May 9, 2022
Pawnshop industry quickly recovers post-COVID-19, and keeps digitising
With the easing of COVID-19 restrictions, the pawnbroker loan segment saw rapid growth in the first quarter of this year, according to the Q1 figures of Latvia’s biggest pawnshop network Banknote. In the first three months of 2022, Banknote, a pawnshop network owned by AS DelfinGroup, issued 3.6 million euros in pawnbroker loans: a 30% increase compared to the same period last year. The pawnshop market is expected to continue growing, with four leading tendencies defining its expansion in the coming years: market consolidation, digitisation, changes in standards, and the European Green Deal.
Prior to the pandemic and regulatory changes in licensing, Latvia’s pawnshop market was very stable, with small but consistent growth. COVID brought isolation requirements and restrictions on various types of customer services. Pawnshops took a big hit as a result, as these limited the availability of pawnbroker loans, which were traditionally a service transacted in-person. The new situation and new market trends pushed businesses to seek new ways to provide their services to people. As an example, AS DelfinGroup introduced a completely new feature, making it possible to determine the value of the collateral remotely online. This means that people can get a pawnbroker loan more quickly and easily, because they do not have to go to the pawnshop for an appraisal of their collateral.
Another major event for the pawnshop market was the increase in the annual licensing fee, which more than tripled, from 14,000 to 55,000 euros, leading to a reduction in the number of small pawnshops in late 2020 and in 2021. According to predictions, the consolidation of the pawnshop market will continue this year, with smaller players forming consortia and merging into bigger groups. In the long run, this will be a benefit to the average person, leading to an improvement in the quality of the services. AS DelfinGroup also serves an example of this, completing its takeover of AS Moda Kapitāls, which owned the fourth largest pawnshop network in the country, early this year. The takeover of AS Moda Kapitāls strengthened the leading positions of AS DelfinGroup outside of Latvia’s capital. Currently, five major market players operate in Latvia, with the total number of pawnshops exceeding 200. AS DelfinGroup holds the leading position, with 93 Banknote pawnshops.
Pawnshop businesses that can bring innovations and digitise are expected to grow. The industry’s biggest and most competitive players will keep developing new services to boost their share of the market. AS DelfinGroup enjoys a major advantage over its competitors in this regard: because of a successful IPO, the company has access to cheap capital that it can actively invest in improving its current services, and implementing new ones.
Pawnshops need investments to continue pursuing a general change in standards, which Banknote has been actively working on for the past ten years. People also increasingly value the speed at which they can receive a loan. This is why pawnshops need to invest in building up the professional skills of their appraisers, and in developing easier-to-use and less time-consuming services. For example, Banknote has already reduced the time it takes to receive the money as part of a loan down to five to seven minutes, given the absence of problems in the collateral brought by the client.
There is also a need for investment in digital and distance services. All pawnshop services used to take place in person, but as technologies and the public’s habits move forward, so arises the need for providing these services online. During COVID, Banknote’s online shop became its fastest-growing retail channel. A similar trend is visible in the field of pawnbroker loans, spurred by the ability to determine the value of collateral online, which obviated the need to go to the pawnshop to find out the amount of the potential loan. Pawnshop’s specialists will use their years of expertise to do this online, based on a description and photograph of the collateral.
The European Green Deal also promises a bright future for pawnshops, as among other things, it calls for the manufacture of more sustainable products with a longer lifecycle. This will multiply the service life of manufactured products, and promote their resale. The number of people with an eco-friendly mentality will also rise, and they will be more open to reusing pre-owned goods, buying, selling, or pawning them. Put together, digitisation, distance pawnshop services, and green thinking are expected to promote the interest in pawnshops among the younger audience. Currently, the age groups most commonly using pawnshop services are 30 to 39 (29.6%) and 40 to 49 (23.5%).
More than a fifth of Latvia’s population use pawnbroker loans. For example, more than 300 thousand people have used Banknote’s lending services. Pawnshop clients come in two major groups. The first are those who need a short-term loan, and bring, for example, a used product they own to the pawnshop in return for a loan. The second group are people who buy and sell products without using the lending services. One can divide this group into two subgroups: clients who, for financial reasons, ‘exchange’ a thing they no longer need for money, and those who are progressive and eco-friendly people who care about efficiency and the environment. They see Banknote as an intermediary that helps extend the service life of used products. On the one hand, this is easier than trying to sell things on social media and various websites, because it saves you time and the need to answer endless calls from potential buyers.
On the other hand, this offers more safety and reduces the chance of falling victim to fraud, because there is no need to reveal your phone number or address to people you do not know. Meanwhile, buyers can be certain about the quality of the product, because the pawnshop inspects it before selling, and the buyer gets a receipt and a warranty. They do not have to worry that a mobile phone or computer they buy refuses to work. You can return a product you buy in a pawnshop under the same conditions as the things you purchase in any other shops.
People largely use pawnbroker loans as a type of no-risk loan, to cover their essential and medical expenses, to make smaller and larger purchases, and for investing in their business and their future. For example, many people use golden, silver and other valuable objects as a safety cushion that is not something they would sell the moment the necessity for such arises. If they unexpectedly need additional money, it is much smarter for them to use these objects as collateral for a loan. This gets them to the money, but does not immediately remove the safety cushion that could be useful in the future. This is why better-off members of the public who have various valuables are regular users of pawnbroker loans. Precious metal prices tend to rise in the long run, and they have always been considered a good way to invest.
Pawnbroker loans offer a good alternative to other bank and non-bank consumer loans, because they do not create any additional liability for the borrower. Statistics show that some 70% of the property used as collateral in these loans returns to its owners sooner or later. Thus, about 30% of these objects are later offered for sale. Pawnbroker loans amount to an average of 74 euros, even though their typical range is very broad. It could be a few euros for a small piece of jewellery, or a few thousand, for an expensive TV or computer.
About AS DelfinGroup
AS DelfinGroup is a licenced technology-based financial services company that was established in 2009 and operates under the brand names Banknote and VIZIA. The company continuously develops and offers consumer and pawn loans, loans developed for senior citizens, Buy now pay later loans (BNPL loans), as well as sale of pre-owned goods both online and at more than 90 branches across Latvia. On average, 35 thousand loans are issued every month and serviced by the professional team of more than 270 AS DelfinGroup employees. The company has a total of over 400,000 registered customers. Since 2014, AS DelfinGroup has been known on the Nasdaq Riga Stock Exchange as a bond issuer and since 2021 as a share issuer on the Baltic Main List. The company’s IPO in 2021 attracted almost 6000 new shareholders. The company regularly pays dividends to its shareholders. In 2021, the company's net loan portfolio grew to EUR 43 million, while its EBITDA reached EUR 10.2 million, with profits before income tax for dividends EUR 5.2 million. The company’s sustainability is based on focused corporate governance, fintech innovation, responsible lending, financial inclusion, and facilitating the circular economy. The company has been profitable every year since 2010.
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