Nothing seems to get bankers, consumer advocates, and government regulators so riled up as payday lending. The short-term non-bank loans taken out by millions of consumers a year are the focus of government studies and consumer reporting. But clearly, there’s a demand, and if we are creating personalized banking experiences for each and every consumer, there must be room here somewhere. It’s easy to dismiss this financial vehicle as predatory and harmful, but it opens up the question: what should these borrowers do? When you start to look at the data, you find that the story isn’t so simple and the pejoratives used to describe the industry and its customers don’t quite fit. I’ve completed an initial analysis on the data reported by the Consumer Financial Protection Bureau (CFPB) in the United States and have drawn some conclusions about the behavior of the typical payday loan borrower. From those conclusions, we see what these borrowers need and we have an glimpse into how to provide it. Keep Payday Lending Safe It’s clear there’s a need for short-term borrowing – either as an emergency funding source or because of poor cash-flow management practices. The trick is to provide for short-term financing without trapping consumers in a never-ending downward predatory spiral. The way to do that is to finally admit to ourselves one simple truth: these are not short-term loans. At least not the 14-day or 30-day ones that people think they are. Data collected and reported by the CFPB in their report, CFPB Data Point: Payday Lending, shows that the typical payday loan borrower “rolls over” their loan multiple times...
If any technology deserves the award for “most missing its potential”, it’s Personal Financial Management (PFM) software. Many analysts and consultants have talked about the abysmally low adoption rates for PFM (here, here, and here.) Research by Javelin points us in the direction as to why there’s a problem. We’re not giving consumers what they want. Consumers tell us that they want all their account information in one place – even from other banks. They also want alerts and help with shopping and card reward usage. Basically, they want help making decisions. That’s why PFM fails today. It provides lots of information, but no help making decisions. Mark Schwanhausser, director of multichannel financial services at Javelin Strategy & Research puts it this way: PFM will appeal to a mass audience of online and smartphone-toting consumers seeking help with immediate, on-the-go, everyday financial tasks and decision-making. It is only a matter of time before PFM will be virtually ubiquitous, offered not only by FIs but also by billers, mobile carriers, insurers, retailers – anywhere consumers make financial decisions. The PFM of the future Mr. Schwanhausser describes here is what I called Decision-Oriented PFM. I describe it in my book, Seven Billion Banks. Very few PFM tools are integrated into the mobile experience. Instead they sit on the desktop version of the online banking application – when they’re available at all. The concept that consumers want alerts to help with decision making is consistent with the mobile strategy I laid out in an earlier article. Those push alerts are extremely critical not just for adoption, but for the actual value created...
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