Secondary Market Anyone?
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.