Once a booming industry worth £2 billion, the payday loans industry has felt the full effects of regulation since major restrictions were added by the FCA in 2015 – which included a price cap on daily interest rates and a strict authorisation and approval process. The result has seen a number of companies and brokers leave the industry, but the demand for 3 million Britons needing payday loans remains each month. Today, we speak to a number of experts in the payday loans industry to get their views and to fully understand: What is the future of payday loans in the UK?
Our experts include:
- Gary Tatham, Managing Director of All The Lenders
- Stephen Holliday, Founder & CEO, Level
- David Beard, Founder, Lending Expert
- Richard Sherlock, DPO, PaydayLoansNet
- David Green, Head of Brand, Fund Ourselves
- Colom Smith, CVO, Taylor Rose MW
Gary Tatham, Managing Director, All The Lenders
“Few financial sectors move as fast as high cost short term credit – we are an ever-evolving market and are often the first to adopt new technologies that help improve our customer experience and ensure that the products we offer are affordable, convenient and in our customers best interests.
The future of payday lending now feels much clearer than it did several years ago during the demise of some of the biggest lenders, including Wonga, when the market was going through considerable change. During this time, the whole sector shifted from ‘payday loans’ to longer term instalment loans. The introduction of tougher regulation from the FCA and a price cap on lending forced lenders to rethink how they approached their lending and has ultimately left us with a more competitive, highly regulated market which is a great outcome for borrowers.
The demand for short term finance is certainly still there, especially as Britons have seen their income squeezed like never before this past year or so. We have processed some 8 million leads in the last 6 months alone and our short term loan price comparison site allthelenders.org.uk is currently comparing more lenders and products now than at any point in the last 2 years.
During these trying times the future for many financial sectors is uncertain, however, we will all strive to develop new, affordable, lending solutions for the financially excluded with more competitive rates and transparency than ever before.”
Stephen Holliday, Founder & CEO, Level
“Payday lending grew at a rapid pace until around four or five years ago when regulatory changes brought the industry crashing to its knees. The lenders were sued, their proposition became unprofitable, and the social environment caused funding to stop entirely with investors staying clear of association.
Despite the general consensus being that this is probably a good thing, it has still left a sizeable hole in the market for small, short-term loans with many people unable to budget or save. Many people relied on this service that is now next to impossible to offer without sky-high APR; with the cost it takes just to set up new clients and carry out affordability checks means lenders simply can’t make the economics work.
There is no future for payday lending in this respect, but there are solutions to receive small amounts of money to get over the ‘hump’ before payday that are far more sustainable and ethical. For instance, ‘earned wage access’ gives employees the ability to access their wages before the end of the month. It’s through linking an individual’s salary with their immediate need for cash that removes the credit risk, doesn’t involve ridiculously high costs and avoids a rolling debt problem that payday lending caused.
When you meet this need through the salary link, it’s clear employers can go much further to address this problem too. While earned wage access will provide much needed income, it’s still a short-term solution. Through salary-linked savings and budgeting tools, employers will protect employees from debt problems and the reliance we’ve seen in the past on payday lending will be replaced with holistic, sustainable solutions to the problems and demands surrounding financial health.”
David Beard, Founder, Lending Expert
Richard Sherlock, DPO, PayDayLoansNet
“The UK payday lending future is looking positive for reputable payday loan companies who are willing to follow the rules and care for their customers. However, it will also be important to keep updated on the economy as a whole, especially with Brexit. The economy and any potential changes to financial regulations could have quick effects on how short term loan lenders operate in the future.
We at Payday Loans Net offer some of the highest acceptance rates for our instant payday loans. As one of the most forward-thinking payday loan lenders in the UK, we apply the most advanced technology, performing a unique affordability assessment. This gives every applicant an equal chance of being approved for a wage day advance loan.
Our new payday loans have many benefits with the ability to guarantee. Every month, we help hundreds of people to obtain fast & secure instant payday loans online in the UK. People come to us because they want a new alternative, a new payday loans lender and a new and improved level of customer service. All our payday loans come with an instant decision, very fast funding, and the ability for you to pay early as you like, with no added fees.”
David Green, Head of Brand, Fund Ourselves
“As we still have to deal with the consequences of the pandemic, the financial aftermath will reverberate for many years to come, personally, nationally and globally.
Many of the general public emerging from furlough schemes, change in occupations, retraining etc many will still be suffering from loss of saved income for those emergencies. For this reason the Payday industry may well be fuelled as customers seek a quick solution to a short term problem/emergency.
My belief and hope for the Payday industry though, is that it grows up and empathises with its customers more now than ever before, treating them fairly and justly. In the form of flexibility, lower costs and helping their customers should they find difficulties with payments.
At Fund Ourselves our brand positioning ‘Giving control back to the customer’ couldn’t be more relevant, we are totally focused on helping our customers by providing a means to an end.
For the sector in 2022 we can only predict that more people will still need a helping hand after such unsettling times, put payday loan companies may well find competition with the increase in popularity for Shop Now – Pay Later trend.
The FCA will for sure be monitoring short term/payday loan providers ensuring their customers are treated fairly and justly ensuring borrowers only borrow what they can afford.
For 2022 and for the foreseeable future, it will be a period of rebuilding. For the short term/payday loan sector this could mean an increase in borrowing as confidence in the economy grows again. Similarly, in our peer-to-peer and short-term instalment loan sector, investment should increase again with such confidence.”
Colum Smith, CVO, Taylor Rose MW
Colom will be speaking at the Legal Futures Innovations Conference this coming week.
“It’s vital that the industry – and business who utilise these forms of credit – approach this future opportunity responsibly. New Financial Conduct Authority regulations have helped.”
They’ve rightly made it harder for payday lenders to continue operating like they did and charging extortionate rates of interest then hitting customers with sky-high charges for unpaid bills. It means that those left on the market – and those set to enter it in the future – are more likely to be trustworthy and prepared to follow the rules set for them.
It’s also much harder to get a payday loan than it once was which is a positive event. The best payday lenders should offer advice on money management and even recommend alternatives to payday loans that people might find appropriate.
However there is still more work to do. The Financial Ombudsman is still receiving more than 200 complaints a week in this area. Although some will not be genuine – many will be and this demonstrates consumers are becoming more aware of their rights. Lenders need to take careful note of this.
The biggest change we will see in the future is the products that lenders offer. While many companies focus on short-term loans, several may begin to offer a more diverse range of products. They are already starting to offer online loan terms of up to six months or even a year, with the opportunity to pay early. The FCA also wants to ensure that there are comparison websites available to use, allowing consumers to compare the costs and terms of loans before applying for them.
This makes changes to regulations more likely. One change that might occur is tighter regulations for Continuous Payment Authority, which is used to collect payments automatically. If a lender uses a continuous payment authority, they have to set out how it works and tell consumers about their rights to cancel it.
They also need to notify people at least three days in advance before using a continuous payment authority to recover funds. In the future, the use of continuous payment authorities might change. Instead, they could be replaced with a direct debit. But, overall, the future for the industry looks bright for reputable payday loan companies who can expand beyond the traditional customer services and products and think more outside of the box. Those who are willing to follow the rules and care for their customers will continue to grow in this customer focused environment.”