The federal government's plan to regulate payday loans is expected to change the operations of companies in the space — and create opportunities for start-ups.
New entrants now potentially will have a broader marketplace to operate within, thanks in part to the proliferation of smartphones.
As regulators clamp down on legacy players in the $38 billion market for payday loans, it's likely some will complain federal rules, including that they evaluate borrower ability to repay debt, are too onerous. It may put brick-and-mortar lenders out of business, despite their ability to charge what the Consumer Financial Protection Bureau called an annual percentage rate of nearly 400 percent.
"There's now a need for innovative services to fill the demand," said Alex Lin, head of Infocomm Investments, which backs financial technology — or fintech — companies. "The situation encourages the creation of such technology-driven innovative services to serve the greater unbanked group."