I haven't used payday loan services myself, but from what I've read, I have an easy time believing that incumbents in that market don't use their own borrower repayment information very effectively.
So if your first-time borrowers still pay 200-700% APR, then I don't see how offering lower rates to people who have demonstrated their ability to repay addresses the problem of people who are actually unable to repay falling into this trap to begin with.
Perhaps this is addressed by limiting the first-time loan amount to something small (like $250), and scraping the borrower's online banking statements as part of the approval process in order to predict (based on the account history) whether they are likely to be able to repay within a month. I don't know.