Text message lending, an untapped market in Ireland?

mbanking europeThere is an untapped market in Ireland for text message lending, a type of lending that is common in Finland and Sweden. Recent articles about ‘mobile lending’ focus primarily on the downside of it, because the fees for borrowing tend to be relatively high. How high? In some cases more than 1,500% which is extortionate, having said that it only comes out like this if you look at a flat fee (minimal lending fees apply) and work it out as an Annual Rate which is not comparing like for like.

How does mobile lending or text message lending work? You send a text message containing the amount you want, along with some personal information such as your address, personal I.D. number and your bank account number and this is enough to do a comprehensive credit check, if your credit record is clear then in many cases within three minutes you are approved and the money arrives in your bank account. The loan is totally unsecured.

mobile bankingNormally the loan has to be paid within a certain short period such as a fortnight or a month, it’s simple and also popular, in the first quarter of 2008 Fins took out 270,000 text message loans. The interest is normally a flat fee of about 25%, again, this is a big interest rate charge but for ease of use, on a totally unsecured loan, and with clients who are unknown to the lender the reward must equate with the risk.

The other areas that text lending is taking off is in Asia and Africa because mobile phone penetration there has been very successful whereas broadband has not, so the telephone is becoming an empowering tool for millions of people who will become mbanking customers, mbanking as well as microfinance are forces that may well change the face of the current third world.

debt burden in irelandThere are only two types of lending, secured and unsecured. Secured means that there is some kind of asset backing the loan, such as a house or a car, this type of loan is easy to get and traditionally attracts the best rates because if there is something that can be taken back if the repayments are not met (typically this is via a repossession of a car or house etc.) Unsecured is the more risky area of the market because this means that you are relying on the person to repay and if they don’t you have no recourse, nothing to take back. This is likely the reason that text lending has such high rates, in Finland 20% of loans in dispute are ‘text message loans‘.

mbanking and microfinanceThese loans do tend to be used when the crisis hits and there are no alternatives, however, with proper regulation and strict enforcement by the financial regulator it could have a place in the Irish market, credit unions have typically been a crisis lender but you require a deposit with them in order to borrow and for that reason there is a market gap in Ireland.

The Irish consumer would likely find the high fees unpalatable because we have become accustomed to a very competitive market, however, as the economy changes perhaps we will see a mobile text lender emerge.

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