In 2018, the UK personal lending market exceeded £200b in size, the largest it’s been since 2008.
In fact, personal lending is on the rise around the world, and figures from TransUnion suggest fintech and online lending solutions may be responsible. In 2010, financial technology and online lenders accounted for only 3% of all loans made, while banks, credit unions and other traditional financiers accounted for the rest. It only took 5 years for that number to grow to 30%, turning online lending platforms into the single most popular destination for customers looking to secure personal or short-term loans, often referred to as “payday loans.”
Studies analyzing transactions and customer survey data suggest an increase not only in payday loans overall, but in the dominance of digital lending platforms. The Competition & Markets Authority found that 83% of all payday loan customers used an online lender at least once, while 71% used online lenders exclusively. The data suggests that personal loans have a bright future, fueled largely by online lenders and their ability to meet increased demand from customers.
But even as the payday loan market grows, today’s borrowers are being underserved by antiquated payment infrastructures that fail to address major market segments or consider the immediacy of a customer’s needs. The shortcomings could potentially cost lenders millions of dollars in unrealized revenue.
Research shows that the most common reason customers have for borrowing money is to pay for life essentials. Fifty-six percent of UK borrowers listed food costs as a reason for securing a payday loan. Energy costs came in second at 40%, and fuel/transport costs at 33%. These are immediate needs that customers can’t afford to wait on, and yet many online lenders depend almost exclusively on traditional bank transfers to deliver funds to their customers. These can take up to 3 days to process when straddling weekends. The number of loans taken out on Fridays is roughly 50% higher than all other days of the week, meaning online lenders are failing their customers exactly when they need them most.
Aging solutions like these also fail to address customer segments for whom banking isn’t an option. Thirty eight percent of payday loan customers have at some point held a bad credit rating. Thirty five percent had made arrangements with creditors to pay off arrears, and 10% had been visited by a bailiff or debt collector. It’s not uncommon for these customers to have collectors seize control of their bank accounts, gaining immediate and unfettered access to any borrowed funds secured through bank transfers and making cash lending the borrowers’ only option.
Furthermore, 1.5 million UK adults are unbanked and therefore fundamentally incapable of securing loans from online lenders who don’t support cash-based options. Online lenders who ignore either of these segments fail to address a substantial percentage of their potential market that, if supported, could grant them a significant advantage over the competition.
Online lenders can solve all of the above issues by partnering with a localized payment network. In doing so, they’re able to eliminate turn around times, unlock new customer segments, and add new dimensions of convenience to their offering.
Rapyd Networks can help online lenders who are looking to capitalize on the rising demand for personal loans. We offer a common platform to enable cash and localized electronic payments for distribution and repayment of funds, while enforcing strong measures for KYC, AML, and CFT, thus reducing the burden on our partners. Lenders can integrate Rapyd through a simple API or mobile SDK, which allow lenders to customize the user interface in their own colors and overall look and feel so that they can maintain a consistent branding experience.
When securing payday loans through any of Rapyd’s online lending partners, approved customers can instantly withdraw funds at any of the 17,000 access points widely dispersed in big cities and small towns throughout the UK. Unlike bank transfers, Rapyd-facilitated loans are a card-free solution that customers access using their mobile phones.
Thanks to our bi-directional payment platform, borrowers can also make cash payments through Rapyd access points, granting lenders unprecedented access to the UK’s unbanked population. Better still, funds are available 24 hours a day, seven days a week. By partnering with Rapyd to address the need for immediacy and availability, online lenders can better serve their customers while securing a level of competitive advantage previously limited to the most advanced fintech firms.
We believe there is not one single path to solving electronic payments globally, but that together we can make it easier for online lenders to better serve their existing customers, unlock new segments, and better monetize their customer databases.
Click here to learn more about how we help online lenders gain a competitive advantage while offering better lending experiences to their customers.