While fast cash payments and a lack of credit checks make it easy for the consumer to obtain online payday loans, it usually only postpones the financial crisis by two weeks until the loan matures. Payday loans online like the one you can have here https://moneyzap.com/payday-loans-online/ are for people who experience financial difficulties and have a limited amount of time to solve them. However, a few borrowers can pay off their loans at this stage. 91% of all payday loans online are for borrowers caught in a re-borrowing cycle with five or more payday loans online per year.
Payday Loan Online Essence
Borrowers receive an average of 8 to 13 payday loans per year in one store. As a rule, these are rollover or reverse loans when the borrower practically does not pay a commission for the new money, never paying the amount due. The situation with the typical borrower is even worse as online payday loan borrowers often go to multiple stores (1.7 stores on average). Thus, they take 14 to 22 loans a year.
In fact, only one percent (1%) of all payday loans online are provided to one-time emergency borrowers who pay off the loan within two weeks and no longer borrow within a year. With such a high rate of return on their payday loans, online lenders are ready to lend to almost anyone with a checking account and some kind of regular income.
This “open door” policy is described by the industry as “serving people who have been denied access to credit by traditional lenders” But payday lenders online actually provide access to debt but not credit. As the statistics on bankruptcy and the credit card industry corroborate, American consumers, are mired in more debt than they can handle. For people living paycheck to paycheck, a 400% online loan is not an option.
Targeting Low-Income Clients
The online payday industry’s claim of the “roots” of the middle class is based on research from the Georgetown Center for Credit Research (CRC) which was funded and conducted in collaboration with the payday industry trade group. This study which is unsurprisingly attempting to uncover abuse by online payday lenders is based on proprietary industry data that cannot be analyzed by independent observers.
The CRC study’s finds that 50% of payday borrowers have an average income based on interviews with only 427 out of 5,400 borrowers. In addition, the researchers downplayed the fact that almost twice as many borrowers (726) denied that they even received a payday loan. Two-thirds of borrowers refused to be interviewed.
Actual Business Plans of Lenders Before Payday Online
40 million American households with incomes of less than $ 25,000 need convenient check cashing and quick availability of microloans from $ 50 to $ 300. Moreover, this market is expected to grow over the next decade, especially those households that are leaving the rolls of welfare for employment.
Financial Industry Growth
In the past decade, we have witnessed explosive growth in the fintech industry . According to our research, venture capital investments in fintech grew at an average rate of more than 60% per year. This does not include the domestic investments of traditional financial sector players in technology development. Initially, the leaders were Western markets led by the United States. By 2016 the situation had changed and the development of the online payday loan industry shifted to the east. The leader was China. The state attracted 47% of global venture capital investments in 2016, and the United States moved from 33% to 2nd place offering people with different social statuses online payday loans.
The year of the beginning of the rise of the fintech industry in China is considered to be 2013. The most important business segments of the financial and technological market, namely P2P lending (peer-to-peer platforms for connecting borrowers with lenders which can be retail investors), online wealth management, digital insurance and payments, and transfers, grew by 200– 300%. A feature of China has been the extremely rapid development of payday loans online. P2P lending in China rose to $ 5 billion in two years while in the US in four.
What caused such a rapid development of the online fintech industry in this country? Until 2013, the development of the Chinese financial sector was characterized by certain structural imbalances:
-
The level of financial services penetration into the small and medium-sized businesses and retail sectors was rather low as banks have historically focused on serving large and state-owned corporations.
-
Investors have traditionally preferred to keep most of their savings in deposits due to their reliability and the historically high rates of payday loans online.
-
The infrastructure for the development of the financial industry lagged significantly behind developed countries, and the imperfection of these credit bureaus led to the fact that banks “did not see” almost 60% of the population. These problems did not go unnoticed by the Chinese authorities.
After 2013, a number of reforms were carried out (which coupled with an increase in mobile Internet penetration) and a decrease in deposit profitability (which increased the attractiveness of alternative investments) led to a rapid growth in the fintech industry. The specificity of the largest Chinese fintech companies in terms of value is their focus on the retail segment (2C) (as opposed to the United States and Europe where the leading players serve mainly business (2B)). This is because the growing advent of the Internet and mobile technologies as well as the development of e-commerce platforms have opened up access to a significant part of the large Chinese population who use payday loans online as a tool for additional income.
The high volumes of the Chinese fintech market are mainly provided by only a few large players. The Russian fintech industry is also at the stage of active development. Compared to most developed markets, Russia is at the forefront in terms of penetration of fintech services among the population who use online payday loans. The most popular services are in the payment and transfer segments where the volume of transactions grew by 47% in 2016 according to data from Assist.
Despite the innovativeness of American banks, the growth rate of the fintech market in Russia, for example, in the past five years has been lower than in China, for a number of reasons:
-
A significant slowdown in economic growth led to a decrease in foreign investment and a limitation of domestic financial resources for the development of the fintech industry. Partly because of this, large banks gained an edge over startups as they had much more resources.
-
In Russia, 2C fintech services from new non-banking organizations initially had less prospects in comparison with China due to the higher level of implementation of traditional banking services in the retail segment.
For example, P2P lending which is rapidly growing in China did not gain popularity in Russia. Since the degree of penetration of credit products among the population was already quite high, the deposit rates remained attractive.