Pioneer online pawnshop PawnHero has come to the rescue of Filipinos with urgent cash needs.
In the Philippines, only two out of 10 Filipinos have bank accounts and fewer than five per cent have credit cards. Most don’t have access to affordable credit. As such, many fall prey to loan sharks or turn to physical pawnshops, which charge high interest rates.
Launching this week, PawnHero (http://pawnhero.ph) – Southeast Asia’s first online pawnshop – seeks to solve the problem of expensive credit for ‘base-of-the-pyramid consumers’ in emerging markets.
“We provide an easy, fair, and convenient way of overcoming short-term cash needs. This is a completely new way of doing business in the industry,” chairman and co-founder David Margendorff told.
Unlike bricks-and-mortar pawnshops in the Philippines, which usually only accept jewellery, PawnHero also accepts gadgets, electronics, and luxury handbags.
All customers need to do is take a picture of the valuable they wish to pawn and in minutes, they’ll receive an estimate for their item. They can choose to have the item picked up by PawnHero’s logistics partner 2GO or to drop it off at any of the over 900 affiliated 2GO outlets nationwide. The whole process isn’t only convenient, it also breaks the stigma around pawnshops as it eliminates the need to line up at physical outlets, which can be embarrassing and intimidating for some.
“You need not have a bank account. We will provide you with a free PawnHero Card, a debit card you can use at any ATM nationwide, shop at any Bancnet-accredited merchant, or online store. Your money will be deposited to your account immediately after we have received and appraised your item. Packages are fully insured and shipping is on us,” explains Margendorff.
“When it’s time to redeem your item, you may simply contact one of our customer representatives or use your PawnHero Card to pay for your loan and the company will ship back the item to you, again fully insured and free of shipping charges,” he said.
PawnHero goes all out to give traditional pawnshops a run for their money. Because of the use of technology, it is able to offer half of the monthly interest physical pawnshops offer, according to Margendorff. Even better, he says, “there are no hidden costs and no penalties for late payments”.
Margendorff says consumers may also sell their valuables to the platform and eventually, the platform will launch an eCommerce feature to sell unclaimed loaned items at affordable prices.
“It’s a more convenient solution than eBay or OLX since you wouldn’t need to research the price for your item or create an ad or wait for a potential buyer. We’ll take care of everything, even shipments,” boasts Margendorff.
PawnHero is the first such platform in Southeast Asia, but the concept itself is already proven in mature markets like the UK and the US where online pawnshops iPawn.com, Pawngo.com, andBorro.com operate.
Emerging markets, particularly the Philippines, could be profitable for online pawnshops, if they are successful in capturing the customers of traditional outlets. Traditional pawnshops in the Philippines have grown from around 4000 in 1995 to over 17,500 today, compared to only 9000 banks, according to Margendorff. The total estimated loan volume recorded by pawnshops has grown at a compound annual growth rate of 27 per cent since 1995 to about US$1 billion in 2014. An estimated one million Filipinos visit pawnshops every day.
But with its online-only presence, PawnHero faces challenges, too. For instance, clients who pawn are likely in need of cash on the spot and the waiting time for shipping could be a hindrance. Some clients may also be hesitant to send their valuables without receiving cash right away.
Margendorff says they’re trying to work around these concerns.
“I agree that PawnHero might be less interesting for those who need money on the spot. But we’ve put a lot of hours into making the value chain more efficient to provide the best customer experience possible. To give you an example, if you inquire about a loan on a weekday morning and accept our estimate before lunch, the item will be picked up the same day, even on Saturdays. It will be delivered and appraised before midnight.
“If you think about how much time and hassle you save from travelling back and forward to multiple pawnshops to get an appraisal for your item or renew your loan, I believe we can make a big impact.
“We went out on the street to ask our future customers how they would feel about a delayed payment. We were amazed by the result. Out of those who went to a pawnshop before, 63 per cent feel comfortable with the delayed payout, while 67 per cent feel safe with 2GO picking up their items. 2GO already has a strong brand in the Philippines. Once items are picked up, they are kept in one secure storage facility, and in the unlikely event that an item gets lost or stolen, PawnHero will pay for the damage – up to the initial estimate or agreed loan amount.”
Margendorff has a strong background in the Philippine financial system. He was among the first on the ground to build financial comparison site MoneyMax in the Philippines. During this stint, his team met with banks and learned how only a small portion of the population had access to credit cards and other banking products.
He began to wonder: what was the immediate option for Filipinos?
“I started researching and found that 72 per cent of the population went to a pawnshop before. Pawnshops outperform the number of banks in the country. That was when the idea for PawnHero was born.”
He got seed investment from Hatchd Digital, led by angel investors Manny Ayala and Nix Nolledo, and then worked on building the platform, growing the team, incorporating, and applying for a pawnbroker license from the central bank. Its partner 2GO also invested in the start-up.
Margendorff says they’re trying to get more investors on board. Receiving their license in January was a key to raising more funds.
“We spoke to VCs like IMJ, Golden Gate Ventures, Softbank, and Kickstart – just to name a few. All of them really liked the concept but without the license and a single customer, it was too early for them to invest. Now that we are just about to launch, we can continue speaking with them and others.”