Understanding the new generation of payday borrowing

by Ronnie Das & Jane Brown
Posted on September 17, 2020

Imagine that with just a simple Google search and a couple of clicks on your smartphone, you could borrow 5000 EUR for anything you want. A luxury holiday or a house renovation, anyone? Very few questions, hardly any background checks. This is not a simulated scenario, but the current reality of the High-Cost Short-Term Loan industry, which is continuously evolving, always finding new ways to entice people into a spiral of debt.

During the recession in 2008, High-Cost Short-Term Credit (HCSTC) - known as ‘Payday Loans’ in the UK - was booming, popular mostly amongst consumers with limited financial resources or poor credit history. By 2012, four figure interest rates were being charged, along with additional fees.1 Lenders have been predatory 2, encouraging an unmanageable spiral of debt amongst vulnerable consumers.3, 4 An exponential growth of the market, up to 50% per year, shows how extremely popular this type of credit used to be - until the introduction of government regulations.

The times they are a-changin'

New legislation, implemented in the UK in 2015, changed the payday loan market considerably, leading to a massive decline in demand for problematic lending.5, 6 Responding to a wider call, the Financial Conduct Authority took decisive action by introducing strict financial regulations and interest caps against payday lending system. A full list of regulatory changes can be found here.7

In May 2016, Google promised to ban opportunistic payday loan advertisement.8 Since then, some industry market leaders - think of QuickQuid, Wonga and Wageday Advance - had to shut shop. There just wasn't enough demand anymore.9, 10 The number of customer complaints that The Financial Ombudsman recorded had more than tripled by the end of 2019 11, suggesting these are still deeply flawed finance products continuing to affect people’s lives in a negative manner.

Since the introduction of legislative changes, very little academic or government research has gone into understanding customers’ journey and lived experiences with payday loans in an increasingly digital world. This becomes especially important as digital identities and footprints are used to create accurate models and customer personas, leading to more accurate and aggressive marketing and sales behaviour.12, 13

Our TFI research project

We aim to understand the new tightly controlled lending system and its impact on consumer vulnerability in the age of search engines, social media and digital profiling. Following the famous ‘Moments of Truth’ model developed by Google14, we aspired to develop a comprehensive customer borrowing journey to identify the key touch points. For governments, charities and policy makers, these points are key to support people who have fallen victim to the system.

Our research objectives include mapping comprehensive customer journeys. What are the behavioural and psychological steps that individual consumers take, ranging from the first arousal stage to the post-purchase experience? How do they obtain payday loans, and what do they experience when doing so? We aim to identify the role of various digital and traditional marketing methods, and other triggering factors that strategically encourage and/or lead customers to obtain payday loans at each stage of the journey.

Also, do social information and digital footprints make people with a payday borrowing history more vulnerable to targeted digital advertisements? That's what we want to know, zooming in on the problems associated with existing government and citizen support mechanism. To offer a better support mechanism, should governments and financial authorities hone in on digital technologies?

“Payday borrowers are initially driven by impulse rather than necessity.”

Life story interviews

We started our journey mapping process with some solid life story interviews.15 We recruited our participants with a combination of convenient and snowball sampling, either through social media and offline research participation calls (advertisements), or through referrals and personal contacts, in exchange for a reward. We used a screening questionnaire to select the best suited candidates, with a history of payday borrowing in the post 2015 legislation period, and/or consumers who were currently considering obtaining a payday loan. Of our 15 candidates...

... 9 had a history of payday borrowing, but did not acknowledge any immediate need to borrow further

... 4 had an ongoing payday borrowing history and were looking to continue to borrow in the near future

... 2 did not have any payday borrowing history but they have considered taking a high cost short term loan during the course of this study.

Following the life story interview principles16, we interviewed our respondents, who live all over the UK, via Zoom, following a semi-structure topic guide. Our respondents had the opportunity to talk about various episodes of financial and debt management stories from their life experience in general. However, we did focus on their payday loan borrowing experiences, attempting to understand their attitude towards debt and money. Individual interviews lasted between 1 to 3 hours, depending on participants’ depth of life-experience with payday borrowing.

Initial observations

We are currently working on a systematic thematic analysis on the collected data. Our initial observations suggest the following:

  • Payday borrowers are initially driven by impulse rather than necessity. The debt cycle gradually becomes a necessity affecting credit history, mental health and quality of life.
  • During the early stages of adult life, lack of formal financial education plays a vital role in initial money management Such mishaps finally trickle into payday borrowing habits, due to the easy access offered by the lenders.
  • To date, payday borrowing remains an easy process. Often a simple Google search and few clicks are required to obtain money within 20 minutes.
  • There is no class barrier to payday borrowing. Our respondents came from all walks of life, with highest level of qualification noted in the form of an MBA.
  • Despite Google and Facebook’s denial to promote payday loans17, organic searches still do present versions of quick borrowing choices in the form of ads.

Catchy and simple brand names such as Lolly, Cash Panda and SafetyNet are used to capture attention during the search phase. The application process is extremely simple, making it one of the most accessible commodities in the market. Often three clicks are enough, some respondents having admitted to providing false information to be accepted.

We are working to develop a comprehensive journey map identifying the – Stimulus, Zero Moment of Truth (ZMOT), First Moment of Truth (FMOT) and Second Moment of Truth (SMOT) within the journey. Based on our overall findings we plan to develop an algorithm-based web/mobile application that can help and support people in a more personalised way, depending on the stage of their journey and borrowing cycle.

Ronnie Das is a Lecturer in Digital Marketing & Data Analytics at Newcastle University.

Jane Brown is a Senior Lecturer in Marketing at Newcastle Business School.


  1. CMA. (2015). Payday lending market investigation: Final report. Competition & Markets Authority. Retrieved from: https://www.gov.uk/cmacases/payday-lending-market-investigatio
  2. FDIC. (2006). Challenges and FDIC Efforts Related to Predatory Lending, Report No. 06-011. Federal Deposit Insurance Corporation. Retrieved from: https://www.fdicig.gov/reports06/06-011.pdf
  3. Satz, M. A. (2010). How the Payday Predator Hides Among Us: The Predatory Nature of the Payday Loan Industry and Its Use of Consumer Arbitration to Further Discriminatory Lending Practices. Temp. Pol. & Civ. Rts. L. Rev., 20, 123.
  4. Budd, K., Kelsey, D., Mueller, F., & Whittle, A. (2019). Metaphor, morality and legitimacy: A critical discourse analysis of the media framing of the payday loan industry. Organization, 26(6), 802-829
  5. Citizens Advice. (2016a, March). ‘Payday loans: An improved market?’ Part 1 – Overview of the trends in the Payday Loans market. Citizens Advice Online. Retrieved from: https://www.citizensadvice.org.uk/Global/CitizensAdvice/Debt%20and%20Money%20Publications/For%20publication%20-%20Part1-Overviewofthetrendsinthepaydaymarketreport.pdf
  6. the Money Advice Service (2020). Payday loans – what you need to know. https://www.moneyadviceservice.org.uk/en/articles/payday-loans-what-you-need-to-know
  7. Step Change (2016), Payday loans: the next generation. https://www.stepchange.org/policy-and-research/payday-loans-industry-changes.aspx
  8. BBC News. (2016, May 11). Google ban ads from Payday Lenders. BBC. Retrieved from: https://www.bbc.co.uk/news/business-36272031
  9. Lewis, M. (2020). Payday Loans, https://www.moneysavingexpert.com/news/tag/payday-loans/
  10. Boreland, H. (2020). All Alone: Payday loan firm Sunny goes into administration – how it affects your repayments, https://www.thesun.co.uk/money/11978819/payday-loan-firm-sunny-edge-administration/
  11. The Guardian (2020). Complains over new high cost loans more than triple, https://www.theguardian.com/money/2020/feb/12/complaints-over-new-high-cost-loans-more-than-triple
  12. Henman, P. (2019). Of algorithms, Apps and advice: digital social policy and service delivery. Journal of Asian Public Policy, 12(1), 71-89.
  13. Nadler, A., Crain, M., & Donovan, J. (2018). Weaponizing the Digital Influence Machine. Data & Society Research Institute.
  14. Google (2020). Zero Moment of Truth (ZMOT): Why it Matters More than Ever, https://www.thinkwithgoogle.com/marketing-resources/micro-moments/zero-moment-truth/
  15. Atkinson, R. (2007). The life story interview as a bridge in narrative inquiry. Handbook of narrative inquiry: Mapping a methodology, 224-245.
  16. Alea, N. (2018). Does the life story interview make us make sense? Spontaneous and cued redemption and contamination in life story scenes. Imagination, cognition and personality, 37(3), 271-292.
  17. Hayasi, Y. (2019). Google shuts out payday loans with App store ban. https://www.wsj.com/articles/google-shuts-out-payday-loans-with-app-store-ban-11570886730