Can Fintech Replace the PayDay Loans Industry?

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By Jacob Maslow

2008 was a watershed year for the banking world. The financial crisis in that year which engulfed century old banking institutions changed the banking world forever.

Obtaining credit was never an easy task prior to 2008. Having to get dressed in your best suit and literally go begging to bank manager was the norm. Whether you received any funds depended on a myriad of factors including credit status, income verification and the banks own lending criteria. Post-2008, lending restrictions got even tighter which led to the rise and rise of the payday lender.

Quick loans that could be distributed without exhausting lending checks and without a pile of payslips became part and parcel of UK society. £100 loan no credit check direct lender adverts sprang up everywhere and the payday and short term lenders had never been so busy.

By 2012, Wonga, the largest of the payday lenders reported profits of £84.5 million with more than one million customers on its books. However, serial abuse by payday lenders which saw interest rates running into thousands of percent heaped misery onto many people.  In 2015, the FCA introduced regulation which capped fees and capped interest rates. Within a year nearly a third of all payday lenders disappeared. By 2017, Wonga was reporting a £65 million loss.

Demand for payday lenders hadn’t subsided and it just meant the operations still lending were cleaner, more reliable but making less money. However, things may be about to change.

The rise of blockchain technology and Fintech in general is creeping into the payday loans arena. Companies offering Peer-to-peer loans are bringing a new way of thinking and a new way of lending to an industry that has been wracked with fraud and problems. Blockchain effectively takes out the middle man. There is no need for an intermediary in the short terms loans industry. Blockchain allows people to borrow from people who want to lend in a digital process that cuts down on costs and brings payday lending to mobile phone apps.

We are still in the very early days of fintechs involvement in the payday loans industry. At this stage, no one is fully sure of the direction it is going to take, but the potential is there for all to see. More and more we are seeing in the crypto news, stories of the big banks embracing the blockchain world. It is only natural that the technology and the potential will affect all different types of lending. The payday loans world may have been in a slump since regulation but it seems the rise of Fintech may give this much needed industry the boost it needs.

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