#1 Mistake Most Payday Loan Companies Make
The payday loan industry is making common business mistakes
Payday lenders spend an outrageous amount of money to find one qualified borrower. The costs per repeat borrower is astronomically higher for payday lead buyers. Most lenders do not monetize their applicants when the customer does not qualify for their loans. They spend anywhere from $50 – $300 per applicant when all costs are properly calculated that are associated with getting just that one person to apply. So the number $1 mistake is lack of lead monetization.
Payday Lenders fund only 20%-30% of applications
Depending on the underwriting criteria used by payday lending companies, they may only be able to lend to 10%-30% of applicants. Some lenders are so picky that they only lend to 5%-8% of those who request a loan. The problem is, that leaves 70% – 92% of leads that the company does not make money off of but still paid for. Once you calculate the average default rate of 15-33% you can see how much just one repeat borrower costs. It takes two good borrowers to make up the losses for the one defaulted borrower.
How much do applications cost lenders?
Assume a lender receives 100 loan applications per day. They fund 10% or 10 loans. Out of these 10 borrowers a max of 3 of them are not going to pay the money back within the loan period. Assume it cost the lender $20 per application to bring in new customers. Their total cost for the day would be $2,000. That means they paid an average of $200 per good borrower who’s funded loan did not default. That is extremely expensive.
Customer retention plays a roll
If the lender’s customer retention rate is 30%, which seems to be the average, that lender really only found 3 repeat borrowers which cost them $2,000. That equals a cost of $665 per long term borrower. Being that the average profit per long term borrower is anywhere from $500 – $1,000 you can see how slim the profit margins can be depending on certain factors like customer retention and cross monetization.
How many leads can be monetized?
On the other hand, let’s do some math for this equation with minimal denied application monetization rates. The average payout per monetized denied lead is approximately $4 depending on the original lenders underwriting criteria. If they fund a higher percentage of applications, they will have less qualified applicants to sell to other lenders with lower underwriting criteria. An example is a picky lender who only funds 8% of applicants has a much higher chance of monetizing the remaining 92% then a lender who funds 50% of applicants. The picky lender will have a lower default rate but a higher cost per funded rate.
How much revenue can lead monetization bring in?
Assume for this example that the lender funds 10% of applicants and averages a cost per acquisition for applications of $20. For one day that leaves 90 applications that were denied. If that lender monetized those leads they would have made $360 in addition to their normal revenue. That is an annual revenue increase of over $93,600. Some lenders get several thousand applications per day. Imagine the revenue increase for those kind of lenders. That also reduces the cost per acquisition for repeat borrowers. It gives the company a higher profit margin. When the profit per customer swings between $500 and $1,000 they have a little more breathing room to absorb the natural market fluctuations.
How can denied payday loan applications be monetized?
Question is, how do lenders monetize their denied leads? The answer is they sell them through a lender matching network like ours. Personal Money Store, as an affiliate, has access to a large network of lenders who buy payday loan, cash advance, short term loan, installment loan and personal loan applications. We share a large percentage of the commission price we make with the originating lender who sends us their denied leads. More lenders equals a higher approval rate which correlates to a higher monetization rate for the lenders. We can pay upwards of $65 per loan application funded through the network. Some are higher, some lower. The average is around $30 which equals in most cases $4-5 per application submitted.
Lost opportunities for increasing revenue
It is a win-win deal for lenders on both sides. Lenders who can’t fund certain applicants due to underwriting criteria can recoup some of their costs. Lenders who need more leads can buy qualified applicants on a regular basis. Some common reasons why lenders cannot loan to certain customers are:
- State law prohibitions
- Applicant is in an unlicensed state
- Applicant is a member of the military or a dependent of a member of the military
- Wrong type of employment
- Income not direct deposited by employer
- Applicant’s income level is too low
- Applicant’s past default rate is too high
- Applicant has an outstanding loan in a state that prohibits multiple loans
There is a lender for every situation
The key to monetization from a network perspective is finding a lender who can loan money in any one of the above mentioned situations. There are lenders in the system who can loan to military personnel even. There are some lenders in every state. There are lenders with low underwriting criteria. The hard part is getting an application to all of them in just a few seconds while the applicant waits for an approval or denial. Good thing we have that under control.
Are you a lender who is losing revenue?
So if you are a lender who is failing to monetize your denied applications for any reason, you should investigate the possibilities with this system. It can’t hurt to contact the monetization experts who take care of our leads. You will thank yourself once you get your system all set up. Start your profit growth today!