As QuickQuid collapses, is it all over for payday lenders?

“Yes! Glorious. Another one down, many more to go!” 

It’s fair to say that the reaction to the closure of payday lending firm QuickQuid has been nothing short of rapturous, hailed by jubilant campaigners on Twitter as another nail hammered into the coffin of a deeply unpopular industry.

The firm's collapse, after its US owner Enova's decision to pull out of Britain following a crackdown by regulators, marks one of the final blows for a business model long accused of punishing vulnerable borrowers with sky-high interest rates.

But even the watchdogs whose tougher rules put payday lenders out out of business agree there are thousands of people desperately low on cash who rely on short-term lending to cover unexpected bills. The question now is where they will turn instead.

"Both the payday loan industry and the relatively new peer-to-peer lending industry are vital for consumers, especially that segment of the population that cannot easily obtain credit,” says Roger Gewolb, founder of loan comparison website Fairmoney.

Five years ago, City regulators vowed to get to grips with the payday loan industry, after it became clear that firms had lent disproportionate sums of money to people unlikely to pay back the loans at extortionate interest rates.

Tighter rules around affordability checks and loan terms from the FCA put pressure on several companies’ business models, leading to the collapse of the biggest payday lender in the UK, Wonga, last year.

Caroline Siarkiewicz from the Money and Pensions Service estimates that roughly 11.5m adults have, on average, less than £100 in savings, which makes it understandable as to why people feel like quick, short-term credit is the only option.

Meanwhile Andrew Bailey, chief executive of the Financial Conduct Authority (FCA), has said repeatedly that people with little money and a poor credit history should still be able to access funds.

With the disappearance of payday lending, a raft of alternatives are cropping up - including so-called peer-to-peer firms, which allow a saver to lend their money directly to a borrower.

These companies have increasingly won a following due to the high interest rates they offer, but have also come under fire for the quality of their lending.

Peer-to-peer firm Lendy failed in May, leaving nearly 9,000 savers with a combined £152m stuck in the platform facing losses as high as 42p in the pound.

It mostly lent money to property developers but other companies such as Ratesetter and Zopa offer personal loans. Both insist they are responsible lenders with sophisticated models to manage risk. 

Mr Gewolb argues that the industry should have tighter rules in order to protect its credibility. “Proper regulation and supervision by the Bank of England will ensure no more failures and that the industry can be properly realigned, hopefully without a huge chunk of it disappearing as with payday,” he says.

Another, perhaps less controversial alternative might be credit unions, which lend to local families with poor credit history without seeking to make a profit. The Prudential Regulation Authority has lavished praise on the organisations, prompting deputy governor Sam Woods to explore how to remove barriers to future growth.

But many have also struggled to keep their finances on even keel. Nine credit unions went bust last year, with 73 shutting down over the past decade.

Another alternative is rent-to-own, where customers buy electronic goods such as televisions and refrigerators using monthly installments. But this industry has also been hit by a crackdown from the FCA, which capped prices after it found many customers were paying unfairly high rates.

The biggest player, Brighthouse, announced it was shutting 30 stores in February after suffering a hit from the new rules.

Another alternative is guarantor loans from firms such as Amigo, which lend to a customer with a poor credit history if a friend or family member promises to pay up should they fall behind.

Amigo also saw customer numbers rise more than 17pc during the first quarter, prompting a 14pc rise in the value of its net loan book.

Typical annual interest on an Amigo loan is charged at 49.9pc, but the company claims only 12pc of its customers have topped up their loan value more than twice.

The FCA is taking aim at gurantor lending and an intervention is widely expected in coming months.

Another alternative is Swedish financial firm Klarna, which helps customers delay paying for goods. It has millions of users across the UK, with 25,000 new weekly sign-ups to its pay-later service in the final few months of 2018 alone.

QuickQuid's collapse leaves the payday lending industry hollowed out - but alternatives are sure to spring up once again.

For now, however, plenty are happy to promote QuickQuid’s collapse as the death knell of payday lending.

Peter Briffett, founder of the income streaming app Wagestream is adamant: “Companies that charge exorbitant interest rates have preyed on vulnerable people for long enough and consumers are saying loud and clear, ‘Enough is enough.’” 

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