Payday loans, as a product, are contentious. These loans appear in the media for the wrong reasons as often as they do for the right. While there are problems – vulnerable customers lured into debt traps and sky-high rates and fees - there are some potential positive benefits and innovations in the payday loans space.
Payday lenders have introduced innovative loan applications and experimental software that enables them to have money transferred into borrowers’ accounts before conventional banks would have even started trawling through payslips to kick off the assessment process. Another one of these solutions is a prepaid debit card where borrowers can receive their loans instantaneously.
But is having instant access to borrowed cash, at very high rates and fees, really a good idea?
Financial hardship
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How does a payday debit card work?
While the functions of these cards differ, most of them work in essentially the same way:
Customers can receive their card after they apply for a short term loan. Applicants can apply for a payday loan with a lender, and if they're approved, they are either instantly sent a prepaid card or they can elect to have one sent to them.
Customers can receive repeat loans onto the card. After the lender sends someone their card, that person can receive instant loans through it – "instant" meaning within a few minutes of approval. In this way, the card functions in a similar way to a credit card.
Customers can spend with the card. Card holders should be able to spend online, in-store and even overseas, although foreign transaction fees may apply.
How to load funds. Most lenders also let customers load their own funds onto the card to spend online, in store or to withdraw cash from ATMs.
What the card costs. When someone receives a loan onto the card the applicant will be charged however much the loan costs – if it’s below $2,000 it will be 24% of the principal for a one-month loan. This is higher than a typical credit card cash advance rate - and considerably higher than other forms of finance. Other fees to watch out for include ATM withdrawal fees, load fees and transaction fees.
What are the drawbacks?
Which lenders are offering free payday debit cards?
Nimble
When someone is approved for a Nimble loan, they can let their lender know that they also want a prepaid debit card. They will likely receive their card within 5 to 10 business days.
Here's what customers can and can't do with the Nimble card:
Receive approved loans from Nimble
Load their own money via BPAY or through the direct credit ("Pay Anyone") facility
Spend with their card anywhere prepaid Visa cards are accepted – online, in-store or overseas (subject to a 2.99% foreign transaction fee)
Manage their spending through the online Member Area that offers feedback and graphs
Make direct debit payments
Spend more than $2,500 in-store in one day
Withdraw more than $2,000 in one day from an ATM
Spend more than $5,000 per day
Load their own money for free (customers will be charged $1.99 for bank loads and $2.79 for BPAY)
MoneyMe
Customers become eligible for a MoneyMe Express Visa Card when they are approved for a MoneyMe loan. To receive their card they will need to opt-in via the Member Area and verify your ID, be an Australian resident and have their contact details up to date. After someone requests their card, it will be delivered by Australia Post and arrive within 7 to 10 business days.
This is what customers can and cannot do with the MoneyMe card:
Receive MoneyMe loans onto their card
Top up their Visa card (after activation) with their own funds through Internet banking
Pay for purchases online, in-store and over the phone anywhere prepaid Visa cards are accepted (this includes overseas for a foreign exchange fee of 2.99%)
Check their balance and keep an eye on their transactions in the MoneyMe Member Area
Receive free ATM withdrawals ($2 withdrawal from rediATMs and ATM operator fees for any other ATM)
Receive free cash out in-store (customers will be charged $0.50 when getting cash out at point-of-sale)
Let their card be inactive without being charge (a $5 monthly fee is charged after 6 months of inactivity)
Withdraw more than $1,000 daily
Spend more than $4,000 per day
Wallet Wizard
Customers are able to get a Wallet Wizard card if they've previously finalised a Wallet Wizard, ClearCash or MoneyStarter loan. Customers might also be eligible if they're a current customer and making on-time repayments. To be approved for a loan, they'll first need to verify their ID, be an Australian resident and they will need to have up-to-date address details to receive a card. Cards are usually delivered within 15 business days.
Here are the features and restrictions to be aware of. Customers can and cannot:
Receive instant Wallet Wizard loans onto the card
Use the card online and in-store
Manage their card and check their balance online
Load their own funds onto the card (users can only access funds from a Wallet Wizard loan on the card)
Withdraw money at an ATM for free ($2 withdrawal from rediATMs and ATM operator fees for any other ATM)
Get cash out at a point-of-sale for free (incurs a $0.50 fee)
Have a card remain inactive without being charged (after six months of inactivity customers will be charged a monthly fee of $2.99)
Spend more than $4,000 per day
Withdraw more than $1,000 per day from ATMs
SRG Finance
If customers apply for a Cash Advance from SRG Finance, they are eligible to receive a Prepaid Visa Card. They may also eligible if they have applied for an SRG Finance Short Term Personal Loan and have been approved for $1,000 or less. When someone takes out either of these loans and lets SRG Finance know they want a card, it will be issued to them via Australia Post. The card has several features. Customers can and cannot:
Use their card to receive SRG Finance Cash Advance Loans or Personal Loans up to $1,000
Add their own funds to the card using the electronic funds transfer "Pay Anyone" function
Withdraw funds and check their balance for free at Westpac or St.George ATMs
Use their card in-store, online and overseas (subject to a 3.5% currency conversion charge)
Manage their account online on the SRG Finance website
Get cash out at point-of-sale
Have funds direct debited from their card account
Hold more than $1,000 on their card at any time
Load money that would exceed the $1,000 card limit
360 Cash Loans
After someone successfully repays their personal loan of between $150 and $4,000 with 360 Cash Loans, they will be issued a Financier Debit Card. This card gives customers access to any subsequent loans they take out and is also attached to a personal bank account.
There isn't as much information provided by 360 Cash Loans for this card, but here are some of the things customers can and can't do:
Receive any further approved loans instantly on their card and access them via an ATM (urgent loans transferred into bank accounts attract fees, loans transferred into Financer Cards do not)
Check their balance, transaction history and check/change their personal details
Use their card anywhere prepaid Visa cards are accepted including online, in-store and over the phone
BPAY and transfer their own funds onto the card
Receive their card with your first loan (customers must successfully repay a loan to be eligible for the card)
Cash Converters
Cash Converters offer a prepaid card with partnered Emerchants. The Cash Converters card can be loaded with funds from an approved Cash Converters loan in store on the day the loan is applied for. It can also have further loans loaded onto the card if the cardholder chooses to apply for further finance with Cash Converters. Customers can spend funds from their loan anywhere where eftpos is accepted, but cannot use the card to make online or over the phone purchases. This card cannot be applied for online and is only available to loan applicants who apply in a Cash Converters store.
The following features are available with a Cash Converters card. Customers can and cannot:
Receive cash advance funds to their card instantly when applied for in store
Receive their first Cash Converters cash advance onto their card instantly
Check their balance on the Emerchants site by entering their card number or account code
Use their card in any store that accepts eftpos
Withdraw cash from ATMs (subject to a $2 fee at rediATMs)
Use the card to make purchases online or over the phone
Load their own funds onto the card
Apply for the card online
Payday debit card comparison
Use the table below to compare fees, charges, load amounts and ATM fees.
Nimble
SRG Finance
Moneyme
Min Amount
$20.00
$20.00
$20.00
Max Amount
$25,000.00
$1,000.00
$3,000.00
Max Amount YTD
$50,000.00
$50,000.00
$50,000.00
Max Daily Withdrawal
$2,500.00
$1,000.00
$4,000.00
Card Purchase Fee
$0.00
$0.00
$0.00
ATM Withdrawal Fee
$0.00
$0.00
$2.00
Reload Fee
$2.79
N/A
$5.00
Foreign currency conversion fee
2.99%
3.50%
2.99%
BPAY Load
Yes
Yes
Yes
How do payday debit cards compare to bank prepaid cards?
Another alternative to prepaid payday cards is bank overdrafts with a debit card attached. These generally have a lower interest rate, usually around 16-20% p.a. rather than the 24% p.a. for a one-month payday loan under $2,000.
There are a few key differences with overdrafts that customers should be aware of. The first is that they are a revolving line of credit, so there is no repayment date. While this can seem flexible and convenient compared to the short repayment terms on payday loans, remember that having no set term can encourage customers to extend their repayments and see them paying more interest.
The interest on overdrafts is charged at an annual rate rather than a monthly rate, as is the case with payday loans, and customers will only be charged interest when they start using the facility. Overdrafts will be attached to a customer's transaction account.
So why not get an overdraft?
Overdrafts are an option for borrowers to consider, although the eligibility criteria aren't as lenient. Banks need to know that their customers will be able to pay the overdraft back so their credit history, income and transaction history will be considered. Customer options will be limited, because if someone has bad credit or are on a lower income, banks will want them to have a history with them they can use to verify them, so customers will need to apply with a bank they already have an account with.
Are payday debit cards the next "bad credit" credit cards?
While they aren’t exactly "credit cards" in the traditional sense, prepaid payday cards are an example of lenders moving forward in the bad credit financial space. Yes, the loans the borrowers receive on these cards are high-cost, but the cost of convenience has always been higher – the same is true of credit card cash advances.
Borrowers will continue to take out payday loans as long as they need money and as long as they have no other option. If they have a more convenient way to receive the money, and a way to continue to use this facility and load their own money onto it, then this could be a stepping stone for the rest of the financial industry to develop more innovative products for these borrowers.
Elizabeth Barry is Finder's global fintech editor. She has written about finance for over five years and has been featured in a range of publications and media including Seven News, the ABC, Mamamia, Dynamic Business and Financy. Elizabeth has a Bachelor of Communications and a Master of Creative Writing from the University of Technology Sydney. In 2017, she received the Highly Commended award for Best New Journalist at the IT Journalism Awards. Elizabeth has found writing about innovations in financial services to be her passion (which has surprised no one more than herself).
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