The advent of the digital revolution has redrawn the boundaries of financial services, fundamentally reshaping the landscape and creating fertile ground for the emergence of online payday lenders. This subset of the fintech industry, often referred to as 'alternative lending', has burgeoned over the last decade, offering financial solutions to those underserved by traditional banking mechanisms.

Online payday lenders, as the name suggests, are businesses that offer short-term loans, generally repayable on the borrower’s next payday. These lenders largely operate on the internet, making their services conveniently accessible anytime, anywhere. For those grappling with temporary financial crises, these loans can indeed prove a port in the storm. However, they also come with their set of challenges, most notably high-interest rates and opaque terms and conditions, which have attracted significant scrutiny from regulators and consumer rights advocates.

Recent data analysis has shed light on the industry, illuminating both its growth potential and accompanying vulnerabilities. The average size of these loans is relatively small, typically a few hundred dollars, which appeals to those seeking rapid, short-lived financial support. Yet, the Annual Percentage Rate (APR), a standard metric representing borrowing costs over a year, often exceeds 300% for these loans, exhibiting their steep pricing.

Utilizing economic theory, particularly the principles of supply and demand, this high pricing can be attributed to two distinctive attributes of the industry. First, the risk profile of the borrowers who, due to their poor credit history or lack of collateral, represent a high default probability. Second, the operational costs incurred by lenders in processing these small-ticket yet high-volume loans. Together, these factors exert upward pressure on the cost of these loans, driving the APR to astronomical levels.

Nonetheless, the industry continues to expand, propelled by the financial exclusion of significant demographics from mainstream banking. According to a Federal Deposit Insurance Corporation (FDIC) survey, nearly 25% of U.S. households are either unbanked or underbanked, underscoring the magnitude of the problem. This exclusion is primarily caused by stringent requirements of traditional banks, such as minimum balance or income levels, which a sizable proportion of individuals are unable to fulfill. Hence, they resort to alternative financial services, like payday loans, for their monetary needs.

Technology plays a pivotal role in the functioning of online payday lenders. Leveraging machine learning and artificial intelligence, these lenders are able to quickly assess the creditworthiness of potential borrowers. Through the analysis of alternative data points, such as utility bills, social media behavior, and even smartphone usage, predictive models are constructed to determine loan eligibility.

However, the usage of such unconventional data in credit evaluation is a double-edged sword, posing serious privacy concerns. Moreover, the proprietary nature of these algorithms further compounds the issue, as their black box operations provide little transparency about the decision-making process, creating potential bias and discrimination.

Regulatory inconsistency is another pressing concern for this industry, with the laws governing payday lending varying widely across different jurisdictions. In the U.S., for instance, some states have capped the APR on payday loans, while others have outright banned them, illustrating the patchwork of regulations. This regulatory fragmentation creates an uncertain operating environment for lenders, curbing innovation and growth.

In conclusion, the online payday lending industry represents a paradoxical intersection of financial inclusion and consumer exploitation. While it serves a critical function in providing credit to marginalized sections of the population, it also exposes them to exorbitant costs and potential privacy infringements. Balancing these conflicting ends necessitates comprehensive regulatory intervention that ensures fair pricing, transparency, and data protection. Such a framework, coupled with financial literacy initiatives, can harness the potential of online payday lending while mitigating its associated risks, fostering a more inclusive and equitable financial ecosystem.