November 21, 2011 : Help! I'm losing my cash!
Author: Devon Cohen, President, EPIC Loan Systems
Everyday we see new startups in the online payday lending space. It must seem pretty simple to newbies. A website, some money to loan, high interest rates. To some it must all add up to easy money. A quick buck couldn't be farther from the truth! Additionally, we see successful storefront operators enter the online space only to be quickly surprised at unanticipated losses. There seems to be varied opinions of what it takes to be a successful online payday lender. In my opinion, one must first know their definition of success. Once you know this, knowledge coupled with educated choices will help you to achieve your picture of success.
Let's explore several choices one should consider when starting up an online short-term lending business.
As you dive into researching this industry for your start up, you should know that there are many pieces of your business you'll need to manage. These pieces need to work together harmoniously. Just as in a symphony, having a non-functioning or out of tune piece will have an impact. You'll hear it in a symphony and in your portfolio you'll surely feel it. The decisions you make will, in some areas, dramatically impact expenses. Some can lead to a significant impact in conversion, default or retention. All areas will affect your success. One thing's for sure. Should you decide to enter the online lending space, investing in knowledgeable, experienced professionals and quality products and services can be a key factor in your success.
Some of the key profit metrics in payday lending are; cost per funded loan with underwriting, returning customers, delinquency and lead sales. Management of these key areas in mind, let's now explore a few choices you'll need to make in your start-up.
Let's begin this journey with the various models:
- State-by-State
- Choice of law
- CSO
- Off shore
- Sovereign
This choice should not be taken lightly. While there is no single right way, deeming all others bad, much consideration should be given to the potential benefits as well as the potential consequences, both monetary and regulatory, when choosing your model.
Your acquisition strategy is equally important and the model you choose can effect your options. Have you budgeted for acquisition costs? Will you purchase leads or drive organic traffic? Do you know the associated costs and the industry standards? Don't make the mistake of leaving this step out of your business plan.
You will be working with various vendors in your online business. The payday lending industry has become increasingly attractive to vendors over the past several years. While competition provides options, not all vendors are created equal. Some vendors will need to work with the technology vendor(s) you choose. Do you know the types vendors you'll need to contact? Become familiar with each company's history and reputation in this space as well as the history and reputation of the representative that you'll be working with. How knowledgeable are they and how capable and willing are your vendors to support your needs? Is your vendor's area of expertise in the payday lending space? Is the history and expertise specifically in online lending? You need also to consider privacy and data security as well as system up and down times. The vendors you choose play important roles in your business. Ask questions and choose wisely. Some of the vendor types you'll encounter are listed below.
- Lead Provider(s)
- ACH Provider(s)
- Software Provider
- Data Provider(s)
- Call Center Services
- Portfolio Management
- Consultant
- Collection Services or Debt Buyer
- Tribal Relationship
- Text Communications
There are reliable resources to assist you in your start up and support you as you grow your business. Make sure you're using credible sources of information and professionals experienced specifically in internet lending as you build your internet lending team.
For additional information contact EPIC Loan Systems at info@epicloansystems.com or 1-877-305-EPIC.
About Epic Loan Systems: EPIC Loan Systems is a company established by a consortium of seasoned lenders in the payday loan industry who sought to improve upon existing technologies that lacked what online lenders needed to effectively manage their businesses. EPIC is a loan management and lead marketing platform that helps lenders reduce acquisition costs, and more effectively manage their portfolios.
About Devon Cohen: Having previously worked with KPMG, Merrill Lynch, and as a Group Executive with HSBC, Mr. Cohen brings extensive experience in Financial Services to Epic. In addition Mr. Cohen has a wealth of retail Internet experience. As CEO of FordDirect, Ford's retail internet division, Mr. Cohen restructured Ford's Internet presence significantly raising internet related sales from 2% to 9% of all sales in two years.