Archive for the 'Payday Loan How-to's' Category
November 13th, 2008 by Mo Cheng
Its been a while since the last post so I figured I would chime you guys in on the latest news of our internet lending technology. For the longest time, our vision at Synaptic Database was focused on recreating the look and feel of the payday lending industry. I’ve actually written a short blog about “cleaning up” the industry, and I feel like this is the first step into approaching this vision. Now when I say recreating the look and feel, this example is exactly what I mean.
Its a drastic change from some of the sites I’ve seen like Magnum Payday Advance. See the world of difference? I think the mistake a lot of payday loan marketers are making is they’re putting too much emphasis on communicating the fact that “we loan money to anyone”. The industry has gotten older, and the concept of payday loan and finance is now widely understood. Putting giant dollar signs onto your website will not help you get new customers because you’re communicating a old and worn out message.
So what are payday borrowers looking for these days? How do we cultivate a larger consumer base for our services? These are the questions we need to start answering as an industry. The demand is no longer “instant short term loans to bad credit customers”, but instead better customer service, reliability, good financing rates, and a safe and comfortable atmosphere to commit the transaction. How does YOUR COMPANY stand against communicating these new customer perks to this new generation of borrowers?
I’d like to see how everyone’s projects are lining up to approach this new type of marketing effort. I’ll update this post when the website goes live. If you’re impatient, you can check out this link: http://www.temporalcadence.org/clients_2008/moroni/
September 6th, 2008 by Mo Cheng
I stumbled onto an article today through payday pundit. Its a site I like to cruise by every once in a while during the wee parts of the night. Now majority of the time when you go to a news forum - you expect to read something different. That’s why its called a “news forum”, because the information on it is NEW. When I go by this site and a dozen other payday loan news forums I don’t get new news. All I tend to hear about is payday loan legislation, and state regulation. The source of the demand in regulation stemmed originally from consumers whining about payday loans. A lot of different cries about high APR rates, abusive collections policies, illegitimate payday loan operations - the list goes on. Now I can see that in the birth of our industry, mistakes like these often happen. But as a multi-billion dollar industry, in the direct spotlight of the mass media WE CANT AFFORD TO HAVE COMPLAINTS LIKE THIS!
I feel like much of our industry is really running away from a problem more than taking care of it. Collections numbers increasing? Double the APR rates! Borrowers not paying back? Call their employers and annoy them until they pay you! State regulation killing off the business climate? Start a Internet payday loan! Get the picture? We’re all guilty of it in one shape or form, but none of us are willing to admit it. All the while, the problems we avoid are brewing into epic proportions. Its time that we start cleaning up our image to the public eye, address our problems, and treat our industry the way it needs to be treated - like a multi-billion dollar industry.
Do you see Wells Fargo flashing dollar signs to advertise their loans? - No
Do you see Allstate insurance coloring their buildings green and yellow? - No
Does Discover Card visit your work if you behind on a payment? - No
Whether or not you believe it, when you decide to get into the payday loan industry you’re taking a step into a enterprise venture. This business can make you money - almost guaranteed, but that doesn’t mean you can get away with murder. Over the last few years in the payday loan industry, I’ve learned one great lesson: The payday loan industry can bring you profitability fairly quickly, but it takes hard work and commitment to sustain the income. With that said - ask yourself a few questions:
What are you doing to make your customers LOVE your service?
How are you presenting your company and service to the public?
How are you sustaining your profits while retaining the general approval of your customer base?
What are you doing for your industry to fight for reasonable state regulation?
How closely are you following state guidelines?
Keep in mind, the best of the best know how to answer these questions without really taking time to think. Cash Advance America, Urgent Money, Rapid Cash, Cash Connection - these companies follow guidelines from state to internet operations. You can bet that these companies will be around for at least the next 20 years. Reason? Because they’re always improving their business by providing the right kind of finance products, exploring new customer audiences, tuning their collections process, and adjusting public out look. Keep in mind that in ANY retail establishment, success is mainly based off customer satisfaction. Heres a great example:
Its a general consensus that a retail brick and mortar store can only attract customers as far away as 7 miles. Maybe less. Its also a general consensus that brick and mortar stores should be located in a neighborhood with a demographic income of 45k per year or less. When I started Green Valley Financial, we broke both those rules. We were located in a neighborhood with houses in the margin of 400k and above. We didn’t have any flashy signs out front, or even neon signs. In general when drivers passed us by, we looked like a mom-and-pop financial services office. It was our service, and financial products that brought our customers into the door. Though we weren’t in the correct income demographic, we serviced customers from as far as 40 miles away. Our customers were so dedicated to our brand, they would ride a bus for 2 hours and pass by dozens of retail competitors just to do business with us. Green Valley Financial had no advertising campaign. Our new customer base was consistently brought in by older customers. Why would they go through that much trouble to see us? Because we cultivated their love for our service! Green Valley Financial offered a handful of FREE budget planning services to help customers get out of financial trouble. If a valued customer calls in and says they can’t make it on time, we say “Sure. Just come back the next paycheck” or “Just come by and pay what you can” - of course exercised with certain limitations. We offered extraordinary rates for age old repeat customers, and we even sent out thank you cards on payments with little discount coupons. We brought the phrase “personal touch” to the payday loan business.
Its time to let go of the “lets run a business as cheap as possible” attitude. Its time to spend more money on presentation, customer satisfaction, technology, and compliance. Ask yourself - In any given industry, isn’t the customers USUALLY the supporters of the product or service? YES. As lenders in the payday loan industry we need to start turning our customer base around to support US.
August 30th, 2008 by Mo Cheng
I get a lot of different requests as my phone rings through out the week. Majority of these calls have to do with software inquiries and pricing. The problem is if you don’t know the payday loan industry well, shopping for software technology can be some what vague. You’ll see a lot of different options, all essentially claiming to do virtually the same thing - keep track of your loans. Not knowing the operational structure of payday lending, the only difference that you’ll realize is the price. Every software vendor has different features, but how do these features benefit you and your growing business? How can you figure out if the software solution is right for you without sitting through HOURS of boring demo presentations? Well ladies and gentlemen, that is what this blog is set out to do. But before we get into details lets cover a few basics.
First off, you need to understand that a software solution is usually modeled directly after the software developer’s interpretation of the payday loan business process. If your software developer is inexperienced in the business and its operational standards, their software solution will reflect the same flaws. Remember - software development is nothing short of re-developing the logistics of a business. This very point is something HUGE to take into consideration. Keep in mind that your decision on choosing the correct software solution will directly effect how you manage your business, its money, its borrowers, and ultimately its potential for wide spread growth. Heres a quick example:
Joe Smith decides to purchase a payday lending platform. His decision was made hastily and quickly, and ended up purchasing software which has no ACH scheduling, Installment Lending, or multi-state functionality. As his business grows, he’ll start to realize that his software is missing paycheck dates, and timing ACH activities on the wrong day. The business’ defaults climb up because he is simply drafting money out of his borrowers accounts on the wrong day. His borrowers are unsatisfied with the company because ACH drafts on the wrong day end up over drafting their accounts for no reason. To remedy the problem due to the software’s lack of functionality, Joe has no choice but to hire 4 new employees to process procedures the software simply doesn’t handle. 5 years into the business Joe’s operation spans over 3 cities and 15 stores. He decides to start opening stores in the state next door due to its favorable lending laws. Joe is later notified by his software company that implementation in that state is nearly impossible. Because the software was only designed to work in a handful of states, Joe’s software company quoted him a $25000 price tag for implementation.
Get the picture? These are real life scenarios - I hear of complaints like this from many payday lenders using different competitor software. The point is - when you chose a software solution you are effectively also choosing how you will run your operations, and how easily (and cheap) you will be able to grow your business.
With that in mind - do yourself a favor and don’t just look at the price tag. Make sure to fully understand what the vendor is selling you, and HOW it will benefit your business. Know all the short comings of the software, and prepare in advance to those short comings.
Now that we have a common understanding, lets start figuring out what kind of questions to ask your potential software vendors.
Is your software web based or client server based? This question is imperative to ask. The reason why is because web based software gives you limitless access to your business information, and cuts your IT expenditures in half. Web based software usually means the vendor supports the database server, which means you never have to worry about hiring people to run enterprise servers. As your business grows, a web based application is the easiest and cheapest to scale.
Is your software scalable for multi-state operations? As listed in the example above, the absence of this functionality can literally put a large price tag on your business’ potential for growth. Does it have the ability to handle different APR structures? Can it handle different types of renewal laws from state to state? Can you dynamically set the principle caps from state to state? Many vendors claim they can do this - make them show you! Ask them to run a scenario were you are running in two different states - Utah, and Washington.
Can I run a internet store front with your software? This functionality is relatively new, and its a HOT functionality that everyone is looking for these days. Again, many claim to have it - few can pull it off. A successful internet operation needs to mimic the laws of which every applicant resides in. This means means the software not only has to change its behavior in loan origination, but also collections, and underwriting laws. To maximize your internet visibility, look for the ability to route multiple website applications to a single call center. Retail and internet integration is optimal but rarely seen.
How easily can your software support a growing business? In the payday loan business, state laws reflecting origination, underwriting, and collections can be worlds apart. Make sure the application you are looking at gives you the ability to adjust your business operations in a easy single-point-of-access application.
How secure is your software? The payday loan industry is notorious for its low security software solutions. Make sure your database is at least protected by a firewall, and your data residing in a high redundancy data center. If you are running a internet store front, ask to see if they have SSL encryption for your borrowers safety. The last thing you want when running a multi-million dollar venture is hackers stealing sensitive information or servers crashing due to power, internet, or hardware outages.
What is your customer support contract like? Customer support is a BIG issue in the payday loan business. Because of the pricing trend for the payday advance industry, many software vendors offer cheap software solutions with absolutely no support. By no support I mean it takes a software company 6+ months to fix a mission critical issue. Imagine if you had $70,000 dollars worth of ACH transactions to execute, but due to a bug you couldn’t send out the batches. In this situation, wouldn’t you be more comfortable with being able to contact support 24-7?
In the payday loan software industry, seeing is truly believing. As you do more and more research, you’ll notice a GIANT price margin between software companies. Some software companies sell their applications for as little as $200 dollars, while other companies have price tags as big as $80,000. Remember - theres no such thing as a free lunch, and you can’t get a Cadillac for the price of a Pinto. Do your self a favor and figure out why the pricing is so low, or high - you just might be saving yourself thousands in the future.
August 11th, 2008 by Mo Cheng
The suggested accounting processes of Synaptic Database have been built to mark and document its business activities for several different reasons; profitability, economic trends, tax savings, and transaction reconciliation. The documentation of Synaptic Database’s accounting process contains 6 steps: Transaction Capture, Daily Activity Detail Invoice, Transit Reconciliation, Month End Actualization, Month End Journal, and Accounting Month Close. Disclosed below is the detail of each step.
Transaction Capture – This step of the accounting process is used to capture the financial activities of your payday loan store (YOUR PDL). Transaction capture is used to record loan origination, loan renewals, due date changes, late fees on loans, origination charges, payments, petty cash activities, etc.
Daily Activity Detail Invoice – At the close of everyday, managers are required to download the Daily Activity Detail Invoice. This report will serve as a detailed summary of all financial activity for the day. Payments, originations, late charges, ACH transactions, etc will be captured and documented as transactions for the current closing day.
Transit Reconciliation – This process is used to actualize the cash flow of the bank account. Since check and ACH transactions do not hit the banking ledger until post Federal Reserve approval, many of the financial activities of YOUR PDL will be delayed up to 8 days. Transit reconciliation was created to take the guess work out of pending ACH and check cashing activities. Corporate offices will email bank activity batches to its store managers in the morning.
Using the bank activity batch, opening managers will upload the batch file containing all transactions in the bank account and reconcile realized activities from prior invoiced activities. All prior invoiced activities not captured in the current day reconciliation will remain in the invoicing system until a batch picks up the transaction. This step of accounting allows YOUR PDL to originate as many loans as possible without the possibility of bouncing a check to a customer in need.
Month End Actualization – After submitting the financial activities of YOUR PDL through the Transit Reconciliation process, a last look is produced and a final step of actualization between your software application and the bank is performed. Final adjustments are made to month end balances and documented. A Month End Store file is produced for the corporate office in preparation for the Month End Journal.
Month End Journal – In the Month End Journal process, a monthly journal will log a summary of the store’s activities. The summary of the log documents activities based on forward and realized receivable/payables, deposits, withdrawals, collection totals, write-offs, and expenses to compute the grand intra month PNL as well as the rolling month PNL. In the Synaptic Database accounting process, the journalizing process not only helps in keeping track of income and expenses but also helps build references to track yearly activity trends, marketing accuracy, and ROI. Because each step of the Synaptic Database accounting process is a summary of its proceeding step, a journal entry can be broken back down to its originating transaction for taxing or auditing purposes.
Accounting Month Close – After journal entry, the accounting month is closed for further adjustments. Any adjustments with a date taking place in a closed month will be prohibited without the consent of the general manager. In the case of post journal adjustments, the adjustment will take place in the forward accounting month. The account month close should be enforced by the software application forbidding adjustments to activities made in the closed accounting month.