“Wherever you are for whatever you
want”: Online payday loans from the
perspective of recent graduates
Prof. Lynn Martin
Dr. Valerie Antcliff
Prof. Sue Baines
Dr Jackie Carter
Centre for Enterprise
Manchester Metropolitan University Business School
Email [email protected]
Nemode 3K Pilot Study to explore new business models enabled by digital technologies for
personal finance
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Abstract
This report is about models emerging via the use of digital technologies for individual access to
finance. The revolution in personal banking, with deregulation of financial services, changes in
high street names and functions, online banking and other digital routes to personal finance has
led to a complex and, at times, confusing landscape. One element of this landscape that has
attracted fierce criticism is instant access to money for those who may lack assets for long term
loans. Providers of so called “payday loans” claim to help people manage cash flow, filling a niche
in the market that is not served by mainstream lenders. They have been accused of irresponsible
lending that exacerbates the financial difficulties of vulnerable people. Payday loans have been
increasingly offered over the internet and accessed via digital devices.
Drawing on data from focus groups and an online questionnaire, the report explores how recent
graduates from English universities access short term finance online. The research suggests that
the mobile phone was by a long way the most frequently used means of access. Loans were taken
to cover activities the graduates would otherwise not be able to afford. These included basic
needs (rent, food fixing a car, buying a season ticket for travel to work) as well as holidays, various
leisure activities and in a few cases online gambling. The research suggests that the business
model used by payday lending companies is highly effective in attracting young borrowers, who
particularly value the speed and simplicity of instant access via their mobile technology. However,
the high incidence of failure to repay the loans on time tends to support the concerns of those
who question the model on ethical grounds.
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Introduction: Payday lending
Payday lenders offer short-term, high interest loans usually for small sums. They constitute a
“marginal source of credit for many high risk borrowers” (Melzer, 2011: 517). There has been fierce
criticism in the popular press and elsewhere about payday lending and its impact on debt levels
amongst vulnerable groups in society (Shannon, 2013). Payday lenders have been accused of
irresponsible lending and predatory practices (Williams, 2014; Lawrence and Cooke, 2014). Payday
loan companies claim that loans help people manage cash flow and mitigate debt problems, and
there are academic researchers who agree that they can help some low income customers avoid
costlier alternatives (Morgan et al, 2012). Many people including debt counsellors, however,
deplore the ethics of lending to those unlikely to be able to repay their loans on time. According to
the Citizens Advice Bureau, payday loan debts “quickly spiral out of control as those struggling to
repay are hit with high interest rates and charges” (Hodson, 2013, Page 7).
Poor practices in the payday lending market include lack of affordability assessments and pressure
on customers to extend loans (BIS, 2012). Payday loan providers compete on the speed and
convenience rather than the cost, which discourages credit checks and affordability assessments
(Williams, 2014). According to the Office of Fair Trading they also rely on extending loans at high
cost, with 28 per cent of loans rolled over or refinanced at least once, providing 50 per cent of
lenders’ revenues (Office of Fair Trading, 2013). Political pressure on government has led to some
reforms in regulation. The Financial Conduct Authority (FCA) took over regulation of UK financial
services in April 2014. It forced the largest operator (Wonga, with a third of the market) to change its
lending criteria and write off the debts of 330,000 customers who were offered money on
inappropriate terms. Parliament gave the Financial Conduct Authority a duty to introduce a price
cap. After a consultation period, a cap came into effect in January 2015, meaning that customers
taking out a loan should never need to pay back more than twice what they borrowed. This is due
for review in 2017 (FCA, 2015).
Application for payday loans can be made by visiting a payday shop or online from anywhere. The
location of payday shops in deprived areas has driven much of the concern about exacerbating long
term financial hardship of people on low incomes (Ray et al, 2013). In the USA, this has led some
states to restrict or even ban payday lending (Melzer and Morgan, 2015). However, online business
models are not restricted by geography. The study on which this report is based was a pilot to
investigate how online personal finance is accessed by recent graduates, and how they use such
funds. This is a different demographic group from the residents of disadvantaged neighbourhoods
who are more usually seen as customers for payday lenders, and typically feature in research and
commentary on the subject.
Recent graduates are of particular interest as they are usually young people at the start of their
working lives. They are the ‘capital lite’ generation who may be expected to be short of cash due to
existing debt from student loans and lower initial salaries in a first job (Martin, 2013). Moreover,
they are typically from the age group that makes the most use of online services. With larger cities
now having good broadband and mobile coverage, access is potentially not an issue for these young
adults, who might be expected to be familiar with many online activities through mobile devices
(ONS, 2014). However this was a factor to be tested, rather than assumed, in the study. Good
access has long been held to be a key component in online behaviours (Al Qeisi et al, 2014). In the
case of online short-term lending, the business model appears to depend on ease of access. Our aim
was to explore this idea from the perspective of young graduates by gaining new insight into how,
when and why they make use of online, short term personal finance.
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In order to explore how digital technologies are impacting on recent graduates’ access to finance we
conducted a series of three focus groups, followed by an online survey which was completed by
more than 800 graduates. We negotiated access to them through five English universities of
different kinds. The report is structured as follows: Firstly we review the background to online
financial services and position online payday lending against that background. Then we consider
business models with an emphasis on e-business, and we highlight recent thinking about business
models that includes aspects of ethical values. This is followed by an account of the pilot study and
presentation of results from the survey and focus groups. We go on to discuss these findings and
reflect on the phenomenon of online payday lending in the light of social good (and harm) as a
dimension of business models. We conclude with comments on the limitations of this pilot study and
suggestions for further research.
The digital economy
There has been an annual percentage increase in the size and range of the e-commerce market and
the business-to-consumer market, which was estimated as worth upwards of €100 billion in the UK
in 2013 (Ecommerce Europe, 2013). The digital economy is associated with innovative business
models that enable transactions to take place in ways not previously imagined. Indeed, the very
concept of the business model came to increased prominence with the advent of the internet (Zott
et al.,2011). Part of the success in online business models relates to the ways digital technologies
are accessed by the individual, through a range of new devices, smartphones, tablets etc.
Over three quarters of adults in Great Britain (38 million individuals) used the Internet every day in
2014 (ONS, 2014). This was an increase from the 16 million doing so in 2006, when directly
comparable records began. Use of mobile phones to access the internet increased from 24 per cent
to 58 per cent between 2010 and 2014. Very nearly three quarters of adults (74 per cent) bought
goods or services online in 2014. Younger people are proportionately the largest users of Internet
services. Those aged 16 – 24 are most likely to engage in online leisure activities including social
networking (91 per cent) and playing or downloading games (68 per cent). Nine out of ten people
aged 25 – 34 purchase goods or services on-line (ONS, 2014).
Developments in the digital economy have the potential to change when and where things can be
done, and who can do them (Normann, 2001). They can also have profound and often unanticipated
impacts across communities and industries (European Commission, 2010; DCMS, 2010). Business
models premised upon instant, short-term, high cost personal finance - along with other
contentious offerings such on-line gambling - may be seen as unintended consequences of the
digital economy with potentially harmful social implications.
Financial services on-line
Until the mid 1990s there was little choice in the British High Street where personal borrowing was
concerned. Borrowing was carefully limited to a cartel. Reforms to financial services legislation over
the period 1996-2008 changed this landscape to allow a growth in the financial services industry,
with a range of providers offering new routes to finance for the individual borrower. This led to
more choice for consumers but also to examples of poor practice for which some providers are only
now making amends (Palmer, 2014; FCA, 2014).
Online banking grew from the early 1990s. Consumers of online financial services were attracted by
speed, usefulness and ease of use compared to offline alternatives (Lee et al, 2011). Online access is
now embedded in high street banking practice, with other providers, the Post Office, supermarkets,
department stores, etc, also in the financial services market via own brand credit cards, money
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exchange, loans and insurance. These are available offline in the stores and online via the websites
of retail outlets, with loans available to purchase higher price goods as well as incentives to use the
store credit and debit cards. According to the Office of National Statistics 53 per cent of all adults in
the UK, and 71 percent of those aged 25 – 34 now use internet banking (ONS, 2014).
Traditional forms of lending (credit cards, personal loans and overdrafts) have been in decline, falling
by around one per cent in 2013 according to a report by PWC (2013). Payday lending – along with
other newer forms of borrowing such as peer-to-peer lending - rose in the same year by around 14
per cent. This represents a very small proportion (around one per cent) of overall consumer
borrowing. It may nevertheless suggest an underlying a shift in borrowing habits towards “smaller,
shorter term and more manageable loans” (PWC, 2013) page 2.
While short term loans are often seen as part of personal banking, new services have emerged,
offering fast online access to money via personal mobile devices, making cash instantly available
anywhere at any time to those in possession of the requisite technology. Payday lending companies
offering their services online frequently embed their marketing material within other websites and
maintain a high visibility. Many kinds of service are going on-line. One that – in common with
payday loans – has attracted particular concern is online gambling. Even before the turn of the
century, Griffiths (1999) commented on the introduction of online gambling and predicted increases
in revenues due to greater access across a wider public. This was borne out in a recent Australian
study, where Gainsbury et al (2014) identified fundamental changes in gambling due to online
access.
Business models
In discussing digital developments we have alluded to the term 'business model'. This section
considers the component parts of the business model, with the emphasis on notions of “value”.
Literature on business models offers a range of views with different emphases and some confusion
over terms (Morris et al.2005). Responding to critiques that business models lack a generally
accepted definition and can be confusing, Baden-Fuller and Morgan (2010) contend that the notion
is useful both practically (providing role models for businesses to copy), and conceptually as a
classifying device to advance understanding.
Definitions often describe or are based upon the purpose of a business model. For instance, Stewart
and Zhao (2000) suggest that a traditional business model has as its core aim a statement, or plan
for how a company will make money and how it will sustain its profit stream over time. Customers
and economic value appear in most definitions. Hamel (2000) argues that a business model puts
into practice core strategy, strategic resources, customer interface and a value network to gain
advantage. Amit and Zott (2001) suggest that the business model identifies, captures, builds on and
then strategises value creation, with impacts on all parties through the articulation of the customer
value proposition (Magretta, 2002). The value proposition captures the nature and requirements of
customers and how and what they value. Voelpel et al (2004) suggest a set of flows of activities,
which include some of the components discussed already, but also bring in aspects such as
leadership and governance. Through all this, Voelpel et al (2004) identify the business model as a
route to achieve competitive advantage. Similarly, Schmid et al.(2001) suggest that competitive
advantage relies on the business model through the company mission, structure, processes,
revenues, legal issues and technology. This is supported by Morris et al, (2005) who argue that
business models and their composition, distinctiveness and operations are designed to deliver
competitive advantage.
Zott et al (2011) highlight the impact of the internet on the discussions of business models since the
mid-1990s. Very importantly, this allows a business model to have non-geographic boundaries since
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it represents “a system of interdependent activities that transcends the focal firm and spans its
boundaries” (Zott and Amit, 2010: 216). Berglund and Sandström (2013) similarly seek to expand the
reach and utility of business models beyond the confines of the individual firm.
Even more challenging have been calls rethink the notion of the business model to encompass
benefits (and harms) to all stakeholders affected by the activities of a business (Arend, 2013). Yunus
at al. (2010) propose what they call the “social business model” that harnesses market dynamics in
pursuit of primarily social or environmental goals. They are not of course the first writers to
comment on enterprises with pro social goals as the literature on social enterprise has grown
rapidly. Their intervention was a significant shift in thinking about business models, however, as
earlier versions had tended implicitly if not explicitly to embrace the precept of Milton Friedman
(1970) that the only legitimate social responsibility of a business is to increase shareholder profit
while staying within the law (Wilson and Post, 2013). If business models can be expressive of (pro)
social value they may also recognise its antithesis, business activity that does not add value but
reduces it when viewed from a social perspective. In other words they may encompass, and help to
classify, economic endeavours that are unproductive or destructive (Baumol, 1990).
Research study: approach and data collection
The research aimed to examine the business model of online payday lenders from the perspective of
one group of their customers, recent graduates. To do this the team collected original data from
graduates (up to five years after leaving university) about how they access online personal finance
and how they use such funds. There were two phases of data collection, focus groups and an online
survey. The team called for support from seven different universities through student support,
alumni offices, student unions and careers. Three universities facilitated focus groups, and five of
them circulated the survey online via their alumni databases, covering those who had left within five
years of the date of the study for whom contact details were known or thought to be known. In total
this was an estimated 11,000 graduates. However, accurate information on the total number of
alumni from each university was not available; alumni officers admitted that their graduate
information was, at best, patchy. The Institutions were in the south of England and in the Midlands.
They are identified in this report anonymously, as agreed with gatekeepers, as Universities 1, 2, 3, 4,
and 5. See Table 1 for details of the distribution of the sample across these different higher
education institutions. The survey yielded 874 valid responses, 41 per cent of whom had accessed
online finance.
The survey questions are shown in Appendix A. Some universities also included questions relating to
support or advice needs, others did not. The answers to this question are not included in the
analysis or findings given that it was specific to particular institutions. Some questions the
researchers would have liked to ask were omitted at the request of the universities, especially
relating to the amount of debt they were in, since it was felt that response rates would be too low if
this were included.
.
Explaining on line, short term borrowing: results from focus groups
•
•
•
•
There were 21 participants in all for the three focus groups. In each group, there were roughly equal
numbers of male and female graduates. Fifteen of the 21 had used short term online lending at
some time. We discuss the findings from the focus groups under four themes:
Access to technologies both in terms of hardware and devices used, wifi provision and services
accessed
Use of online borrowing and other financial services
Reasons for borrowing
How money was borrowed
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Access to technology
All focus group participants had mobile phones and used them to access a range of services,
including financial services. They lived in areas with excellent wifi coverage and had set up accounts
online for regular purchases as part of this process. While other devices were also used, especially
iPads and related devices, it was the mobile phone that was used most often. The survey question
therefore explored multiple use of devices.
Use of online services
The focus group participants were frequent users of many kinds of on-line services, as would be
expected for this age group (ONS, 2014). All participants reported, for example, that they had
booked tickets for events and travel and bought items online. Rather more surprisingly, each focus
group also identified gambling as an accepted online pursuit, at least for the men, whose gambling
focused mainly around football and less often, boxing.
Online borrowing was higher in the focus groups than in the survey with 13 out of 21 participants
(62 per cent) reporting that they had used short -term online financial services since graduating. In
addition, two had done so while at university but not since graduating. Of the online borrowers, half
were female. Participants were often hesitant at first to say they had borrowed. This, for example, is
how one of them explained her use of on-line loans:
I feel a bit stupid admitting it but I did use them twice when I first started work - I know they
aren't that great if you don’t pay them back quickly but I was desperate.
Her admission led to others in the group, in their own words, "fessing up". There seemed to be more
of a perceived stigma for women about borrowing this way.
Reasons for borrowing
Online finance had been accessed to cover what participants described as necessities of life. In the
first few years after university, they said, it could be hard to pay for necessities, with student loans
acting, in the words of one female participant, as a "tax on any extra income I receive". Necessities
included rent and community charge payments, purchase of appropriate clothing and shoes for
work, and travel by public transport to work. Those who owned cars or motorbikes also mentioned
the need to cover insurance, repairs, MOTs etc. Many classed other expenditure as necessities.
Examples included membership of a gym (four participants), holidays (five participants), and online
costs to maintain phones and laptops via contracts with telecoms providers (all participants). One
participant classed a Netflicks subscriptions as a necessity, arguing that, "it's cost effective and stops
you having to go out and spend money in pubs and cinemas". Borrowing for such purposes was
generally considered reasonable in the focus groups. As one put it, they were not borrowing for
“outrageous things, new cars etc.…[but]…. to be able to live like anyone else".
In one of the focus groups, three participants (all male) had online accounts with national
bookmakers and had borrowed money to gamble, although only one of them said he had borrowed
large amounts for that purpose.
How money was borrowed
The ease and speed of access was clearly very embedded in participants’ use of online loan services.
Excellent wifi and mobile coverage combined with a smartphone meant that money could be
borrowed as and when it was required. There was none of the talk or form filling they might face
with other financial institutions. "All it takes is a few clicks", as one explained. Participants in each
focus group described borrowing money “for the weekend”, typically, while on the move, for
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example on the bus or walking into town on a Friday night to meet friends in a pub or club. Three
participants also explained how this flexibility had got them out of difficulty while en route for
special events such as hen or stag parties overseas or weddings in different parts of the UK. One
young man gave the example of five weddings in the past year with accompanying stag parties
overseas - all outside his ability to attend without borrowing money for travel, accommodation,
presents and clothes. He described accessing a payday loan via his smartphone while driving to
London Heathrow to join a stag party bound for Prague. Whether they had borrowed money for
such purposes or not, all participants expressed sympathy with this set of costs.
This sympathy did not extend to all expenditure mentioned in the focus groups. Gambling and
beauty related loans, for instance, were seen as poor reasons for borrowing by non borrowers, who
identified high costs of these loans and potential credit rating problems as reasons to avoid them.
Borrowers would not accept this argument, casting doubt on credit ratings if they paid up in the end.
They responded to criticism from their non borrowing counterparts in words such as "disapprove if
you like...that's fine if you have other ways to get money".
Measuring on-line, short term borrowing: Survey results
Overview of the survey
The five participating universities varied in size and age. University 1 is a post 1992 institution, with
a high number of students from its own region. Here we obtained approximately twice as many
responses as from the other four universities.
Table 1 The University Participants
University
Number
Number of Responses
1
2
3
4
5
TOTAL
315
164
153
113
129
874
As can be seen from Table 2, the highest percentage of alumni accessing finance online was at
University 4 (almost half of the sample) with University 1 not far behind.
Table 2 University differences in accessing online short term personal loans
University
Number
Total Alumni
Accessing Finance
Total Alumni
Respondents
Alumni Respondents
accessing finance (%)
1
2
3
4
5
148
52
61
55
43
315
164
153
113
129
47
32
40
49
33
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University 1 has the highest proportion of students from widening participation routes out of the
five HEIs taking part, and a higher number of local students living at home. Literature on payday
loans for lower income and disadvantaged groups in the population may lead us to anticipate a
disproportionately high number of graduates from that university accessing online finance.
However, this is not supported since University 4 is an older university without the focus on
widening participation for access to higher education by poorer students, yet this institution had the
highest percentage of those who reported accessing short term online finance.
Most respondents (94.3 per cent) were alumni in their first 2 years after graduation. The gender mix
was as follows: 492 female, 380 male and 2 - not specified. Most (86. 4 per cent) were in
employment. One in ten (10.2 per cent) was unemployed. A tiny proportion (3.4 per cent) reported
being self-employed. There is no additional information to determine whether the jobs the
employed respondents held were 'graduate' jobs or the level of their earnings.
Of all the fully completed responses, 359 respondents (41 per cent) had accessed online personal
finance and 515 respondents ( 59 per cent) had not accessed online personal finance. The rest of
this section focuses on the respondents accessing online finance
When alumni accessed loans
As with the overall sample, most borrowers were in their first two years after graduation, (87.7 per
cent). Of these, 51.5 per cent of alumni accessed short-term online personal finance in their first
year after graduation. Figure 1 below summarises when alumni in the sample accessed loans.
Figure 1: When did loans occur?
Gender and use of loans
There was a marked difference in the gender of those who reported borrowing short term personal
finance online. Only 37 female alumni reported that they had accessed finance this way (7.5 per
cent of all female survey respondents) compared to 322 male alumni (84.7per cent of all male
survey respondents. There may however be problems in accepting this result at face value. One
possible explanation for the very high gender disparity is that male alumni were unwilling to take
part in the survey unless they had accessed online finance whereas female alumni were more willing
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to take part in the survey if they had not accessed online finance. Or it could be that women had
accessed such finance but were unwilling to disclose it. The focus groups would tend to support that
explanation. A different type of research design, perhaps one-to-one interviews, might be a better
way to explore female borrowing and assess if uptake or rejection of online personal finance reflects
gender differences in aversion to risk noted in some psychological studies (Charness and Gneezy,
(2012; Borghans et al., 2013).
No significant differences were found between genders in the reasons for accessing online finance.
There was also no significant difference between genders in how online finance was paid off. Other
cross tabulations could not be carried out due to low numbers of female respondents.
Employment Status of borrowers
The number accessing online finance showed little difference in terms of employment. It was not
unemployment driving the need to borrow it seems as 89.7 per cent of all respondents accessing
finance were employed (compared to 86.4 per cent in the total sample). Similarly, 10.2 per cent
were unemployed in the whole sample compared to 6.4 per cent of those accessing online finance.
The small group of self-employed represented 3.4 per cent of the whole sample and 3.9 per cent of
the respondents accessing finance.
Table 3 Access to finance by Employment Status
Employment
Total Alumni
Accessing Finance
Total Alumni
Respondents
Employed
Unemployed
322
23
755
89
Alumni
Respondents
accessing finance
(%)
42.6
25.8
30
46.7
Self-employed 14
What does this say about the relationship between unemployment and personal borrowing? Not
much it appears. However, there is a lack of data on levels of income in the first two years of
employment, which may imply that being in employment meant having a low paid job and / or
working limited hours. Certainly it indicates that employment is no guarantee of an income likely to
support the required lifestyle for these respondents. The table shows that a lower proportion of
unemployed people were accessing finance compared to the whole sample.
How did respondents access finance?
Overall, respondents used their mobile phone as the dominant method of access to short term
online finance. 88.3 per cent of online finance was arranged using a mobile phone. Some reported
using a tablet/iPad (6.7per cent), a PC (3.9per cent and a laptop (1.1per cent). This fits UK wide data
on mobile use given that access to the Internet using a mobile phone more than doubled between
2010 and 2014, and that younger users dominated this grouping (ONS, 2014).
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Why respondents borrowed money
Table 4 shows the reasons for accessing online finance provided by the 359 respondents who had
done so, with payment of rent being the most frequent reason, followed by leisure and recreation,
clothes / shoes, holidays and travel. Here travel covers season tickets to work and car repairs, where
the sum needed overtakes the amount of cash available to the individual. These results support
comments in the focus groups about the difficulties faced when a large amount of money was
required, and the perception that dealing with an immediate crisis meant borrowing.
In Table 4, ‘other debts' appears as a category with 10 per cent identifying this as a reason for short
term loans - servicing other debts. This is potentially related to credit cards or other post university
debts but needs further and more specific research to determine.
More than two fifths of the respondents who borrowed did so for multiple purposes. While 56 per
cent only borrowed money for one purpose, 44 per cent sought finance for more than one purpose
(up to seven purposes from the list of options rent, food, travel, clothes/shoes, community charge,
gas/electric, credit card debts, other debts, leisure, sport/fitness, and holidays).
Table 4 – Reasons for short term loans
Reason
Number of respondents
Percentage of
respondents (online
finance users)
20.6
12.5
15.9
16.7
0.8
Rent
74
Food
45
Travel
57
Clothes/Shoes
60
Community
3
Charges
Gas/Electric
17
4.7
Credit Card
40
11.1
Debts
Other Debts
36
10.0
Leisure &
63
17.5
Recreation
Sport/Fitness
21
5.8
Holidays
56
15.6
Note: Percentages add to more than 100 because respondents could select more than one reason
for accessing online finance.
Paying off loans
As can be seen from table 5, just over two fifths (44.4 per cent) of those borrowing online reported
that they always repaid their online loans in time. More than half of the borrowers repaid either
often (42.1 per cent) or sometimes (11.1 per cent). Not paying on time potentially increases their
debt rapidly due to high daily interest rates. This is clearly a good return for the lender (OFT, 2013).
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We were not able to explore attitudes to late repayment within the scope of the survey. However,
focus group responses discussed above suggest that some borrowers may see this as a sound value
proposition in having finance available as and when they want it without questions asked, despite
the additional costs over time. This is an important aspect for future research to address as new caps
may result in less transparent pricing structures (Williams, 2014)
Table 5 Paying off loans
Are online loans paid
off on time?
Number of
respondents
Percentage of online
finance users
Always paid off on
time
Often paid off on
time
Sometimes paid off
on time
No response
160
44.6
151
42.1
40
11.1
8
2.2
What is Leisure & Recreation?
Table 6: Leisure & recreation activities
Leisure & Recreation Activity
No. of
respondents
Percentage of
respondents1
Meal
Pub/Club Visit
Cinema/Theatre Trip
Online Services
Online Gambling
9
37
10
15
13
14.3
58.7
15.9
23.8
20.6
Table 6 shows the leisure and recreation activities for which online loans were used. By a long way
the most popular was 'visiting a pub or club'. ‘Online services’ here include Netflicks and other
online entertainment channels, with 1 in 5 in this group using online loans for gambling online. The
introduction of gambling to the survey was informed by one of the focus groups discussed above. In
the survey low numbers overall reported online gambling so this may not be the general issue that it
appeared to be from the focus group session. Nevertheless, in carrying out further research it would
be advisable to include this category.
Discussion
Much is made about the geographical locations of outlets offering short term finance, with poorer
areas seen as targets in some discussions of this phenomenon. The pilot study with recent graduates
1
Respondents could select more than one option for their leisure and recreation activities so the column totals
add up to more than 100 per cent.
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seems to indicate that location is an irrelevance to them, given their reliance on their smartphones
to access funds. Online access to short term personal loans across different providers means that, in
the words of one focus group participant, funds can be obtained "wherever you are with mobile
coverage, for whatever you want when you want it". Reflecting earlier research on the uptake of
online financial services more generally (Lee et al., 2011) these young borrowers are strongly
influenced by ease of use. Lenders are “just a few clicks away”, as described in one of the focus
groups. The service is fast, flexible, and can be conveniently accessed via the customers’ mobile
devices. Borrowers can use the money to meet their needs instantly, as encapsulated in the
anecdote related by one focus group participant about taking out a loan while driving to an airport
to join a stag party.
This gets to the heart of the success of this online model. Indeed it can be seen as an exemplary type
of business model as it relates to selecting customers, defining and differentiating an offering, and
creating utility for those customers. Online instant access to personal finance, in other words,
represents value creation, via a simple value proposition, which captures the nature and
requirements of customers and what they value (Magretta, 2002). If, however, an ethical dimension
is admitted into the notion of value, and remembering the high incidence on non payment of loans
on time, this business model may be classified rather differently with an emphasis on potential for
social harm by extending loans at high cost. This perspective is pertinent to economic models, which
are at a higher level than business models. It informs NEMODE’s interest in how value is distributed
in the digital economy, who does what, and who gains or loses.
Limitations and the needs for further research
This was a pilot study to explore user views of short term online finance and examine their uses of it,
in order to see how the business model worked in practice. As exploratory research, it provides
some intriguing insights into a little understood aspect of Digital Economy societal change. In
particular, it offers a snapshot of how some young people use smart phones for convenient access to
finance, often on the move. It highlights the speed and ease of use they enjoy. This is consistent with
payday lenders’ claims to offer a service meeting customers’ needs much more flexibly than
traditional financial products. It also reveals the widespread practice of not repaying loans on time,
which would tend to support the concerns of critics of payday loans. The sample was purposive and
therefore the results can not be generalized statistically to the wider population of young graduates.
Further research would be very useful to explore
(1) whether the gender difference so clearly identified here is true for the wider population
(2) Whether those borrowing while in employment are in graduate jobs
(3) Whether those borrowing while in employment are in low wage jobs
(4) Whether this pattern of borrowing continues into the first 10 years after graduation
(5) Whether this varies across age or ethnicity
(6) Whether this varies across the type of university attended
Acknowledgements
In carrying out this pilot survey, the team are indebted to those five universities helping to send out
the study and collating resulting data. They wished to be anonymous so we respect that in thanking
them. We also thank the Nemode funding stream in providing the impetus and a grant to support
the study.
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Appendix A
Survey Questions, sent out online
1.
2.
3.
4.
5.
Background
University already coded
Years post university already coded
Gender already coded
Employment status (employed, self employed, unemployed)
6. Filter question - Do you access or have you accessed finance online / online money or funds for
your own individual use? Those answering no then exited the survey, although their university
and gender were recorded and collected.
7. Have you accessed finance
- Via your mobile phone
- Via a tablet, iPad or other similar device
- Via a laptop
- Via a personal computer
- Other
8. Have you accessed finance for
• Rent
• Food and drink
• Travel
• Shoes and clothing
• Community charge
• Gas or electric
• Water
• Credit card debts
• Other debts
• Leisure and recreation
• Sport and fitness
• Holiday
• Other please give details
9. If you used this for Leisure and recreation was this for
• Going out for a meal,
• Going to the pub or to a club
• Going to a cinema or theatre
• Subscribing to online clubs or services such as Netflix, buying books, magazines
• Betting or gambling
10. Are you able to pay off online loans on time
• Always
• Often
• Sometimes
• Never
11. Which firms of finance have you used
Bank overdraft
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Online banking
Online loans
Online payday loans
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