Loan arranger
With the upcoming launch of a new system letting you transfer money to family and friends via a mobile phone, Vicky Shaw looks at how the value of the nation’s small, informal ‘IOUs’ quickly adds up
Sending money to family and friends is about to become a whole lot easier; forget cheques or lengthy online log-ins, all you need is a mobile phone and a current account.
A new payment service Paym (and pronounced “pay em”), preparing to launch later this month, eventually aims to link up every current account in the country with a phone number, letting you send cash to someone else simply by using mobile phone numbers, not a person’s bank account details.
Similar mobile payment services already exist, but the Payments Council, which is overseeing the initiative, says this is the first industry-wide collaboration in the UK which could potentially link up every bank account with a mobile number – by the end of the year, they say around 40 million people could be using the service.
But why do we need it? Do we really make small payments and loans to friends and family that often?
Apparently, yes.
Several centuries after William Shakespeare warned us in Hamlet to “Neither a borrower nor a lender be”, research by the Payments Council estimates that across the UK, we advance a total of £12.6 billion in informal ‘IOUs’ every year to help loved ones and acquaintances out financially, and that every adult lends around £255.81 in informal IOUs each year – that’s £4.90 each, every week.
People typically approach their family for “practical” loans, and more than half (56%) of loans handed out are estimated to be between family members, with a large chunk of this cash coming from the “bank of mum and dad” for some “substantial” purpose, such as to help out with bills, household costs and debt
“Leisure” related IOUs, however, are more common between groups of friends, including informal spending on drinks, meals and transport fares. This “treats and favours” culture was particularly common among younger people, with nearly two thirds (62%) of 18 to 24-year-olds saying they have lent money to close friends for a drink in a pub or a bar.
Although friends seem very willing to lend to each other, larger sums of money tend to be handed out between couples – some 44% of those who said they’d lent their spouse money said they had handed them over £200 in the previous six months.
This is all very well, and very generous, but the trouble comes over how and when these informal, and sometimes seemingly insignificant, loans are paid back – if they are paid back at all.
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