How Can You Protect Your Payday Loan Business From Fraud?

Payday loan businesses are immensely profitable. With an ROI (return on investment) reaching a whopping 34% as compared to traditional loans, there are very few business models that have such returns. No doubt you are into payday loan businesses. But here’s the thing.

Where lies opportunity, so does the threat.

With the rise in demand for payday loans in the market, there is a steep rise of scammers trying to launder money.

What follows is heavy short-term losses to your businesses but can wreak long-lasting havoc on your business’s legitimacy and authenticity. This makes imbibing certain protection policies and regulations for safeguarding your business from potential malpractices of the landscape critical.

In an attempt to protect your business from fraud, we have discussed seven strategies to safeguard your payday loan business from every scammer in 2021.

Top 7 ways to protect your payday loan business from scammers

One of the key points where any payday loan business falls into the trap of scammers is when they try to streamline loan processing even before they get to know their customers.

Yes, you heard it right.

Never be in a rush to get the money that you forget little details. It is those small details that will make or break your business. Especially in a time when scammers are becoming more intelligent every day, you need to create protection filters at every step without tampering smooth processing of your business operations.

Scammers come in all shapes and sizes. This means their tricks vary significantly. But some are more common than others — deposit before withdrawal, insurance, no organization information, threat, email, call scams, and so on.

This makes abiding by certain transaction protocols critical for safe and authentic business operations. The following are the top seven considerations for your borrower legitimacy checks in 2021.

1. Get income details

Having comprehensive income information is the first element to establish trust between you and your customers. If you fail to find legitimacy here, you might be directly walking into a trap.

This is what the lender is going to base the amount on. Typically, it’s the customer’s monthly income that they will report. This is worked out from their paycheck or by their prior pay history. Again, be aware of the payment history.

Income is usually based on the last few income statements the borrower has reported. If there’s a problem with one of those pays, it is a red flag.

2. Know your customer

It is critical to know who your customer is. More than often, payday loan fraud identity theft is common in payday loan scams.

Getting hold of monthly income is a good start here. But that does not keep your problems at bay. Try to get a hold of a few more details about your borrower. These could include information like the borrower’s employment status, how many dependents they have, or their net worth.

You can even ask for basic social information. For example, they may want to know if the borrower is married, if they own a house, or if they have a credit card. If they don’t ask though, and it’s not stipulated, they’re going to ensure that you have at least one of these in place.

Yet another critical process that you should conduct here is integrating a background check. Knowing if your borrower has been involved in any kind of criminal offense at any point in time is key information you should consider before processing the money.

3. Track loan amount

Check on your customer before processing any loan amount. Validating your borrower is the main thumb rule in this payday loan business. Take a look at the number of months past their last pay period and your interest rate.

Share your business values, how you work? What is your process? Be clear with the details.

Guide your borrower that there is certain information like OTP, bank-sign-in identification, personal information, and passwords that they will never ask for. This means if they are getting calls or messages asking for the same they should never share it.

4. Fetch credit history

Analyzing your customer’s credit history is a huge asset when validating the authenticity of your potential leads especially when it is a large amount.

This indicates the monetary health and capacity of your customers to repay your loans. This way you can ensure you do not walk into bad loans.

Will they be able to pay such a huge amount? What was their past loan history? Were there any gaps in the repayment history? Are they in a situation of repayment? All these questions can help you find out if the potential borrower is a good investment of your resources: time and money.

5. Get a banking background

As payday loan business owners checking on your borrower’s basic banking details is a must. In fact, working with a bank is a great way to validate the legitimacy of your borrower. Going for a cash transaction can be the worst move here.

Nor can you validate the authenticity of your borrower but won’t be able to understand the capacity of your borrower to repay the loan amount. As a standard procedure, the total fund of the last 3 months’ statement of your borrower must always be more than the interest that they need to pay you on a monthly basis.

More than often, you would find scammers trying to push the process towards a cash transaction. But following the above procedure can successfully keep them at bay.

If they do have a checking account, the lender should usually see that they have a debit card in their account. If they use a debit card to make your loan payments, this reduces the amount of time the lender has to look for customer identity. Saves your time plus everything is going legal.

6. Conduct face-to-face conversations

It is critical you know who you are lending money to. Hence it is critical to have a face-to-face conversation. No matter whether it is at your office or at a zoom meeting, getting into a conversation with your lender helps build legitimacy around the transaction.

But the question is how to address this right? What you can discuss with your borrower?

The best way to achieve this level of communication is to have face-to-face communication. Ask why they are seeking a payday loan? Know about their family member and their earnings. Get a glimpse of their financial life.

But while you do so, ensure to tell them about yourself, who you are, and what you do? It is critical that you make them comfortable in the process.

7. Educate your customers

Your customers can not only help you turn your business profitable but ensure it is safeguarded from potential threats and scammers. But to do this, you need to invest resources in educating your customers.

Let them know about the landscape and how scammers can create damages to your customers. Talk to them about identity thefts and empower them with actionable measures to fight them. You can even incentivize your customers for bringing potential risks at your notice.

Further, you can talk about the potential information that you as an organization ask your users and to be aware of cyberattacks. Ensuring that your customers know what to share and what not to will not only keep you safe but establish you as an authentic business. Here are a few considerations that you should be asking as a business.

  • a). Government Issued ID: Any government issue identity proof can validate who they are.
  • b). Social Security Number: SSN number is a numeric identity for US citizens. The main purpose of this number is to track down income and provide benefits.
  • c). Proof of income: For getting hold of income proof there are many options to choose from such as pay stubs, tax returns, 1099 forms, bank statements, and more.
  • d). Active checking account: It’s a type of bank account that lets you do easy deposits and withdrawals.
  • e). Personal check: These are slips on an individual basis. This paper is issued by a bank that contains details like account number, date, payee, and signature.
  • f). Valid and active email address: Checking the validity and availability of an email id is a great way to ensure you reach the right person. If your mail is not getting delivered chances are you are walking into a trap.


Creating a successful payday business and sustaining it is all hard work.

But with a little strategic planning and customer help, you can make this a success. The above tactics are sure to guide you to your launchpad but to see the maximum results you would have to keep your customers at the heart of your business.

Keep the feedback loop open and understand how to solve their problems. You would reach the most efficient and creative ideas to protect your business faster than you think.

So now when you know how to safeguard your payday loan business, there is just one question to answer.

How are you planning to protect your business from potential threats?

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