Cash Connection: Are its Payday Lender Strategy and its Business Model Ethical?
In 1986, Allen Franks, President of Cash Connection, opened his first check-cashing store in Shreveport, Louisiana. Not only did Cash Connection provide check cashing and payday advances, they also offered prepaid phone cards, bill payment services, and money orders—serving as Western Union agents to transfer funds for customers. In the early 1990s, payday advance services grew as a result of a strong customer demand and varying circumstances in the financial services marketplace. Recently, the payday loan industry is in a position of stagnation. Due to rapid growth early in its industry product life ...view middle of the document...
Georgia and Maryland which have eliminated payday lending firms from conducting business in their states have both seen a significant increase in bounced checks and complaints regarding aggressive debt collectors Gamble, 2011).
Cash Connection uses a focus differentiation strategy. A differentiation strategy is appropriate where the target customer segment is not price-sensitive, the market is competitive or saturated, customers have very specific needs, and the firm has unique resources and capabilities which enable it to satisfy these needs in ways that are difficult to copy (McGraw-Hill). Cash Connection’s utilized a focused differentiation strategy to distinguish itself from its competitor’s while adhering to increasing government regulations. Their primary goal was to provide short term credit, through payday advances, to anyone thereby supporting their expansion into cities that did not currently have a check-cashing facility. Payday advances are single payment loans rather than installment loans and the underwriting process for payday advances does not involve a credit investigation. “The average payday loan amount was $300 and the term was typically for 14 to 30 days” (Gamble, 2011). Franks sought to create a competitive edge by incorporating attributes and features (offering bill payment, prepaid phone cards, money orders, and wire fund transfer) that set his payday loan company apart from rivals in ways that buyers would consider his services more valuable. By 2010 this had become nearly impossible, as more than 22,000 payday advance locations existed within the U.S. more than double traditional banking facilities (Gamble, 2011).
The low cost of capital to open a payday loan company and potential of substantial profits through fees and interest chargers makes it appealing. However due to government restrictions it is making it harder and harder to enter into and make it in the...