PawnHero, a mobile pawn shop service startup company, is disrupting the alternative finance status quo and working to revolutionize the way consumers in the Philippines engage with their pawn shops.
In the U.S., pawn shops are a cultural touchstone for quick cash grabs; short-term, high-interest loans; and resold products — not to mention dramatic fodder for novelty reality television.
While the pawn shop industry serves those functions in the Philippines, they also play the key role of financial institutions for a number of Filipinos — potentially the majority of people in the country.
Large numbers of Filipinos are underbanked or unbanked. Official analysis from the government estimates that 15 percent of the population of the Philippines is unbanked. Other studies have found that rate to be closer to 69 percent, with only two in 10 of the poorest 40 percent of the population having bank accounts.
Additionally, just 4.4 percent of the population ever borrows from banks. Instead, the unbanked citizenry of the Philippines turn to pawn shops to acquire cash and loans in person and often at the classically predatory pawn shop interest rates.
Data from the International Data Corporation suggests that while the Philippines is underbanked, over 30 percent of Filipinos owned smartphones in 2015. In fact, they found the Philippines to have one of the fastest growing smartphone markets in the world.
Enter PawnHero, which uses a mobile app to help finance those excluded from traditional banking systems. Its digital pawn shop rolled out in the Philippines in 2015.
PawnHero brands itself as an alternative to the “intimidating and embarrassing pawnshop experience of the past” and also promises interest at half the rate offered at traditional pawn shops. Users can access the app to list items — anything from electronics to jewelry — to sell or to use as loan collateral.
PawnHero appraises the merchandise and arranges free pickup by company couriers. Borrowers receive PawnHero cards that link to their mobile accounts, which are credited once the transaction is complete. The cards can then be used as debit cards at ATMs.
David Margendorff, founder of PawnHero, was quoted as saying, “PawnHero charges the lowest interest rate in the country, provides a fair appraisal and accepts a wider range of collaterals — that is a very solid value proposition — and as a result helps a lot of people. We literally put a pawn shop in 40 million pockets.”
PawnHero only runs in the Philippines for now but could expand regionally to other countries with significant underbanked populations coupled with an increasing rate of mobile penetration.
East Asia and the Pacific region are estimated to have an overall unbanked population of 24 percent, followed by is sub-Saharan Africa, with an average 17 percent unbanked population.
One regional target in sight is South Asia — the region is estimated by the World Bank Group to the highest percentage of unbanked customers worldwide. Some 31 percent of adults were unbanked in 2015.
Some parts of South Asia are also seeing record mobile device adoption. India, for instance, surpassed the U.S. this past summer to become the nation with the second largest smartphone market worldwide — with over 220 million mobile subscribers and counting.
In this way, India could represent the enticing expansion opportunity for PawnHero’s mission to aid a greater number of underbanked global citizens with their finances.
For more news, trends, research and analysis on alternative finance and payday lending, take a look at the PYMNTS’ eBook “Payday Lending’s Long, Strange Trip Through 2016.”