What Determines the Demand for Online High-Cost Credit? Evidence from Loan Applications from Digital Credit Intermediaries

Abstract Digital credit intermediaries have expanded access to consumer finance for new borrowers. These intermediaries are a major consumer policy concern as their remuneration models and, often, unregulated activity may cause consumer harm. Drawing on logistic and Poisson regression analyses of a unique commercial dataset of 1.2m UK subprime applicants generated by online lead generators, this is the first paper to shed light on the characteristics and behaviour of applicants on a key digital credit intermediary in UK subprime consumer credit markets. The analysis reveals that applicants are young, low-income, employed consumers in rented accommodation without children. The applicants rely on high-cost consumer credit to sustain and smooth consumption. Most consumers engage in repeat applications and have outstanding consumer debt at the application stage. Repeat applications increase with age until applicants reach retirement age. These patterns point to significant financial vulnerability, as applicants either lack access to lower-cost credit or continue to choose high-cost options despite alternatives. The findings raise concerns about the social value of credit demand originating from online lead generators. The paper makes recommendations for consumer policy and regulation to improve monitoring and outcomes for applicants on digital credit intermediary platforms.