Australians are still taking out a lot of payday loans
$271.5 million in revenue for Cash Converters despite regulatory crackdowns on short-term lending.
It seems Australian appetites for alternative credit remain strong despite the tightening of regulations on promoting those loans in Australia over the last year.
Cash Converters has announced its results for the 2017 financial year. The lender posted revenues of $271.5 million, down 12.4% on the previous corresponding period.
This dip in profit is actually quite low given tougher market conditions. Just before the start of the financial year in April 2016, an initial government review of payday loan laws was conducted. The government then announced its support for the "vast majority" of the review's 24 recommendations either in part or in full, with legislation expected this year.
Th crackdown continued in November with the Australian Securities and Investments Commission (ASIC) banning direct debit fees for payday loans. Then in January, Google enacted a global payday loan ad ban.
Interestingly, the ad ban appeared to increase the cost of payday loans in Australia as demonstrated by a finder.com.au analysis. The trend towards larger loans is visible in Cash Converters' results as well.
A product which delivered strong growth for the lender was its Medium Amount Credit Contract (MACC), where it grew its loan book to $13.4 million. The MACC falls under ASIC's definition of a larger loan between $2,000 and $5,000. This differs from a tradition "payday loan" or Small Amount Credit Contract (SACC), which only extends up to $2,000.
With MACC products, lenders can charge a maximum of a $400 establishment fee and a 48% p.a. rate. compared to the 20% establishment fee and 4% monthly fee they can charge with SACC products.
According to Cash Converters, it released the MACC product in November 2016 and was able to grow the loan book to $13.4 million by 30 June 2017.
Its results statement noted that the focus on the "higher quality, low risk" MACC product was a deliberate decision but led to an expected fall in profitability year on year.
"The second half of FY2017 saw the greatest impact with Small Amount Credit Contract (SACC) lending down 13.8% on the first half, to $62.0 million principal advanced in the second half of FY2017. The anticipated fall in the loan book following this strategic shift has now stabilised, with strong growth in the MACC product," the announcement read.
Looking ahead, Cash Converters expects much of its growth to be driven by its MACC product but plans to retain a focus on its SACC loan book. It also plans to roll out new products and channels.