Payday companies and the journey of a successful payday company

Before the strict regulation of payday companies, there were many payday companies. For those payday companies that survived regulation, the journey has been difficult. One large payday company that survived to tell the tale shares its journey from their launch until today. Like many other payday companies, this payday company has recently reported massive losses of 35 million pounds. This loss is in comparison to 2012 when the same payday company announced a healthy profit of around 60 million pounds.

  • In 2007, two entrepreneurs put their heads together and founded a payday company.
  • In 2007, they launch the website of the company. In line with many other payday companies, they offer loans up to 1000 pounds. These are short-term high-interest loans easily obtained and also quickly paid back to the company.
  • 2008 sees the launch of the first product. In London, there are 40 employees and in Bulgaria they have a development team. According to the founder, they serve 50 000 customers during this early phase of the company’s development.
  • Using similar unconventional methods, the company advertises their product. This unconventional advertising approach gathers condemnation from some campaigners.
  • In 2011 Stella Creasy of the Labour Party carries on her condemnation of ‘legal loan sharks’. At this stage she calls for a cap on borrowing from the payday company.
  • The Guardian awards the company the Digital Entrepreneur of the Year title.
  • Continuing in 2011 there are reports that the company is lending to people who are on benefits. Students are also allowed to take out a student loan.
  • The Office of Fair Trading (OFT) investigates 50 of the biggest payday companies.
  • The payday company complies with changes requested by the OFT.
  • In 2012 controversy is mounting against all payday companies. The industry is accused of exorbitant interest rates and unfair debt collection as well as cheating clients.
  • At the end of 2012 the company reports, they have trebled their earnings.
  • At the beginning of 2013 the company reports that it had to write of almost 80 million pounds in 2011.
  • In March 2013, the OFT gives payday companies an ultimatum to mend their ways
  • The Archbishop of Canterbury tries to take down the payday industry by competing with them using credit unions.
  • The FCA, in October 2012, has the job of regulating the payday industry
  • November 2013 gets the FCA to put a cost cap on payday lenders and at the same time a top executive steps back from running the payday company whose journey we are following.
  • In July of 2014, all payday companies are obliged to follow new rules and many payday companies leave the industry.
  • In September 2014, the payday company announces that their profits have fallen by half.
  • 220 million pounds are written off for all customers in arrears by more than 30 days.
  • In December 2014, the interest rate is cut in order to meet the cost cap.
  • February 2015 and the company announces that 325 jobs, one third of the workforce, are to be cut.

Payday companies have plenty of challenges

The journey, so far, has been a difficult one. Payday companies, like any other company, need to make a profit and they need to employ people. Payday companies have their fair share of challenges. They also employ people and the job cuts are a loss to the community.

Caps on Payday Loans: will new APR’s affect payday lenders pockets?

The payday loans cap has been implemented, but it is still too early to be able to say what the effect will be on the payday industry.

Theories abound, for example, there are those who say the caps will be positive in helping the short-term loan sector to grow while others say the caps will be instrumental in putting payday loans lenders out of business. Already some of the small payday lenders have shut shop but the big players are surging ahead. It seems evident that big payday lending companies will manage to survive a drop in the annual percentage rates (APR’s) to as far as 1,2000 percent. It is believed that this APR drop will have a negligible effect. With the new APR, borrowing an amount of 200 pounds will mean a drop of only 1 pound.

Policis, the USA based consultancy, reports that payday loans caps in the United Stated caused the credit supply to fall, but the demand remained the same. The question is, what happens when the demand outstrips supply? Naturally, a black market will emerge. With the payday loans industry moving online in the USA business is doing better than ever. Many of these online shops are lending illegally or are unlicensed. Policis is warning against clamping down on the payday loans industry because, as they see it, the tougher the regulations the more lenders will start operating on the internet. It is a fact that it is extremely difficult to police the internet.

In Britain, almost 80 percent of unsecured short-term lenders operate online. The Financial Conduct Authority (FCA) is aware that payday loan caps might limit access of funds to UK citizens but have what they say is a reasonable solution to the problem. According to the FCA, if you don’t have access to credit and can therefore not borrow money, appeal to friends and family.

Payday loans caps in Britain

Back home, the problem is far from being resolved. Where does one access credit and what alternatives are there to payday loans? There are not, it seems, viable solutions. Credit Unions do not have the infrastructure nor the funds that payday companies have and are therefore unable to lend money the way payday lenders loan money. Microfinance companies or organisations are in the same boat. The Church of England has created a credit union that has been useful but neither do they have the resources that some of the large payday companies have.

The British citizens are in need of financial services that are responsive and flexible. Wages are clearly not sufficient so one idea is to raise the minimum wage and teach people how to set a budget and stick to it!

Payday loans have their place in society and it would be good to see them being used for what they were created for.

A payday loan employee mans the telephones

Grant is the customer services manager of a payday loan company. His job is to contact customers who have defaulted on payment, or not made any payments at all. He runs the call center. When I arrive I am shown over to Grant’s desk. He waves me to some chairs and I sit down. However, not before I notice 3 sides of A4 paper covered in numbers which I assume are there for Grant to call on.

As I sit and wait for Gant to finish up whatever it is he is doing, I take a look around the office. There are eight other people who seem to be doing the same thing as Grant. I listen in on one of the phone conversations. The payday loan employee obviously calls someone who owes the company money. The telephonist is patient and calm.

“Hello, who am I speaking to? Ah, can I speak to Mr. C? Is that your Father? Oh, is he in the kitchen? Please, could you ask him to come to the phone? Where did he go? But you said he was in the kitchen two seconds ago. Ok, so he went out. Thank-you, can you write down this phone number for me … and ask him to call back when he gets home.”

It is clear that it will be difficult to get this particular customer to pay back his loan.

A Payday loan employee: It’s all in the approach

This particular payday loan company employs about 15 people. It is a small company and approves approximately 3000 loans a month. These loans are never more than 500 pounds, and of course, at the end of the month, at payday, this is when the telephone wires glow hot as the employees start calling in collections. One would think that the anxiety and stress levels would soar, but here the payday loan employee is calm and friendly. There is no frustration, anger or slamming of phones. Grant is proud to explain that they do not use the services of debt collectors, and he claims that the company has only ever once had to take a defaulting client to court.

Grant tells me that it is important to know what you are dealing with. This payday company serves a specific demographic. Their average client is 32 years of age, and 80 percent of the clientele fits between 23 and 40 years of age. The customer they most like to do business with is someone who earns approximately 21 000 pounds a year. Grant explains that the company tries not to let people over-extend themselves, thus creating a greater opportunity to end up defaulting and in debt.

The Company’s chief executive explained that people under the age of 23 should not be taking out payday loans. They should rather try the Bank of Mum and Dad. He went on to explain that of all the company’s customers 65 percent fell in the category of those who borrow and pay back timeously. Then there is 10 percent who end up in real difficulty and will probably go bankrupt. Lastly there is the 25 percent of borrowers who can’t pay the loan back in one go and need a little help with.

Grant, the perfect payday employee

Grant tells us that he works standard hours, so he has ample time to spend with his family in the evenings and at the weekends. He uses his spare time at the gym and likes to run. His salary is in the range of 25,000 pounds a year.

The best thing about work for him is the people he works with. The worst thing is dealing with the odd aggressive customer who is struggling with debt but is not interested in co-operating to find solutions.

The journey of a first class payday company

Sitting back, post regulation, those companies that made it through can remember the journey. A payday company that played a large part in the industry shares its story from the first launch until now. In the present payday business climate, like many others, this payday company has reported losses of up to 35 million pounds. This can be compared to 2012 when the company announced a profit of 60 odd million pounds. Let’s see what happened from then to now.

In the beginning, there was a payday company

  • This company was born in 2007. Two entrepreneurs got together to found a payday company.
  • In the same year, they launch the company website online. The payday company offers loans up to 1000 pounds. Short term high-interest loans that are easily obtained and just as quickly paid back.
  • In 2008, the company has fully launched its product. There are 40 employees n London and a development team in Bulgaria. The founder claims to have served 50 000 customers during this beta-version phase of the companies development.
  • The company goes on to advertise their product using somewhat unconventional methods. This arouses condemnation from campaigners like Labour MP Stella Creasy.
  • In 2011, Stella Creasy continues her fight against what she calls ‘legal loan sharks’. She called for a cap on the cost of borrowing from the payday company.
  • This payday company also won the Digital Entrepreneur of the year by the Guardian.
  • Still in 2011, reports that the company has been lending money to people on benefits as well as information of the website that students could take out a student loan.
  • The OFT (Office of Fair Trading) looks into the matter and investigates 50 of the largest payday companies.
  • This payday company makes the changes that are requested by the OFT.
  • During 2012, controversy mounts against all payday lenders. The industry is accused of unfair debt collection practices, exorbitant interest rates, and cheating clients on websites.
  • By the end of 2012, it reports that it has trebled its earnings.
  • At the start of 2013, our payday company reports that it wrote nearly 80 million pounds off in 2011.
  • March 2013 sees the OFT give all payday companies an ultimatum to change their evil ways
  • Archbishop of Canterbury attempts to take down the payday industry by competing against them with his credit unions.
  • In October 2012 the FCA (Financial Conduct Authority) is charged with the job of regulating the industry, mostly by cracking down on existing practices.
  • In November 2013, George Osborne charges the FCA with the job of putting a cost cap on lenders. At the same time, one of the top executives takes a step back from running the payday company.
  • In July 2014, new rules were set out for all payday companies. Many companies leave the scene.
  • By September 2014, the payday company announces that profits have fallen by 50 percent.
  • Once again 220 million pounds are written off for customers that were more than 30 days in arrears.
  • The interest rate is cut in December 2014 in order to meet the cost cap.
  • In February 2015, this payday company announces that 325 jobs will be cut. Approximately one-third of the workforce.

It has been a long journey for the payday lender, and not always a pleasant one. Alongside all the outrage and controversy about the people that the payday lender ends money to, or as many would like to think, reels in and traps, there is still a company. A payday company, out to make a buck like the next guy.