Forces that drive the industry
The forces that have driven the payday lending industry are numerous. They include the inability of other financial institutions to offer a wide range of consumer services. They also include high borrowing credit rates in these sectors. The inability of the banks to convince the underbanked and the underbanked individuals makes these individuals get into the payday lending industry, a thing which makes it prosper. Other financial institutions require collateral security before offering loans. Many individuals are able to come up with the starting capital required by the government of $130,000. This makes it an easy venture for many investors to start.
The payday lending industry has got a few requirements before it can offer loans to its customers. In Cash connection, they only stressed two main items, which are a job that provided reliable income and the checking account. There is no chance of turned down in Payday lending as in the case with credit unions, customers’ past credit worthiness are not considered. Many people are not attracted to banks because banks take long before they serve their customers; banks are not well distributed.
Many people feel banks are not welcoming to them, making them feel uncomfortable to get services from them. Banking hours are not convenient to the majority of people; unlike other financial institutions that require a high minimum balance, the banks do take too long to clear checks, and they are expensive in providing their services.
Ethics of the business
Ethics to be followed in this industry include transparency, fairness, and confidentiality. The players need to observe these ethics to build confidence in their customers. In SWAP analysis, it is clear that payday lending is charging their clients a lot in terms of the interest rate. The justification for this is that these loans have high risks. The financial analysis of the leading vendors is showing that the firms are doing well, and they are making substantial profits. They require a lot of working capital in terms of liquid cash or bank deposits.
Attributes that make a player be successful
A player in the industry will be successful if he/she decides to set his/her store in areas which are not overcrowded with PayDay lending stores. This makes the store has many customers, thus considerable success within a short time. This is one of the strategies the Cash Connection used. A player needs to be honest and follow the state laws to avoid conflict with the state. One needs to treat his customers with respect, fairness, equity, and make customer borrowing information confidential.
Players need to offer a wide range of services; this will give them have a competitive advantage over their competitors. For one to succeed in this industry, he/she needs to have competent staffs that will offer satisfactory services to consumers. Staffs need to be sensitive to consumer needs. The employment of adequate employees will lead to fast services to consumers, a point that will make the store preferable to the rest.
Continuous information dissemination to customers on better management of credit will make consumers have a positive attitude to the store. This will make the player succeed. The player needs to consider the lending rates to his customers, he/she needs to know that high lending rate will make him lose customers. Failure of a payday lender to offer roll over loan would make the vendor succeed. This is because rollover loan overburdens the borrower and may make him/her unable to pay the loan.
The vendor needs to devise other mechanisms, which may help, the borrower to pay without much strain, e.g., offering easy repayment plans. The player can offer incentives to borrowers who pay their debt in time. This will encourage the rest of the borrowers to follow suit in order to enjoy the incentives.