Payday lenders have existed for decades in one form or another. Payday loans are usually low-value, short term funds aimed at those who need money to pay their bills before their next paycheck arrives. They come at an extremely high cost (the interest rate charged is often exorbitant) and are considered predatory by many.
How Payday Lending Came to be
Payday lending likely stems from the activities conducted by ‘loan sharks’ – a practice largely eradicated in Australia. A loan shark was usually associated with an organised crime syndicate, providing funds to small businesses and people within their area of control. Of course, they could charge significant fees as they would threaten harm to those who could not pay.
Now, unlike these loan sharks, modern payday lenders are legitimate businesses that take advantage of the same clientele. While they can’t inflict physical harm, they do have an incentive to ‘trap’ people in debt. If these customers are continually taking out new loans and continuing to pay interest, the payday lenders are continuing to rake in large sums of money.
Who Typically Uses Payday Loans?
If you qualified for a traditional loan or even a credit card, you would have little incentive ever to use a payday loan. Therefore those who turn to this product usually have low incomes, very few assets or are already loaded up with existing debts. A payday lender only requires that the customer has a job and can verify the paychecks they receive are sufficient to meet a meaningful amount of their required repayments.
Modern technology has also made payday loans much more accessible, with some payday lenders taking their offers online. Some have been found to prey on those needing fast cash with emails, phone calls and text messages. It’s also more accessible than ever to sign up and get quick cash using a mobile app or the payday lender’s website portal.
Earned Wage Access is a Superior Alternative
Apps like Paytime now offer a clear alternative to payday loans. Paytime provides employees with on-demand access to their already-earned pay for a small platform fee, less than a cup of coffee. There is no interest, and it’s not a loan since they’re accessing the money they’ve already earned!
Employers are realising that the financial wellbeing of their employees plays a role in their levels of workplace engagement and productivity. Offering Paytime significantly reduces the likelihood that your staff will need to make use of a payday loan since they can access their money before payday if required.
Why Else is Payday Lending on the Way Out?
In addition to the introduction of Earned Wage Access options like Paytime, the payday lending industry is under pressure from other areas. New laws, restrictions and limits have put a brake on the industry’s growth. Additionally, recent attention on the banking and financial industry has uncovered the dangers of payday loans, reducing their appeal to all those other than people who desperately need cash.
While payday lenders defend their extremely high-interest rates and charges by pointing to equally as high default rates, the decline of the industry is inevitable. Responsible lending criteria has been expanded to cover loans in this space, enacting limits such as maximum establishment fees and a cap on interest rates – no more than 48% P.A for loans over $2,000.
While payday lenders understandably wish to protect their source of profit, new solutions such as Paytime render their efforts futile. Increased awareness, new technology and changing attitudes have led to a significant shift in employer and employee views towards financial wellbeing and managing personal cash flow.
Offering flexible early access to their paycheck helps improve your employees’ financial wellbeing by reducing their reliance on old-school payday loans. If your company wants to empower your employees to improve their financial wellbeing by enabling flexible on-demand access to their earned wages, and join us in a mission to eradicate Payday lending and its dangerous impacts to the Australian society, contact Paytime today!
