PYMNTS Intelligence released a new report this week. Two-thirds of American consumers are living paycheck to paycheck. The share of consumers living this way out of financial necessity jumped from 29% to 40% in just one year.
If you're in the lending industry, this matters. Payment infrastructure has become critical in ways it wasn't before. The margin for error in our industry has narrowed dramatically, and the systems we build to collect payments directly impact whether our borrowers can stay financially afloat.
I've spent my career working in lending and payments. The economic pressures facing American households show up in every failed transaction, every overdraft fee, every customer who falls behind because the timing of a payment pull didn't align with the timing of their paycheck.
According to the research, fewer than half of consumers feel confident they could absorb a $1,000 surprise expense without falling behind on other bills. Among those living paycheck to paycheck and struggling to pay bills, only 22% expressed that confidence.
A car repair. An emergency dental visit. An unexpected medical bill. A broken appliance. A veterinary emergency. More than half of consumers experienced at least one large unexpected expense last year, and paycheck-to-paycheck households experience them the most.
When your borrowers are this financially stretched, every friction point in your payment process matters. A failed ACH transaction doesn't just cost you a retry fee. It can cascade into overdraft charges, late fees, and damaged relationships with customers who are already running on empty. What starts as a $35 NSF return can quickly snowball into $100 or more in combined fees when you factor in the bank's overdraft charge, your return fee, and any late payment penalties.
For a borrower who's already struggling to make ends meet, that cascade of fees can be the difference between staying current and falling into a cycle of delinquency. Once that cycle begins, it becomes exponentially harder to break. The borrower who might have successfully completed their loan with proper payment timing instead becomes a charge-off statistic, a loss for your business and a financial setback for them.
I've seen this pattern play out hundreds of times in my years working with lenders. A borrower with every intention of repaying their loan gets hit with one failed payment at the wrong time, and suddenly they're underwater. The fees pile up, the calls start coming, and what could have been a straightforward loan repayment becomes a collections nightmare for everyone involved.
The PYMNTS data shows how your customers handle emergencies varies dramatically based on their financial situation. Consumers who aren't living paycheck to paycheck tend to draw on liquid funds or non-revolving credit. Those struggling financially rely heavily on revolving credit, alternative financing, and last-resort measures like payday loans.
Many of your borrowers are already juggling multiple financial obligations when they come to you. They're making tough choices about which bills to pay and when. They're prioritizing rent over utilities, car payments over credit cards, groceries over subscription services. Every dollar has a destination before it even hits their account.
They need payment solutions that work with their cash flow reality, not against it. Payment systems that assume borrowers have cushion and flexibility set them up for failure. Systems that acknowledge the tight windows and competing priorities our borrowers face give them a fighting chance to succeed.
Take the typical borrower in the small-dollar lending space. They may have income from multiple sources: a primary job that pays biweekly, a side gig with irregular deposits, and occasional overtime that's unpredictable. Their expenses are similarly varied. Rent due on the first, utilities staggered throughout the month, car insurance quarterly, and unexpected needs popping up without warning.
A payment pulled on the 15th when their paycheck doesn't hit until the 17th creates a problem. A debit card transaction attempted when their account balance is $12 lower than expected because of a small subscription they forgot about creates a problem. This is the everyday reality of lending to consumers who are managing their finances with no margin for error.
At IPG, we've always believed that payment processing is a strategic advantage, not just a back-office function. In an environment where 40% of consumers are living paycheck to paycheck out of necessity, the stakes are even higher. The gap between lenders who get payments right and those who treat them as an afterthought is widening.
Understanding when your borrowers get paid and aligning your payment pulls accordingly is essential. Payroll connectivity tools like Pinwheel can help you optimize timing based on actual deposit data rather than guesswork. Instead of relying on borrowers to tell you when they get paid (information that's often approximate or outdated), you can verify deposit patterns directly and schedule payments to coincide with when funds are actually available.
This does more than reduce NSF returns. It respects your borrowers' cash flow reality and builds trust through predictability. When borrowers know their loan payment will come out right after their paycheck lands, they can plan accordingly. When payments feel random or poorly timed, they lose confidence in the lender and start to view the relationship as adversarial rather than supportive.
Payment flexibility matters. When someone is stretching every dollar, having options (whether that's debit card, ACH, or other methods) can make the difference between a successful payment and a default. Different payment methods have different characteristics. ACH is typically lower cost but takes longer to settle and can result in NSF returns days after initiation. Debit cards provide real-time authorization but may have higher processing fees.
For borrowers living on the edge, the ability to choose their payment method, or even to switch methods when circumstances change, can be crucial. Maybe they started the loan with ACH payments when they had a stable primary account, but their situation changed and now they'd rather use a debit card tied to a secondary account where they've set aside loan payment funds. Flexibility can be a lifeline for many borrowers.
Failed payments cost everyone. Every declined transaction or NSF return creates a ripple effect. For your business, it's lost revenue and operational costs: the fees for the return, the cost of customer service calls, the increased risk of eventual default. For your borrower, it's often additional fees they can't afford, plus the stress and anxiety of knowing they've fallen behind.
Smart payment routing and orchestration through platforms like IXOPAY can significantly reduce these failure rates. By intelligently routing transactions based on historical success patterns, account characteristics, and real-time data, you can avoid many of the failures that plague lenders using less sophisticated payment infrastructure. The technology exists to dramatically improve payment success rates. The question is whether lenders are willing to invest in it.
Your payment data contains insights about borrower behavior and risk that many lenders never tap into. When you can see patterns in payment timing, method preferences, and success rates, you can make better decisions and help your customers succeed. Which borrowers consistently pay successfully on their first attempt? Which ones need reminders before payment pulls? Which accounts show warning signs of deteriorating ability to pay?
This data helps with more than collections and risk management. It's also valuable for product development, customer segmentation, and building long-term relationships with borrowers. The lenders who learn to read their payment data are the ones who can anticipate problems before they become crises and proactively work with borrowers to keep them on track.
When lenders talk about payment processing costs, they typically focus on transaction fees: the per-transaction costs charged by processors, networks, and banks. But the real costs of poor payment infrastructure are far more significant and far less visible.
Every NSF return requires follow-up. Rebilling attempts, customer communications, account status updates, and often manual intervention to resolve issues. These activities consume staff time and create operational complexity that scales directly with your failure rate. A 2% improvement in first-attempt success rates can translate to meaningful savings in operational costs over the course of a year.
Then there's the customer relationship cost. Every failed payment is a negative touchpoint with your borrower. It's an opportunity for the relationship to sour, for trust to erode, for the borrower to disengage from the repayment process. In the worst cases, it's the beginning of a spiral toward default that could have been avoided with better payment timing or more flexible options.
The regulatory and compliance dimension adds another layer. Payment processing in the lending space is increasingly scrutinized by regulators concerned about consumer protection. Lenders who can demonstrate thoughtful, borrower-friendly payment practices are better positioned to navigate the evolving regulatory landscape. Those who can't may find themselves facing enforcement actions, consent orders, or reputational damage that far exceeds any savings from running a bare-bones payment operation.
Building payment infrastructure that acknowledges the financial reality facing today's borrowers starts with recognizing that payment processing is a core competency to be developed, not a commodity function to be minimized.
Invest in data. You can't optimize what you can't measure. Lenders need visibility into their payment performance across every dimension: success rates by payment method, by day of week, by time of month, by customer segment. They need to understand where failures are occurring and why. Only with this foundation can meaningful improvement begin.
Embrace technology that enables flexibility. Legacy payment systems built for a different era often can't support the kind of dynamic, borrower-centric payment strategies that today's environment demands. Modern payment orchestration platforms allow lenders to route transactions intelligently, offer multiple payment methods seamlessly, and adapt quickly to changing conditions.
Think about payments as part of the borrower experience, not just the back-office operation. How do your borrowers feel about the payment process? Is it clear and predictable, or confusing and anxiety-inducing? Do they have control and options, or are they at the mercy of inflexible systems? The answers to these questions matter for customer retention, referral behavior, and ultimately portfolio performance.
Partner wisely. No lender can build all the payment capabilities they need in-house. The question is which partners to choose and how to work with them effectively. Look for partners who share your commitment to borrower success, who can provide data and insights to improve your operations, and who will evolve with you as the industry changes.
The PYMNTS report paints a picture of American consumers under increasing financial pressure, with fewer buffers to absorb life's inevitable surprises. For lenders serving this population, payment infrastructure has become about building relationships that can weather financial storms.
Lenders who treat payment processing as a competitive advantage rather than a cost center will thrive in this environment. They'll invest in technology and partnerships that reduce friction, improve success rates, and create flexibility for borrowers who need it most. They'll use data to anticipate problems and proactively support borrowers before small issues become big ones.
Their success is inextricably linked to their borrowers' success. When your borrowers can make their payments successfully, on time, without cascading fees and financial stress, everyone wins. When payment friction causes good borrowers to fail unnecessarily, everyone loses.
American households are under unprecedented pressure. The lending industry's response to that pressure will shape outcomes for millions of families. By building smarter, more flexible, more borrower-centric payment infrastructure, lenders can be part of the solution rather than part of the problem.
Because when your borrowers are running on empty, every transaction counts.
Debra LeJeune is the CEO and Founder of Integrity Payments Group, a payment processing consulting firm that serves as an agnostic advocate for lenders and financial services companies. Connect with her on LinkedIn or visit IPG at Booth 210 at Lend360.