Instant loans don’t come cheap: the cost of convenience
By Mélissa Luz T. Lopez, Senior reporter
IMAGE this: a family emergency arises, and with it comes the urgent need for a few thousand pesos to save the situation. Who are you running to?
The instant loan providers hope that they will be the first thought of a troubled mind in such cases. You might think these companies are small fish compared to the banks that have long dominated the industry, but the very fact that finance companies have survived for decades proves otherwise.
The demand for instant cash continues to grow, especially in urban areas, and is now aided by digital portals intended to meet the urgent demand. The need is so great that international loan providers see the Philippines as a prime market and have rushed to seize the huge opportunity here.
Take the case of Robocash, a lender from Russia who chose Manila as their first foray into Southeast Asia.
Felipe Jose N. Zamora III, chairman of local company Golden Legacy Financing Corp., recalled how the Russian company approached them in 2016 with an offer they couldn’t refuse. Prior to the merger, their business focused on retired military personnel and retirees.
This then led to a formal partnership in September 2017, which enabled Robocash to set up loan booths starting with their first branch at Recto station of light rail line 2. They have since expanded to operate at other stations as well as supermarkets. , with their network currently at 42 booths in less than a year since entering the Philippines.
“The real goal is really the unmet need. Most of the clients we serve are those that banks either do not serve or have difficulty serving. Many of them have real urgent needs, and if possible, we want to be the ones they turn to for that need, ”Zamora said in an interview at their humble headquarters in Quezon City.
Mr. Zamora then became President of Robocash Philippines.
Unlike banks which follow a rigid schedule of 9 a.m. to 3 p.m., instant loan counters are open until 10 p.m., while online requests can be made 24/7. About 75% of their loan volumes come from branches, while a quarter is generated online.
Robocash Philippines’ goal is to honor a loan in five minutes – something that may sound ambitious for banks, but they say it’s actually doable.
What makes instant loans more attractive to borrowers is accessibility and convenience, as these providers get rid of the paperwork often demanded by banks.
Mr Zamora said Robocash loans only require a single government-issued ID (such as a passport or social security) to secure a loan, worth up to P 10,000 for them. first-time borrowers and P 25,000 for loyal customers. This would then trigger a computerized process of verifying a person’s identity, employment status, and credit history that would eventually trigger the release of funds to a bank account, mobile wallet, or over the counter.
Tala, another California instant loan start-up, has also recently ventured into the Philippine market. Their operations have remained purely digital, as all loan processing, approval and release is done through their mobile app for Android smartphone users.
“Without data on underbanked populations, banks cannot make lending decisions or design financial products that fit people’s lives. Tala’s proprietary identity and credit scoring technologies use alternative data to prove the potential of clients who have been underserved by traditional finance and deliver personalized loans that meet their unique needs, ”said Angelo Madrid, national director of Tala Philippines.
Mr Madrid said the Philippines has become Tala’s second largest market in the world and the largest in Southeast Asia, as it takes advantage of the country’s tech-savvy population armed with smartphones and the internet.
Both lenders use credit bureaus and artificial intelligence to assess loan applicants and process their lines of credit in a jiffy, unlike the usual practice of posting collateral.
Verification with their online portals requires setting up an account, providing government ID numbers, home address and contact number, job details, contact numbers of two colleagues and two parents as a character reference. A user must also sync their Facebook profile to confirm their identity.
As fast and airy as it can be, it comes at a cost.
A Tala loan secured through the Lendr online portal should be settled within one month with 15% interest. The payments are broken down into four weekly payments worth P 2,875 – a total of P 11,500.
On the other hand, Robocash charges a fixed daily rate of 2.5% for loans ranging from 1,000 to 25,000 P. For a loan of 10,000 pesos, a borrower must come back and pay 17,500 pesos within 30 days. securing money.
These compare to commercial bank quoted lending rates for short-term loans, which ranged from 3.4 to 8.7170% for the week of August 13-17, according to central bank data.
Robocash offers a one-stop payment system for quick loans within 30 days of being released, hence the nickname “payday loan”. However, cash-strapped borrowers can request a longer repayment program of up to one year, subject to additional fees.
Mr Zamora said their typical borrower works in Metro Manila and earns P 10,000-20,000 per month.
Although high, these margins allow the lender to assess the cost and risk involved in servicing this market segment, particularly to cover potential defaults – which Mr. Zamora admitted to be “high”, although it is not. shouldn’t be unexpected.
Ronnel C. Mapaye, Credit and Collections Manager at Robocash, compared their service to ridesharing apps.
“Why do you take a taxi or an Uber if you have the choice to take public transport?” What benefits can you get – it’s accessibility, convenience and comfort. And you are ready to pay, no one has forced you to take a taxi when there is a jeepney, ”Mr. Mapaye said.
While the rates can be astonishing, businesses thrive as the need for instant cash persists. Like cash disbursements, loan payments can also be made over-the-counter or through bank deposits and money transfers.
THE REGULATORS WEIGH
Robocash and Tala are both under the oversight of the Securities and Exchange Commission (SEC) as regulator of finance companies.
The SEC admitted, however, that it could not impose a cap on the interest rates charged on these loans.
“Being contractual in nature, the specific terms of loan agreements (especially interest rates and penalties) are beyond the regulatory authority of the SEC”, Rachel Esther J. Gumtang-Remalante, Deputy Director and Head of Division Corporate SEC. Department of Governance and Finance, said via email when asked for comment.
“Unfortunately, although the Commission has the power to regulate and supervise loan and finance companies, it does not have the power to regulate interest rates or to convey controversies concerning them, given the suspension of the usury law. ”
For its part, the Bangko Sentral ng Pilipinas (BSP) said it sees loan companies as a complementary service to the public, especially for more than 52 million unbanked Filipino adults.
“There are funding gaps in the market that can be legitimately filled by players who take advantage of technology to enable them to provide ‘instant loans’, which may also be a potential case study for traditional lenders wishing expand their customer base by leveraging technology throughout the credit process, ”said BSP Deputy Governor Chuchi G. Fonacier, who heads the financial supervision sector.
Ms. Fonacier cited the advantage of borrowing from credit companies, as they are “better protected” and are subject to “relatively lower” interest rates compared to loan sharks.
“While we understand the appeal of 5/6 programs to some borrowers given the convenience and access provided, their exorbitant interest rates can trap the borrower in a cycle of expensive informal debt. In addition, informal loans do not help build the borrower’s credit history which may eventually promote access to loans on better terms from banks and other formal lenders, ”she said. added.
Times may have changed to give birth to more convenient solutions for accessing cash, and those who need the service are paying the extra for the convenience.