Business Strategy Week 8 Assingment Essay

Submitted By jenshep
Words: 1156
Pages: 5

Introduction:
Allen Franks is the CEO of Cash Connection. While in college getting a degree in business administration, Franks purchased and remodeled rental homes. He continued with his real estate business until 1986 when he opened a check-cashing store. Because this was the first of its kind in his home town of Shreveport, it did quite well. After opening a few more stores, Franks realized that his initial store was doing better than the new stores and quickly changed his business model to only open stores in cities that did not have check-cashing facilities.
Payday loans were short-term cash loans intended to cover the borrower’s expenses until the borrower’s next payday. Although repayment amounts could be very high, the loans were quick and convenient. The borrower typically wrote a postdated check that included the loan fees and was used as “collateral” for the loan; the borrower could also sign an Automated Clearing House (ACH) authorization to debit the borrower's account on payday. Although repayment amounts could be very high, the loans were quick and convenient. The borrower typically wrote a postdated check that included the loan fees and was used as “collateral” for the loan; the borrower could also sign an Automated Clearing House (ACH) authorization to debit the borrower's account on payday.
Cash Connection had two requirements that customers had to meet before they could receive loans. First, customers had to have a job that provided some source of income. Second, they had to have a checking account.
Issues:
The first issue is how Cash Connection can differentiate themselves from other competitors and remain profitable. The second issue is will the government restrictions take away from his company’s ability to compete. The next issue is whether or not the payday loan industry practices ethically.
Analysis:
Although repayment amounts could be very high, the loans were quick and convenient. The borrower typically wrote a postdated check that included the loan fees and was used as “collateral” for the loan; the borrower could also sign an Automated Clearing House (ACH) authorization to debit the borrower's account on payday.
Other prime users of the services provided by Cash Connection were “unbanked” or “underbanked.” Unbanked individuals were those without an account at a bank or other financial institution for one reason or another. Underbanked, or underserved, individuals were those who had poor access to mainstream financial services.
Increasing regulation in the loan servicing industry as well as the financial industry only heightened the ease with which new companies could enter the industry and remain competitive while protecting the revenue and profits of companies that were well established in the industry. A barrier to entry was the level of industry competition. Large retail banking firms such as Bank of America, Wells Fargo, JPMorgan Chase, and Citigroup were major players in the loan origination industry. These companies had an increased ability to generate a portfolio of serviced loans. It was difficult for new companies to purchase loans from third parties and generate their own loan-servicing portfolios. A positive development in the stock market generally resulted in increased lending due to the wealth effect of rising share prices. Investors feeling wealthier felt more confident to undertake projects that increased their demand for credit. Rising stock prices also affected the quality of the lending portfolios because borrowers had an increased ability to meet repayments. On the other hand, a fall in share prices had a negative impact on borrowers' ability to service debt, resulting in increased risk for those who extended the credit.
In Canada for example, payday loan organizations differentiate themselves through franchise options. National Money Mart Company, a Victoria-based subsidiary of the U.S.-based Dollar Financial Group, is the Canadian industry leader with its Money Mart payday…