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Comment by prepend | Hacker News Reader

Isn’t this problem more easily solved by more access to credit cards? It seems like the examples where an advance is needed would be more easily, and even cheaply, solved by using a credit card and repaying on payday.

There are instant approval credit cards and low credit limit cards.

And credit cards even allow cash advances at 20-30% annually.

So, for the example with the gas station customer, using a credit card and carrying the balance for a few weeks would cost them $0 in fees if paid back in the same timeframe as this pay advance. Or they could take a cash advance from an atm and pay 30%/365*num days until repaid.

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The difference, I think, is that the credit card model is an unsecured loan while Payflow seems more like receivables financing. Big difference in the perceived risk exposure.

Yes I think that is what is most confusing to me about why payday loans are so much more expensive. The creditors are taking on less risk than with credit cards and yet the return is greater.

The rates are typically high because they are loans of last resort and people still default. Typically people, in the US at least, have absolutely terrible credit and no one will extend to them.

And while there are exceptions, typically people with horrible credit are likely to continue the cycle.

Yeah I get that from a demand perspective. I guess I don't quite get why there isn't more competition from a supply perspective. They are small loans that are secured. Why not offer the cheapest rate and dominate the market? It almost seems like the stigma around paycheck loans as being predatory is making them more expensive.

Exactly, the risk is the first big difference. With Payflow, you can never spend more than you have already earned.

The second thing is most blue-collar workers in most countries can’t get credit cards at all.

What happens when an employer goes bankrupt? Heck of a lot of correlated risk.

Almost none low income workers have access to a zero-rate credit card with credit limit available and zero annual fees.

Besides that unpaid balance carries interest.

The idea is to de-risk by bringing their employers into the equation :)

It doesn’t need to be zero-rate as even a standard rate 15-20% card would be cheaper than this product, right?

If credit cards are payed without carrying a balance they are all 0%. So that’s at least 25-55 days depending on when the charge is made.

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