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Trends in Small-Dollar Credit: A Look at the Market and Future of Small Loans


Trends in Small-Dollar Credit: A Look at the Market
and Future of Small Loans

New Mercator Advisory Group Report Shows Where Opportunities and Challenges May Lie in the Small-Dollar Credit Market

Boston, MA -- Nearly everyone has had a moment when they needed more money than was in their wallets or their bank accounts. Whether it was for a major purchase, a car repair, or some other life event, consumers have found themselves in need of a short-term loan.

In Mercator Advisory Group's newest report Trends in Small-Dollar Credit: A Look at the Market and Future of Small Loans, sources for these small-dollar loans and what the future landscape may look like are investigated. Credit cards, payday loans, small-dollar bank loans and person-to-person lending are the four major sources of credit covered in-depth.

Today, credit cards and payday loans seem to be on the decline. Since the beginning of the financial crisis, the portion of U.S. households with no general purpose credit cards has grown from 26% in 2009 to 40% in 2010. Meanwhile, Payday lending has faced increasing regulatory pressure and a loss of bank partners over the past decade.

The future of small-dollar bank loans depends on whether or not bankers find a way to integrate them with the rest of a bank's products. Person-to-person lending may represent a new credit option for both borrowers and lenders that open up new forms of business.

"Consumers have shifted away from traditional sources of small-dollar credit as new options have become available," says Ben Jackson, senior analyst with Mercator Advisory Group's Prepaid Advisory Service. "The future of the small-dollar loan market will be largely determined by how lenders position their products as the best deals in front of two audiences -- the borrowers and the regulators."

Highlights of this report include:

Consumers have long needed sources of short-term credit, but the sources of that credit have varied over time

Credit cards, payday loans, small-dollar bank loans, and person-to-person loans appear to be the most active small-loan markets today.

Credit card use and the number of accounts are declining, and it is unclear whether these declines are permanent.

Payday loans have filled the gap for some consumer segments, but regulatory pressure may mean that this option disappears for many consumers.

Small-dollar bank loans may make a comeback, but it will depend on whether or not banks can find a way to offer them profitably.

Person-to-person lending companies have spring up, and the future of small dollar credit may be found in these Internet-driven products that give consumers another way to shop for the best deals.

One of the 25 exhibits in this report.

This report contains 35 pages and 25 exhibits.

Companies mentioned in this report: Web Bank, Visa, Prosper, MasterCard, Lending Club, Kiva, Federal Deposit Insurance Corp., and Community Financial Services Association.

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About Mercator Advisory Group
Mercator Advisory Group is the leading, independent research and advisory services firm exclusively focused on the payments and banking industries. We deliver pragmatic and timely research and advice designed to help our clients uncover the most lucrative opportunities to maximize revenue growth and contain costs. Our clients range from the world's largest payment issuers, acquirers, processors, merchants and associations to leading technology providers and investors.