Imagine you need cash, and you need it now. In situations like these, it might be tempting to take out a loan through an Internet or SMS service and have the money available within 15 minutes. The popularity of quick credit sites that provide just this service is growing. Should banks step into this fast growing market and offer payday loans?

Companies providing payday loans have been operating in the Netherlands since 2007. Examples are Cashbob, Voorschotje, Doemawat and Ferratum. They offer their clients the possibility of taking out small, short-term loans: up to 750 euros for a maximum of 30 days.
 

Easily accepted
Getting credit is incredibly easy. After registering with a service and providing some personal details, a check is performed at collection and credit agencies. Because of this, the first loan will actually take more than 15 minutes to process, for example one day. Apart from the speed of payday loans, a big advantage is the transparency  the various websites offer on the total costs involved, removing the risk of misunderstandings.

A downside is that these costs are in fact much higher than the costs of other types of loans. For example: taking out a 400 euro loan usually brings anything from 60 to 120 euros in additional costs (‘processing fees’), depending on the duration of the loan. This is equivalent to interest rates of up to 30 percent. Providers of payday loans are actually allowed to charge these high processing fees. Since the duration of the loans never exceeds three months, they do not fall under the jurisdiction of the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten/ AFM), allowing them to charge more than 18% interest.

Debts
Another downside is the relative ease with which debtors are accepted. The payday loan providers usually do their own credit checks, instead of checking with the Credit Registration Bureau (Bureau Krediet Registatie/ BKR) which is the accepted procedure in the Netherlands. This might be tempting for people that have trouble paying off their loans, causing them to extend their debts.

Looking at the various up- and downsides of payday loans, one can wonder whether this would be a good service for banks to provide. On the one side, the rapidly growing popularity of payday loans shows there is a real demand. On the other side, one can ask whether this is desirable. Since the criteria for accepting a debtor are so loose, payday loans can lead to over-crediting, which will lead to debts. Not something to survive the credit crunch with.