New Business Opportunity: SMS Loan Sharking

Yves Smith at Naked Capitalism submits:

Lucy Kellaway, a Financial Times columnist who writes about corporate fads, once said no new business technique is too ridiculous to be put into practice. The Springwise newsletter (“New business ideas for entrepreneurial minds”), demonstrates that the same can be said of new business concepts.

This week’s edition breathlessly describes what can only be called technology enabled loan sharking:

Dutch consumers have a new way to take out loans: by SMS. Finnish Ferratum just launched its short-loan service in the Netherlands. Customers can borrow EUR 100, 200 or 300 for a term of 15 days, by texting Ferratum their name, date of birth, bank account and address. If they’ve pre-registered, the money is in their bank account within 10 minutes. First-time customers have to wait 24 hours. Speedy loans come at a cost: Ferratum charges a hefty 25% processing fee. Which means that consumers who borrow EUR 300 today, owe the company EUR 375 in 15 days time.

Do the math. On a simple interest basis, 25% for two weeks is 600% a year, a Mafia wet dream level of return. By contrast, payday lenders, under increasingly harsh scrutiny in the US, charge a mere 390%.

Now regardless of what you think of the ethics of this concept, it seems foolhardy to start a business that regulators are almost certain to shut down. But that line of thinking never deterred a bucket shop operator, nor does it discourage Springwise:

In Sweden, Estonia and Finland, where a handful of companies have started offering similar services over the past year, ombudsmen have been pushing for regulation. While critics claim that it’s unwise to offer people such effortless methods of sinking (further) into debt, one could also argue that consumers should be able to choose whichever form of credit works best for them. Though the rates smell of shark, the concept is definitely quick and easy 😉 One to look into if you’re in financial services or telecom. And for those of you seeking an antidote to fast credit: layaway is back.

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