Cash Advance Services: Why Should Your Fintech Business Invest in this Customer-Centric Loan Facility?

Highlights:     

• Introduction    
• Features of cash advance facilities
• Different types of cash advance facilities
• Innovative product launches in the industry

Managing and regulating liquidity in an economy is one of the fundamental functions of any Central Bank of a country. To effectively perform this function, Central Banks devise different tools that aid them in controlling the money supply in the economy. In the past few years, owing to the disturbances caused by the COVID-19 pandemic, many countries across the globe are on the verge of a recession. This is especially true in the case of Western countries where consumption demand is on the decline. Naturally, banks and financial institutions in these countries are adopting an expansionary monetary policy to stimulate demand. As a part of this policy, economic tools that increase monetary supply are being used by the banks, one of which is cash advances.

A cash advance is a type of short-term loan offered by banks or financial institutions that is generally characterized by high-interest rates. Moreover, under cash advance services, credit card issuing banks offer their customers cash withdrawal facilities, under which customers can withdraw a certain amount of cash against the credit available to them.

How can cash advance services help customers meet their financial demands?

In recent times, cash advance services have become highly popular owing to their advantages. Traditional loans are often characterized by long approval times and complex procedures which deter many people from availing loan facilities, especially those who are looking for quick cash. On the other hand, the approval process associated with cash advance facilities is simple, and hence loan disbursement takes place quickly.

An important factor why cash advance facilities are preferred over traditional loans is that the documentation required for these loans is quite minimal. Moreover, availing of these loans is much more convenient as most banks and financial institutions offer online cash advance facilities. Thus, customers can get funds into their accounts by simply filling in an application form.

Analyzing the different cash advance alternatives available in the industry

Over the years, different types of cash advance services have been designed by banks and financial institutions to suit the diverse financial needs of individual customers and businesses. The most popular type of cash advance facility is the credit card cash advance. As mentioned earlier, credit card cash advance allows individual customers to withdraw a certain percentage of their available credit as cash. The interest rate of these loans is somewhat higher as compared to regular loans and some banks even charge an additional fee over such a withdrawal. Due to their increasing popularity, the credit card cash advance segment of the cash advance services industry is anticipated to gather an absolute revenue of $10034.38 million by 2032.

A merchant cash advance is another type of cash advance service that helps merchants and companies to avail quick loans for financing their business operations. The merchant cash advance route is generally preferred by those companies whose credit score isn’t satisfactory enough for conventional loan disbursement. Though banks check on the company’s credit score while offering cash advances, the conditions are relatively lenient. Owing to this, many businesses across the globe are opting for these loan services, thereby helping the merchant cash advance segment garner an absolute revenue of $20801.06 million by 2032.

The third type of cash advance facility is payday loans, wherein the bank decides upon the loan amount depending on the income of the individual and his/her bank statements. As the name suggests, the due date of loan repayment is aligned with the customer’s pay schedule. Some banks offer rollover options to their customers, meaning the loan repayment period can be extended; however, the borrower must pay an extra fee as a penalty.

Understanding the changing dynamics of the cash advance services industry

Owing to the rising preference for quick, short-term loans, many of the leading banks, financial institutions, and fintech companies have started offering cash advance facilities to their customers. For enhanced customer experience, they have ramped up their digital capabilities to make online cash advance facilities available to individual borrowers and businesses.

For instance, in November 2021, Amazon, a multinational e-commerce giant, in collaboration with Parafin announced the launch of a merchant cash advance facility for small and medium-scale enterprises. Parafin is a reputed growth capital provider in the US and its collaboration with Amazon will help the company expand its operations globally. After the launch, Amazon released a statement saying that the newly launched service would offer quick loans with flexible repayment plans to small and medium-scale companies, thereby helping them manage their cash flow efficiently.

Similarly, in August 2023, SumUp, a global financial technology firm, announced the launch of point-of-sale cash advances for merchants. Victory Park Capital, an investment firm, has offered a US$100m credit facility to SumUp for rolling out this cash advance service. SumUp released a statement saying that, in its initial stages, the cash advance facility would be made available in the UK and that the company plans to roll out these services in the entire Europe region in the next few years.

While these two services are for merchants and businesses, Vodacom, on the other hand, in August 2022, launched VodaLend cash advance facilities for underbanked customers in South Africa who needed quick access to funds.

To conclude, a cash advance is a novel loan facility that has gained widespread popularity owing to its advantages such as quick loan disbursement and minimal documentation requirements. Moreover, three different types of cash advance facilities have come up in the industry which help individual borrowers as well as businesses gain access to funds quickly. With many banks and private fintech companies launching their services, the industry is expected to witness a major boost in the coming period.

To understand the various aspects of the industry and chalk out different strategies for your business, feel free to contact us.

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