Taking a page from the payday lending playbook, a San Diego start-up called Spotya is offering short-term loans for Internet shoppers.
Spotya will lend consumers up to $800 for as long as 30 days; the money can be used anywhere. It has also assembled an online mall where consumers can purchase everything from coffee makers to camping gear to cruises.
In addition to charging fees and interest on the loans, the company receives a referral fee whenever people make purchases at the merchants listed on its site.
Spotya president Sara J. Lubben said e-commerce sites have noticed a spike in sales around the 15th and at the end of each month - paydays. "There are people who are waiting to purchase until they get their check."
The loans are similar to the kind offered by payday lenders, Ms. Lubben said, but the rates - a 5% fee plus annual interest of 24.3% to 30.4% - are much lower. Her company operates under a California finance lenders license.
Payday loans, whose annual interest rates can top 100%, are typically guaranteed by a personal check that the lender agrees not to cash until a pre-determined date, usually the borrower's payday.
Customers apply for a Spotya loan by filling out an online form and faxing the company a copy of a recent bank statement. Once the loan is approved, Spotya will send an electronic funds transfer to the borrower's bank account or put the money on a prepaid debit card. Spotya will mail customers the card, or provide them with the card number online, so they can go shopping immediately.
It takes about an hour for Spotya to process an application and transfer the money to a bank account, or two hours to generate a debit card account number. It bases its approvals on the customer's bank account history, Ms. Lubben said.
To guard against fraud, it uses five companies to validate the account, verify the borrower's personal information, investigate the borrower's checking history, and look for other outstanding short-term loans to the customer. Borrowers must have had their checking account for at least three months and must receive direct payroll deposit.
Spotya looks at a customer's bank records to determine when they receive payroll deposits, and on that day debits the account for the amount of the loan and the fees.
Testing began in January, and the loan service went live July 11, Ms. Lubben said. So far her company has received almost 100 applications and made 50 short-term loans with an average value of about $350. Spotya aims to lend $100,000 in the fourth quarter, $300,000 in the first quarter, and $2.5 million all of next year.
Dan Schatt, a senior analyst for the Boston market research firm Celent Communications LLC, said Spotya's strongest potential competitors are eBay Inc.'s PayPal Inc. and Google Inc. of Mountain View, Calif., which operates the froogle.com shopping site and is developing a payment system.
The license Spotya is using is more flexible than the type used by payday lenders, Mr. Schatt said.
California's payday lending law "just applies to deferred-deposit transactions, and then you can only defer a maximum of a $300 personal check for 31 days, and you can only charge 15% of the value of the check, maximum," he said. The law also requires the loan paperwork to be signed in-person.
In contrast, the finance license has no lending cap, and the loans can be originated online, he said.
"It's a little more detailed than the payday lending law, but it gets them a lot more flexibility," he said.
Ms. Lubben said Spotya's target market is people who want to make purchases but do not have, or do not want to use, credit cards, as well as people whose purchasing habits are tied to their pay cycle. Some purchases, such as an online auction, can be too urgent to wait, she said.
The online tracking company NetRatings Inc. of New York, however, said its figures do not support Ms. Lubbens claims that online shopping is tied to payday. Its Internet traffic figures for June showed no significant increase in visitors to online retailers on the 14th or 15th, or on the 29th or 30th. However, NetRatings monitors only the number of visitors; it does not monitor how many visitors make purchases on any given day.
Spotya is designed to be "a shopping and shopping-related services portal," Ms. Lubben said. It offers things such as free e-mail accounts in the hopes that customers will visit the site frequently, and it plans to add news and weather reports to the site soon.
Her company also markets itself through other companies' Web sites. For example, to help shoppers pay for jewelry, freezediamonds.com has a Spotya link on its home page.
Spotya is working with Pricegrabber.com LLC, which operates an online comparison service, and LinkShare Corp., which provides fees for linking to participating online merchants. The Spotya site includes pages with links to individual merchants and products.
