RBS to launch instant 'payday style' loans
RBS are planning to launch their own range of 'quick loans'.
"We should be able to find a way to make loans available as quickly [as payday lenders do] - in minutes, rather than hours or days or weeks," Les Matheson, RBS head of retail banking said in an interview with the Financial Times published yesterday.
People use payday lenders because they are "simple, easy and fast", Matheson said.
"In those senses banks need to do a better job."
Speedy (safer) loans
Numerous studies into why people take out payday loans have found that the majority of users do have access to alternatives like overdrafts and credit cards from the mainstream banks but choose not to use them.
According to Competition Commission research from earlier this year 78% of payday users could have borrowed elsewhere.
For 20% of the sample the only alternative was borrowing from friends or family. Or, to put it another way, 58% took a short term, high cost loan despite access to borrowing from a bank.
The finding counters the argument that payday lenders are only serving borrowers with very poor credit ratings, as has other research.
In 2011, for example, payday lenders Instant Loans Direct said that 57% of its customers were earning between £25,000 and £50,000 a year, higher than the average income, and likely to be correlated with better credit scores.
The Competition Commission study concluded that the main reason for this apparent disparity was convenience: getting a payday loan was just much easier than going to the bank or to a credit union to borrow.
If these findings are correct, the RBS plan to offer 'loans in minutes' could be a really effective alternative to the payday lenders.
Mistrust of the banks
However, convenience isn't the only reason that people borrow from a high cost lender despite access to alternatives.
A 2010 Consumer Focus study found that mistrust of the High Street banks was also sending people to other lenders.
The payday users in their study said that they were scared of racking up fees on overdrafts and credit cards.
Some also said that they were worried that borrowing from their bank through an 'open line of credit' could lead them into problem debt.
Similarly, a 2012 YouGov survey found that 93% of payday users agreed that the lenders treated them "with dignity and respect".
To offer really attractive fast loans, RBS will have to deal with the perception, and the reality, that borrowing from a bank is confusing and that the debt will be hard to clear.
Matheson: FCA is against simplification
Matheson seems aware of this problem, but less than optimistic about fixing it.
Though he's been pushing to make products more simple, he told The FT, the financial regulator has been moving in the opposite direction.
The FCA is "pushing to make things more complicated," he says.
Matheson is heading up a £1 billion reboot of retail banking at RBS.
Much of that money will go on improving online banking and on improving the legacy IT systems that have led to numerous blackouts which have left customers unable to pay at the till or take cash out at ATMs, but some of it will go into developing new deals.
We've already seen some early results of this rethink.
In March this year, RBS and Natwest banned 0% 'teaser' rates on balance transfers and purchases throughout their credit card range.
The banks said that interest free deals are "trapping people into a spiral of debt that they never pay down".
Despite this strong stance, however, the move wasn't widely covered in the press, came and went without being commented upon by rivals and hasn't been embraced by consumers.
RBS have seen a significant fall in online credit card applications this year, Matheson admitted.