Zestcash, which started lending in 2010, uses technology to gather information about applicants and make better informed decisions about them. By doing so, it says, its customers have lower default rates, so Zestcash doesn't have to collect such big penalty fees.

Borrowers must pay back typical payday loans in two weeks, but Zestcash provides loans ranging from three months to eight months, Merrill said. Borrowers pay both principal and interest with each installment.

Zestcash says it's flexible with late payments. If borrowers request more time to pay, it tries to accommodate them, even allowing skipped and partial payments.

"As long as a borrower is in touch with us, we don't consider them in default and go to great lengths to work out a payment arrangement that works for them," he said.

Zestcash loans can cost borrowers half as much as a typical payday loan from another vendor, according to Merrill.