Cash Connection - Ethically Sound

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  • Topic: Payday loan, Loan, Debt
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Cash Connection Strategic Analysis Case Study
October 24, 2011

Table of Contents
Cash Connection Strategic Analysis Case Study3
Cash Connection’s Business Strategy3
Cash Connection SWOT Analysis4
Ethical or Unethical Industry5
Cash Connection’s Porter Fives Assessment7
Cash Connection Lending Key Success Factors9
Economic Characteristics and Driving Forces10
Industry Financials12

Table of Figures
Figure 1: Cash Connection - SWOT analysis 4
Figure 2: Porter’s Five Forces Summary7
Figure 3: Payday Advance Market…………………………………………………………..8 Figure 4: Reasons Why Households Never Banked or Unbanked10 Figure 5: Cash Connection – Revenues (2007-2009)12

Cash Connection Strategic Analysis Case Study
Cash Connection was started by Allen Franks in 1986, when he opened his first check-cashing store in Shreveport, Louisiana. Throughout the mid to late 1990’s Cash Connection services grew as a result of robust consumer demand, traditional banks leaving the short-term credit market, sky-rocketing costs associated with defaults associated with short-term credit and regulatory changes that provided increased customer protection (Thompson, Peteraf, Gamble & Strickland, 2012). Although small loans had been around for decades Cash Connection type services were likened to the billion dollar microcredit loans provided by the Grameen Bank of Bangladesh India. During 2007, the payday advance industry provided close to $44 billion in short term credit to customers, contributed $2.9 billion in labor income, $6.4 billion in total labor income impact and generated over $2.6 billion in governmental taxes but ethical questions persist (Thompson, et. al, 2012). Cash Connection’s Business Strategy

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” (Thompson, et. al, 2012, pg. C-113). 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 (Thompson, et. al, 2012, pg. C-113). Cash Connection SWOT Analysis

Figure 1. Cash Connection – SWOT Analysis.

Cash Connection’s core strengths are in providing small amounts of uncollateralized short-term credit to high-risk borrowers and providing loans to sectors of the population in particular households that would not otherwise have access to credit of any kind (Lehman, 2003). Cash Connections leveraged typically low capital requirements to rapidly expand into areas that did not already have payday loan facilities. Although payday advance competition is particularly strong, Cash Connection must target the groups that stated they would likely use cash advance services to improve their growth opportunities as well as spread the risks inherently associated with the industry across a larger customer base. Ethical or Unethical Industry

As more financial institutions stopped providing short term credit loans the demand for these services rose. Even though we might not like the idea of payday advance businesses, Cash Connection and others provide services to customers whom otherwise might not be...
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