The greatest weakness of Porter’s five forces is that it does not consider competitors and cooperation as having positive effects on profitability.
Therefore, we will utilize Brandenberger and Nalebuff’s Value Net methodology to further analyze the Payday Lenders industry and identify and characterize potential opportunities available to businesses within the industry.
Credit bureaus present an opportunity for payday lenders to better assess the credit-worthiness of their customers. While credit is not a factor in most approval processes for this industry (Bhutta, 2014), working together with these bureaus to access consumer scores and report infractions will decrease risk and aid in improving profits.
Pawn shops provide an excellent business for cooperation. Payday lenders can create business synergies with local pawn shops to share their customer base. Both businesses offer those who are in dire need of cash the ability to quickly receive funds. Sharing these consumers will increase profits.
Online technologies can help improve the process of how consumers interact with payday lender businesses. A consumer can download an app associated with a payday lender, connect their bank account, provide proof of employment, and be able to receive funds immediately. One breakout company in this field currently is Earnin, who recently secured $125 million series C funding to improve their financial systems (‘Earnin’, 2018). With these improved technological options, payday lender businesses can increase profits.
Resources
Bhutta, N. (2014). Payday loans and consumer financial health. Journal of Banking and Finance, 47, 230–242. https://doi-org.xxproxy.smumn.edu/10.1016/j.jbankfin.2014.04.024
Earnin. (12AD, Winter 2018).
Earnin Closes $125 Million Series C to Build Next Generation Financial System. Business Wire (English). Retrieved from http://ezproxy.smumn.edu.xxproxy.smumn.edu/login?url=https://search.ebscohost.com/login.aspx?direct=true&db=bwh&AN=bizwire.bw3504272&site=eds-live
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