It might be unpopular to say this, but if the astronomical rise of payday loans companies since the financial crisis proves anything, its that these high-cost lenders are doing something right.
With eye-watering interest rates and half their profits derived from customers getting caught in spirals of debt, its difficult to see why anyone would want to get involved with a payday loans company – until you look at their competition.
Credit unions – touted as the best alternative to “compete Wonga out of business” – generally have terrible marketing that is un-engaging, sterile, and, frankly, boring. Their websites are often reams of text with simple, safe branding that fails to connect with a younger audience, and they rarely promote their payday loan alternatives.
Payday loans companies, by contrast, know their audience and are very effective at communicating with them. Our research on the Public Service Launchpad has shown that those most likely to turn to payday loans companies are under thirty years old, smart-phone and internet savvy, and are generally good with managing tight budgets, but can slip into trouble when an unexpected expense or a change in payment dates occurs.
With this insight, it becomes clearer to see why payday loans companies are growing so quickly. All the top short-term, high interest lenders have upbeat and engaging brands, with bright colours, feel-good imagery and a promise of better times to come. They boast about the speed and ease of getting a loan, as well as underplaying the serious nature of taking out credit – sometimes to the point of breaking the law.
In addition, their social media accounts are often full of sporting brands, competitions and games – with many accounts not even mentioning or describing the loan services that they provide at all. These brands are loud, fun, and young, with cartoon-style illustration and mascots ranging from the familiar to the bizaare – including mad scientists riding jetpacks, cuddly grannies, and ladies out on the town.
The messaging is clear: its an easy, quick fix that will solve your problems, its not a big deal, and everybody’s doing it. In this way, payday loans companies target their branding consistently and accurately to attract their audience and to make them feel good about engaging with the brand – at least until the repayments are due, that is.
Banks, building societies and credit unions, by contrast, try to earn peoples trust by emphasising their expertise, reliability and authority in their branding – which often feels boring, slow and sterile. Is it any wonder, then, that payday loans can seem like a more attractive option?
If Money Saving Movement is about preventing people from slipping into debt, and to support them in navigating the cost of living crisis, then we need to be appealing to the same types of people that might consider using a payday lender.
In that case, the real question becomes not “Why are payday loans popular?”, but instead “What can we learn from their popularity that can be used for social good?”