Where do consumers turn when banks reject them and payday lenders prey on them? For nearly 30 million consumers in the US and hundreds of millions globally, pawn shops provide a critical financial lifeline. Pawn shops have been around for thousands of years, offering lines of credit collateralized by real possessions. Since the 19th century, their numbers have grown, and over 12,000 are active in the US today. And like many other retail industries, pawn shops are being transformed by a powerful entity: the internet. —
One startup, PawnGuru, has helped more than a million Americans connect with local pawn shops. The driving need is convenience. Different pawn shops in the same city offer vastly different amounts of credit for the same items, because each shop has different specializations and capital available. On average, the difference between the lowest and highest offer for an item is 260%, according to a recent study authored by the company. Before PawnGuru, consumers had to go from shop to shop to negotiate, to try to bridge that difference. But consumers strapped for cash– and often carrying around valuables– struggled to go back and forth from shop to shop, in search of the best deal.
To use PawnGuru, consumers post an item from a computer or smartphone. PawnGuru then shows the item to the pawn shops in the customer’s area, who have the option to contact the consumer. Customers then show up in person to the brick and mortar pawn shop to finish the deal, secure they got the best offer they could. How big is the benefit? PawnGuru co-founder Jordan Birnholtz tells the story of a diamond ring the team tried to pawn. “There was a huge variance,” Birnholtz said to Xconomy. “Pawn shops offered us anywhere between $65 and $1,060 for the diamond ring.” Birnholtz told Forbes, “Because different pawn shops are more knowledgeable about certain kinds of items, because more efficient pawn shops can offer more money and because pawn shops have different amounts of capital."
PawnGuru’s work to help underbanked consumers get cash on the best terms has opened a new line of business too. Pawn shops are eager to buy and sell goods, not just make loans. Their convenience and safety factor makes them a compelling alternative to peer-to-peer marketplaces. “You’re going to get a little bit less than for what it closed for on eBay because in essence you’re paying for liquidity,” Birnholtz said to Cheatsheet. “You’re getting your money today, you’re reducing hassle and that’s part of the advantage a pawn shop provides.”
Shops are eager to get more customers. James Crawford, the owner of Heritage Jewelry and Loan in Houston, Texas, told Forbes that PawnGuru is "the only online marketing service for pawn shops that actually works.” For pawn shops motivated to compete in an increasingly digital economy, PawnGuru provides a much-needed flow of users.
Birnholtz emphasizes the advantages that pawn shops provide over other kinds of emergency finance, like payday lenders. “In an ideal and perfect world, would people need to get emergency loans? No, but in the real world we live in, pawn shops provide a much better alternative than a payday lender,” Birnholtz said. “I would say it really sucks to lose your Xbox, but it’s better than being trapped under thousands of dollars in fees for years.”
Banks, Birnholtz remarks, also do little for impoverished Americans with low access to credit. “We find that around three-quarters of our users either personally or have a close friend or loved one who has had a memorably negative experience with a bank. That’s 40% higher than the national average,” Birnholtz said. PawnGuru users with bank accounts were twice as likely to have been charged bank fees than the general population. The underbanked and unbanked Americans choose to use pawn shops instead of banks because they feel banks are exploitative of lower-income Americans.
For underbanked Americans, pawn shops will continue to be critical economic resources– and PawnGuru aims to help them get the best deal possible.
Release ID: 88910992