An increasing number of Americans are turning to nontraditional credit sources for quick access to cash. Every year, an estimated 15 million people access smalldollar credit (SDC) products—defined in this report as payday loans, pawn loans, deposit advance loans, auto title loans, and non-bank installment loans—to meet their financial needs. And tens of millions more rely on subprime credit cards, checking account overdrafts, and other expensive forms of credit when their access to traditional credit is limited.

There is a critical market need for consumer-focused innovations to develop high-quality financial services that could help meet this demand for short-term liquidity without the risks posed by many SDC products. To date, however, high-quality innovation in the SDC market has been limited by a lack of objective, data-driven research on consumers’ experiences and points of view regarding SDC products.

In response, the Center for Financial Services Innovation (CFSI), with support from the Ford Foundation, has undertaken extensive consumer research to examine the needs, decisions, and experiences of SDC consumers, with the goal of promoting the development of high-quality SDC solutions. As CFSI defines it, high-quality credit is affordable, marketed transparently, priced fairly, structured to support repayment without creating a cycle of repeat borrowing, and supports credit-building.

This report explores the financial needs that drive borrowers’ demand for credit—the necessary starting point for a detailed understanding of the consumer and the marketplace. It builds on previous research to more comprehensively identify and classify the major categories of financial need that form the marketplace for nontraditional small-dollar credit.