Archive for the 'An Industry Overview' Category
February 18th, 2010 by GabeRodriguez
It’s no secret that the Payday Loan industry is constantly facing changing regulations in States all over the United States. Not to worry, there are several States that have incurred seemingly strict regulations and Payday Loan operators are still able to flourish and maintain profits in the face of these changes. Of course, those who survive and maintain profitability have made significant and necessary changes to contracts, updated their Payday Loan software to stay current with new legislation and more. Not an easy task, but necessary to survive in a changing industry.
Now we must first consider WHY Payday Loans are currently under fire and facing new regulations in several States. Of course, getting a straight answer is easier said than done.
Many people say that customers need to be protected from high APR rates. But why are 2-week loans being measured by “ANNUAL percentage rates”? Doesn’t that seem a bit (see image) unfair? After all, consider this quote from paydaypundit.org… “Payday loans are not high-interest loans because with a two-week loan the the APR is only 1/26th as significant a factor as it is with a one-year loan. At $15-per-hundred-borrowed (391% APR) the borrower only pays 15% of the loan amount in interest, whereas with a 30-year home loan at 5% APR the borrower pays over 93%.”
WOW!! You think if you were legislating to cap payday loans at 36% APR you would knowingly be legislating to SHUT DOWN payday loans in your state! Thankfully the folks in Wisconsin realized that, and “The Democratic-controlled Assembly voted 56-41 to kill an amendment that would have capped the interest rates lenders could charge at 36 percent.”
One of the most popular arguments for regulating Payday Loans would be “Consumer Protection”. After all, if this new legislation was REALLY meant to protect consumers, wouldn’t it also apply to ridiculous bank over-draft fees (Banks Still Screwing Customers By Piling On Overdraft Fees)? If I didn’t know any better, I would think that all this “Consumer Protection” legislation are aimed directly at limiting finance options to low-income Americans with bad credit and already limited (or in some cases, completely exhausted) access to short-term credit options. I guess their only option is to just accept the excessively high overdraft fees that fund such a large percentage of banks profits each year (roughly $38 billion in overdraft penalties this year!).
In my opinion, the Payday Loan industry will continue to survive, adapt and thrive. We offer a service to millions of hard-working families in times of crisis where they would have no other option for cash or credit. Although the fees and APR’s associated with a Payday Loan are considered “high”, those of use who take the time to understand how APR’s are actually calculated and the default rates associated with lending to “high-risk” consumers understand that fees in the range of $15-$25 per $100 lent out are completely justified to maintain sustainable profit margins. And ask if you ask nearly any Payday Loan customer, or read nearly any study on public opinion of said matters you will surely find that the average Payday Loan customer is actually very content with the services provided.
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 11th, 2008 by Mo Cheng
Its been a few years since I’ve started in the payday loan business, and along the way I’ve met a good bit of people. Now for those who know me personally, you would know that I’m pretty young compared to my own business experience. It hasn’t taken me long, but I started to realize two categories of people - Negatively and Positively inspired people. I know both these categories WELL because I’ve been in both these categories at some point in my life. Its a little embarrassing to admit that I was in the Negative Inspired group for a long time.
The reason why I decided to cover this subject is because in the payday loan business you encounter a lot of these type of people. And why shouldn’t you? You’re in a business where 99% of the time your most loyal customers will end up screwing you over and stealing your money - and that’s the god honest truth to it. Now I was raised in a family where the mind set could be summarized in this thought: “If you want to be successful in your life, you have to be CAREFUL. Never be unprepared for the worst.” Now how negative is that statement? If you were to follow that kind of general ruling through your life, you would be scared to “mess up” and constantly preparing for the worst. With that in mind, I’m going to lay out what I believe is the foundation of Negatively Inspired minds:
- Your scared, worried, or always concerned about messing up, or making mistakes
- You’re ALWAYS preparing exit strategies for everything you do in life - just in case things go sour
- You criticize before you analyze
- You generally don’t trust people in general
- You ask yourself ill relevant questions like: “Why do I always have such bad luck?!”
- On any unlucky event or incident, you only see the negative
- They are always the first to argue and give someone a “piece of their mind”
Met someone like that before? I know I have. Ever notice that awful out of the blue things always happen to them on a continuous basis? Its called Law of Attraction - you always get exactly what you emotionally fixate yourself on. This very basis of functioning was brought to my attention by a great friend of mine named Jerry Ayles. I don’t want to get into too much details on this blog here (because honestly im just procrastinating from working on the new CSR Journal Functionality) but the basic guideline is: If your afraid of failure it will come regardless, but if you dream about success all day that will inevitably come to you as well. Maybe your thinking: “No way. You can’t just get everything you want out of life simply by dreaming it.” Its a valid thought.
To understand how law of attraction works, you have to understand the thought processes at which your brain is cascading when you start to dream about great things. Sure - just dreaming of success alone isn’t going to bring you success, but its what those thoughts invoke you to do. I believe that the brain is like any other organ in your body, it has a function to carry out and it will execute its function regardless of whether or not its good for you. Ask it “Why do I have such bad luck?” and it will answer “Because your just an awful person”. Ask it “How can I build an awesome business” and it will lay out the entire road map to success. Your brain is an organ, and its placed there to not only remember things, and give you personality, but also to help you figure things out - regardless of how worthless the question or problem is. Good questions lead to good answers, good answers lead to good actions, good actions lead to good results. Get it?
Asking yourself positive questions is only one trait of a Positively Inspired person. I’ll list a few more, but honestly im pretty new at this myself so if you have some pearls of wisdom, add to this blog by commenting!
- You plan more for success than you do failure. You have exit strategies, but you always focus on winning
- You could care less about making a mistake. All mistakes can be fixed in due time anyway
- Your open to listening about everything
- When something bad happens, you find ways to exploit it for opportunity
- You always have a positive attitude towards everyone because you know if your negative to anyone you just end up regretting it
Anyways. Id love to hear more from you guys. I frequently moderate a payday loan industry forum as well. Come by it and chat sometime!
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 12th, 2008 by Mo Cheng
For a long while, I always felt a little timid when explaining to people what it is I exactly do for a living. Because of the recent stigma generated by the mass media, payday loan merchants are despised and viewed as “loan sharks”. Being the smart person that I am, I never bought into the mass media movement for the nationwide shut-down of payday loan institutions.
I’ve seen the money I’ve saved for my borrowers.
I know the difference between paying 20 dollars to borrow 100 dollars, and paying the bank 150 dollars for over drafting 5 transactions in the sum of 100 dollars.
I know the difference between 500% APR, and 2000% APR.
When I picked up the Oregonian (a local city wide newspaper) and read up on the latest movement in the crack down of payday loans, I always thought to myself: “This movement isn’t for the people. APR caps sound great for the consumer up front, but the realistic result is total annihilation of the payday loan industry in Oregon”. Then I would think to myself: “This movement is funded by the banks and credit unions because the payday loan industry is biting into their NSF and over draft revenues.”
Well boys and girls - The time has come where proof of my hunch has surfaced into reality. According to one of my friends in the payday loan business, recent proof has shown that banks and credit unions loose 20% to 60% of their revenues when in the presence of unregulated payday loan institutions. 60%!!!! What this should tell you is one thing: Our financial banking institutions are the REAL predatory lenders of today. Not only are they charging our customers up to 5 times the amount of interest we charge for our loan products, but they are also MONOPOLIZING the financial market to make sure payday lenders like us are unable to give our consumers options. If you want to read more about this (which you should) check out Jerry’s Payday Loan Industry Blog.
With all this said, I feel like the technology me and my team is developing is supporting a GREATER cause. I firmly believe that the Empower software platform will bring us (the payday loan industry) together to form a stronger more resilient industry through business to business communication and networking. We have conscience on our side people, its just a matter of communicating that to the mass majority!
August 11th, 2008 by Mo Cheng
The ideology behind the Empower Network concept is derived off a single economic assumption; the increasing rise in demand for the payday loan service will cause over saturation of the market, forcing payday loan operators to lower the premium on short term loans. Synaptic Database sees the payday loan industry as an infant compared to age-old financial operations like stock trading, energy futures, forex, mortgages, options, commodity trading, etc. Mature financial operations show its age with the establishment of clearing houses, live indices, populated trading grounds, and the formation of secondary and wholesale markets. Looking at the payday loan industry, the absence of these financial institutions along with other tale tell signs marks the infancy stage of the industry’s time line.
The first visible milestone of the payday loan time line is market spread caused by demand saturation. We can see this milestone in motion across the country. Payday loan stores are sprouting up by the hundreds per city, and demand is still rising. The demand is so heavy in fact consumers are willing to pay up to 1200% APR in cities which do not regulate payday loan operators. The staggering price tag on the payday loan service is a sign that demand for the payday loan service is still far above the supply conditions of the market. Until the supply of the industry meets the abnormally large demand, the industry will have leeway to charge a hefty premium on the payday loan service. In response to the price tags of payday loan services, state financial regulators across the country have attempted to “crack down” on payday loan operators; forcibly lowering interest rates while extending payment terms. While this kind of action may seem logical to implement, the methodology goes against the economic direction. Because of state regulations, thousands of privately owned payday loan businesses are closing in the midst of an unquenchable mass demand for its services. Heavy state regulation has stopped the payday loan business from growing; preventing market spread by state APR caps, and promoting bigger businesses to seek more favorable business climates. Without the release of state regulation, the payday loan industry can only be advanced by creating a demand for a secondary market.
