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TheStreet) -- Pawn shops are moving from the seedy side of town and going online to compete with the likes of
Amazon(AMZN - Get Report) and
eBay(EBAY - Get Report).
Just as Amazon and eBay pioneered online shopping and are now the biggest players, online pawn shops are jockeying for position, hoping to get the largest slice of the pie. The pawn industry as a whole has swelled to $7 billion, helped by the combination of a stagnant economy and reality TV shows such as the History Channel's
Pawn Stars, which popularized pawning.
And nowhere is it growing faster than online. Online pawn shops are aspiring to go upscale. They cater to the so-called luxury pawn market whose customers often can put up collateral -- sometimes to the tune of $1 million.
Online pawn shops are attracting middle- to upper-class individuals (or small-business owners) who may have run into short-term liquidity problems and are looking to pawn or sell their luxury goods. Many have never stepped foot into a brick-and-mortar store.
The process is seemingly easy and can be done in the privacy of one's own home. In some cases, customers can have their money within 24 hours after the initial estimate is made.
Here's how it works: Customers fill out a form describing the item they wish to pawn. The online pawn shop then sends the customer an initial estimate and a pre-paid shipping label to mail in the item, which is insured. Once the item is more fully appraised, customers receive a final offer. The money is either wired to a customer's bank account or sent to the customer via a pre-paid debit card.
Pawngo was reputedly the first online pawn website, launched in June 2011 by a veteran brick-and-mortar pawn shop guy and backed by the same venture capital fund that got
Groupon(GRPN) off the ground. The company offers loans from $500 to $1 million based on the value of high-end luxury collateral, such as jewelry, fine watches, precious metals and gemstones, high-end cameras and equipment, and
Apple(AAPL) products and collectibles, among other things.
Interest rates on loans range on average from 3% to 6% for a three- to six-month loan, compared with as much as 25% at local pawn shops, the company says.
There's a "huge demand" for online pawning services, Pawngo CEO Todd Hills says.
"Pawning is literally the most ancient form of lending. All we've done is taken a financial service that has worked for thousands of years and brought it completely online," Hills says. "The innovation is grounded within bringing a successful business model up to speed with our technology-driven society."
>>>Online Pawn Shop Becomes Short-Term Option
As the debate over the fiscal cliff atrophies, Pawngo is preparing for an even bigger increase in business.
"Using items to secure a loan is becoming a highly popular financial service," Hills says. "I think in the next year, alternative lending services such as Pawngo's will become as common as getting a bank loan. Amazon revolutionized the traditional retail industry. EBay revolutionized the auction industry. We're hoping to do precisely that with the asset-lending industry."
Pawngo is up against a growing list of competitors, including
PawnIt and the latest addition aimed at the so-called luxury pawn market,
Ultrapawn.com, launched last week, is backed by
Atria Group, a private equity firm based in Chicago.
Like Pawngo, Ultrapawn offers loans to individuals and businesses from $500 up to $1 million by holding customers' expensive jewelry, watches, collectibles, designer merchandise and electronics with no credit check or bank statement required. The site charges interest rates of 2% to 10% a month.
Atria's George Souri says there is big opportunity in the online pawn market, but companies need to remove the stigma of the wrong-side-of-town brick-and mortar establishments.
"You have to make the customer service more analogous to a banking or luxury shopping experience and not make it like a pawn shop," he says.
Ultrapawn has a second revenue-generating business: an e-commerce store that resells items either sold to them or that have gone unclaimed by their owners. (Pawngo and Pawntique resell items through Amazon and eBay, respectively.)
Noting the large market of consumers looking for high-end goods, "we are able to bring those products to the market for less than they are currently available," Souri says, calling Ultrapawn.com a hybrid between Amazon and eBay.
Online pawn is potentially more profitable than a store because there are fewer fixed expenses involved, says Ben De-Kalo, co-founder of the seventh-month-old website iPawn. "We can definitely decrease the interest rates drastically," he says.
iPawn's average loan is $1,500 versus $150 at traditional pawn shops. Interest rates average 2.5%, one-tenth that of brick-and-mortar stores, he says.
Roughly 85% of the clients redeem their items from iPawn, says De-Kalo, a former investment manager.
"We are serving the unserved," he says.
-- Written by Laurie Kulikowski in New York.Follow @LKulikowski
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