture.
Frank Dombrowski, the Founder and CEO of FlexWage, developed a software platform called WageBank. This allows employees to access their earned wages in between pay periods through the means of a payroll card.
Dombrowski spoke with Bankless Times this past weekend to discuss the enormous opportunity that WageBank presents. With millions of Americans living paycheck-to-paycheck and nearly two-thirds saying a $400 unplanned expense could send the household into a downward spiral, the payroll card could present a flexible solution.
This type of software could also help individuals avoid websites that offer bad credit loans, which could come with exorbitant fees. Banking overdraft fees could, too, be avoided since it can cost a consumer around $37 per overdraft.
“I knew we would have to address the big cost drivers behind short-term lending options,” Dombrowski told the news outlet. “The employer-based distribution is the most efficient for the market. Not the easiest, but definitely the most efficient once it was scaled.”
Overall, Dombrowski believes these kinds of financial problems create stressed employees who are then less productive. The technology could offer a solution for both employers, who want their employees to be in tip-top shape, and workers, who are in financial destitute.
But FlexWage isn’t the only financial tech firm that is disrupting the marketplace. One organization believes Fintechs will transform not only the payday loan industry but the borrowing niche in general.
Clayton Howes, founder and CEO of MoneyMe, opined that fintechs’ utilization of big data, cross-referencing algorithm and advanced technologies will result in a fairer and more efficient smaller loans market not only in his native Australia but elsewhere around the world.
“The new wave of fintechs is translating into cheaper prices and faster transactions across many financial service industries, leaving the end-consumer with more power than ever before,” Howes said. “In this way, we may see a fairer and more competitive market for small-amount consumer loans in Australia, driven by superior technology.”
It’s not only the commercial sector changing the conventional business model of bad credit loan stores. Local governments and non-profit organizations are getting involved by offering low-interest loans and flexible term agreements for customers suffering from poverty or emergencies.
The Sheffield city council in Great Britain voted in favor of establishing a payday loan establishment of their own. One Australian charity is offering no-interest loans to consumers.
With tech advancements and public fights against payday loan businesses, the traditional model of these companies may be forced to change.