1. What are the dominant economic characteristics affecting the payday lending industry? Payday lending became relevant because they were marketed to prevent and cover costs from bounced checks and overdraft protection fees, late bill payment penalties and other informal extensions of short term credit.
When events happen in the economy it can impact the demand for consumer loans. For example, generally within the first quarter of the year consumers are receiving their tax returns. If there is a consumer has borrowed a payday advance and they receive a payday loan they are more than likely going to pay off their loan, instead of re-borrowing, because they have more disposable income and no longer needs a payday advance. So that can generate a time period that the payday lending companies can expect to process less loans.
There are also times where payday lending companies do more loans. During the holiday season they are expecting to get more customers and are expecting to have more consumers that do loans because they are shopping more and need more money. So these companies have to strategize so they can prepare themselves when there are fewer customers utilizing their services. Payday lending companies have to consider that they are in competition with other companies. Consumers have the option to go use other products and services from banks and utilizing credit cards to meet their financial needs.
So it’s vital that the payday lending companies have a sustainable strategy to continue to gain and retain their customers. That way they remain the most convenient option for the customers. People in the economy have negative perceptions of how payday lending companies operate. This is looked at as an increasing concern because many people think these companies take advantage of low income people in financial trouble. If the people continued to renew their loans every time they pay them back they will eventually paying more money in fees than they can find themselves owing more than what they originally borrowed. So this could affect the customer in a negatively by costing them more money in interest if the utilize the loan for long term purposes. if they used his as a long term 5 percent of the population has taken out at least one payday loan.
24 million Americans said that they would take out a payday advance. The dominant economic effects on the economy are that the payday industry provides 155,581 jobs throughout the United states and are responsible for compensating $6,415,800,00 billion dollars in wages, with an approximate $37,689 in salaries per year. While paying $2,630,000,000 in taxes. The industry contributed 10 billion dollars to the gross domestic product in 2007.Even though the payday advance company have a bad reputation and are known for targeting the lower income and working class they do have a positive effect on the economy.
2. What is the competition in the payday lending industry? Companies within the payday lending industry have several competitors. There are lots of other stores and companies provide payday advances and there are also credit cards companies, banks and payday companies that solely operate online. If a customer would like to borrow a money on their credit card it can get expensive because the interest rates a normally higher when taking cash off a credit card but the customers may explore this option because with a credit card customers do not have to pay back the total amount they have an option to pay a monthly percentage of the money they borrowed which may be beneficial for them.
They can use their overdraft protection on their checking account to cover items that cannot afford to pay. Last they can use the online payday services because it does not require them to submit the documents that the stores may request making the process easier. Even though there are so many companies that offer these services all the companies are not appealing to customers. It is important for Cash connection to position themselves in a market where are more appealing, convenient and provide excellent customer service. How strong are each of the competitive forces that make up porters forces model?
There is a very high bargaining power of customers because they can choose to go to any payday advance company that they would like to if they qualify. There is a high and low threat of new entrants. If the new company comes into the market with a sustainable strategy that pleases its customers and they are able to retain the customers then they have a better chance of lasting as a company. If a new company is unorganized and customers do not utilize their services than they could possibly lose money and eventually fail as a company. I feel that they are not being proactive in marketing there service where they are able to gain profit because they do not have a solid strategy.
There is major and very high threat of substitute products that customer can use from using the banks services and credit cards, so they do have an alternative product that they can utilize to meet their short term financial needs. There is a high bargain for suppliers because generally consumers can go to any payday lending company as long as they meet the minimum requirements of having a checking account and having some income. They can choose to be selective when choosing from their payday lending company by comparing the interest rates, most likely choosing the company with the lowest rates, better customer service and flexibility if requested.
What do your strength ratings reveal about the overall attractiveness of the payday lending industry? The strength ratings show that these companies have a high profit margin with low expenses, it is stable because this service is always in demand, more convenient than its alternative products and it doesn’t affect their credit when requesting this service. 3. What are the driving forces that a currently affecting the payday lending industry? Some driving forces that affect this industry are federal regulations and laws , competition and alternative products.
4. What are the prevailing key successes factors that most affect industry member’s ability to prosper in the marketplace? Key factors that affect the industry’s ability to prosper in the marketplace are convenience and brand loyalty. This applies to the payday lending industry because customers tend to want to obtain money whenever they would like. Since the payday lending companies normally have fewer requirements than taking out personal loans through the banks they look at this as a better option to help them when they need the extra money. They also establish brand loyalty with the payday loan companies because most people are not excited about taking out a payday advance but when they do they would rather stick with the same company so they do have to keep up with providing documents and dealing with other procedures. 5. What is Cash Connection’s strategy for competing in the financial services industry? Which of the 5 generic strategies discussed in chapter most closely fits the competitive approach that Cash Connection is taking? What kind of financial performance has the strategy produced?
There was a study with the demographic about payday advance customers. They were middle income majority of the customers earned between 25,000 and 50,000. They were of average education 94% had a diploma and 56% had some college or college degree. They consisted of young families 68% were under 45 years old and majority were married. They were stable working class 42% owned home, 57% had major credit cards, and 100 % had steady incomes. The only requirements the customer had to meet are they had to have a source of income and have a checking account.
6. What evidence suggests that Cash Connection’s strategy and business model are ethical and beneficial to customers and to society at large? The evidence that suggest that the Cash Connection are complying with the truth in lending act, fair debt collection practices act, the federal deposit insurance act and Gramm-Leach-Biley Act. These acts protect the consumers and if the companies that are complying are informing the consumer about the conditions and terms of the loan. If the consumers are agreeing to these terms because they feel that agreeing to the loan is more beneficial that not doing the loan. There regulations in Georgia and North Carolina they prohibit the residents of those to states to take out payday advances. There was evidence that shows that there are more bounced checks and have filed for a higher rate than when they had the payday advance service. They feel that they wouldn’t have as many disconnections and late payment fees to pay for if they had the payday advance services available.
Is there evidence to suggest that the company’s strategy and business model are ethical nor beneficial to customers and that the entire payday lending industry has few if redeeming qualities? They are known to have a reputation in taking advantage of people with rates that are too high There is evidence that there are unethical business models because if these consumers 7. What recommendations would make to Allen Franks to ensure Cash Connection pursues an ethical strategy and does not engage wrongdoing? If Allen Franks would like to pursue an ethical strategy he should make sure that he is sure the company is complying with the regulations and laws are being applied annually and also preparing for instances where the government could possibly ban the company from operating.
I also feel that Mr. Franks should improve their marketing strategy. Instead of the company being focused on making more money from new and existing clients because that’s the nature of the business they should provide options that help customers stabilize their financial short comings. They could do this by offering a longer period to pay off the first loan so the customer does not have to utilize the service as much, especially if they don’t want to become a repeat customer it will give them a chance to save money to pay off the loan. They can also spend more time in marketing some other services to the customers so if they decide not to continue borrowing payday advances the company is still making money. They can spend more time and money into marketing their check cashing services for payroll and business checks. That way they can expect the customer to come and cash their checks consistently and this creates some brand loyalty. They can also incorporate a customer loyalty program that offers the customer promotions and incentives for using Cash Connections Services.