Are Payday Loans Dead?

Are Payday Loans Dead? 1The landscape for Payday Loans and other small dollar-amount credit markets is changing, according to a report by the Mercator Advisory Group.

At least once in your lifetime, you are likely to need more money than you have available. It may be for an emergency car repair, a major purchase, taxes or a bill that is due, that you don’t want to default on. To overcome the problem, you need a short-term loan.

The report, Trends in Small-Dollar Credit: A Look at the Market and Future of Small Loans,  reviews multiple sources for these small-dollar loans and investigates what the future landscape may look like. The four major sources of short-term credit are credit cards, payday loans, small-dollar bank loans and person-to-person lending.

Mercator says credit cards and payday loans appear to be declining.

It isn’t clear whether this was caused by consumers or by banks.

The financial crisis may have something to do with it. In the report, Mercator says in 2009, only 26% of U.S. households had no general purpose credit cards. By 2010, that percentage grew to 40%. At the same time, Payday lending faced increasing regulatory pressure and over the past 10 years, bank partners have been willing to support the this option.

Mercator’s report says the future of these small-dollar loans may depend on bankers finding a way to integrate them with the rest of a bank’s products, but regulators play a big part in this market and they may be the ones to control how it goes from here on.

Person-to-person lending may represent a new credit  option for both borrowers and lenders that open up new forms of business. These person-to-person lending companies have started up on the internet, and the future of small dollar credit may be found online, because consumers now have another way to shop for the best deals.

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PRESS RELEASE
March 24, 2011
logo
For Immediate Release
Contact: Brent Watters, Director of Marketing
bwatters@mercatoradvisorygroup.com
781-419-1700

Trends in Small-Dollar Credit: A Look at the Market
and Future of Small Loans

Mercator Advisory Group Report Shows Opportunities and Challenges in the Small-Dollar Credit Market

Boston, MA — Nearly everyone has had a moment when they needed more money than was in their wallets or their bank accounts. Whether it was for a major purchase, a car repair, or some other life event, consumers have found themselves in need of a short-term loan.

In Mercator Advisory Group’s newest report  Trends in Small-Dollar Credit: A Look at the Market and Future of Small Loans,  sources for these small-dollar loans and what the future landscape may look like are investigated. Credit cards, payday loans, small-dollar bank loans and person-to-person lending are the four major sources of credit covered in-depth.

Today, credit cards and payday loans seem to be on the decline. Since the beginning of the financial crisis, the portion of U.S. households with no general purpose credit cards has grown from 26% in 2009 to 40% in 2010. Meanwhile, Payday lending has faced increasing regulatory pressure and a loss of bank partners over the past decade.

The future of small-dollar bank loans depends on whether or not bankers find a way to integrate them with the rest of a bank’s products. Person-to-person lending may represent a new credit  option for both borrowers and lenders that open up new forms of business.

“Consumers have shifted away from traditional sources of small-dollar credit as new options have become available,” says Ben Jackson, senior analyst with Mercator Advisory Group. “The future of the small-dollar loan market will be largely determined by how lenders position their products as the best deals in front of two audiences – the borrowers and the regulators.”

Highlights of this Report Include:

Consumers have long needed sources of short-term credit, but the sources of that credit have varied over time.

Credit cards, payday loans, small-dollar bank loans, and person-to-person loans appear to be the most active small-loan markets today.

Credit card use and the number of accounts are declining, and it is unclear whether these declines are permanent.

Payday loans have filled the gap for some consumer segments, but regulatory pressure may mean that this option disappears for many consumers.

Small-dollar bank loans may make a comeback, but it will depend on whether or not banks can find a way to offer them profitably.

Person-to-person lending companies have spring up, and the future of small dollar credit may be found in these Internet-driven products that give consumers another way to shop for the best deals.

One of the 25 exhibits in this report. Are Payday Loans Dead? 10

This report contains 35 pages and 25 exhibits.

Companies mentioned in this report:  Web Bank, Visa, Prosper, MasterCard, Lending Club, Kiva, Federal Deposit Insurance Corp., and Community Financial Services Association.

Members of Mercator Advisory Group have access to this report as well as the upcoming research for the year ahead, presentations, analyst access and other membership benefits.

Access this report: Click here.

Please visit us online at www.mercatoradvisorygroup.com.

For more information and media inquiries, please call Mercator Advisory Group’s main line: (781) 419-1700, send E-mail to info@mercatoradvisorygroup.com.

Follow us on Twitter @ http://twitter.com/MercatorAdvisor.

About Mercator Advisory Group

Mercator Advisory Group is the leading, independent research and advisory services firm exclusively focused on the payments and banking industries. We deliver pragmatic and timely research and advice designed to help our clients uncover the most lucrative opportunities to maximize revenue growth and contain costs. Our clients range from the world’s largest payment issuers, acquirers, processors, merchants and associations to leading technology providers and investors. Mercator Advisory Group is also publisher of the online news and information source PaymentsJournal.com.

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