Published: March 10, 2016 | Updated: September 25, 2020 | Posted by: Moneymax | Personal Finance
Finances will always feature prominently in the minds of Filipinos—especially those of us knee-deep in the 9-to-5 grind. There’s always something that we need to spend for, after all. It’s tough enough that we have rent, bills, groceries, cellphone load, clothes, or a host of other things to attend to. Often, though, there are myriad emergencies that stretch what we money we have to the breaking point.
Copyright: americanspirit / 123RF Stock Photo
Traditional Solutions to an Old Problem
In first world countries, people readily turn to banks when emergencies hit and they need a little extra cash. In the Philippines, the inaugural National Baseline Survey on Financial Inclusion of the Bangko Sentral ng Pilipinas (BSP) found that banks are very low on the list of institutions that people turn to for their financial needs. Topping this list are informal lenders, cooperatives, and—of course—pawn shops.
Pawnshops are very popular among Filipinos because of the easier threshold of entry. All you really have to do is own something valuable and, for most pawnshops, you’re guaranteed a loan. It has long been the go-to source for emergency funding. And why not? It’s also a risk-free source: you can’t pay, you lose your item—but nothing else. Unlike other types of loans, you can never drown in debt with a pawnshop loan.
A Newer Way of Seeing Things
Filipinos now have an alternative and more affordable choice when it comes to pawning since online pawning has been introduced in the country. PawnHero, the first of its kind in Southeast Asia and came with a lot of promises like convenience, a wider range of accepted items, and a low, fixed interest rate versus other pawnshops. The question that comes from that last bit is: how can they afford to do that?
The bread and butter of pawnshops comes from the interest on loans. What allows online iterations to charge lower is the fact that they don’t need to spend on building up and maintaining physical “shops” to conduct their business out of. Included in this expense is an investment in a site itself, security for that site, salaries for employees, utility bills, and much more—multiplied over many sites to maximize reach. Just look at how much you can save with online pawning:
The online model allows for lower monthly expenses and more leeway to work with the interest rate. So one would think that the best way to maximize profit would be to match currently existing rates, right? Except that simply pits the online model version rather than carve a unique enough niche distant from the traditional. This is especially relevant given the flimsy reputation that traditional pawnshops have earned through the years.
The Bigger Picture
Ultimately, two benefits arise from the online model of pawning. First is the allowance for much lower interests rates. Not only is this more appealing, it also allows more people to benefit from a quick loan without becoming unnecessarily burdened by heavy debt. Second, it drives this popular business model forward towards greater innovations—taking fully into account the increasing accessibility of online services via smartphones and laptops.
Read more: List of Pawnshops in the Philippines
About the Author
Paolo Aldecoa is a Content Specialist at PawnHero. This first online pawnshop seeks to provide more Filipinos with an accessible, affordable, and convenient loan for all their emergency and quick cash needs.
With a goal to help Filipinos lead healthier financial lives, Moneymax regularly publishes tips and tricks on personal finance and lifestyle, among many other topics. For more finance-related news and articles, follow Moneymax on Linkedin.