Growth experienced during the recession will be hindered by increasing regulations
Los Angeles, CA (PRWEB) May 25, 2012
The collapse of the financial system and subsequent recession have increased demand for Check Cashing and Payday Loan Services. When the United States went into recession, many people were forced out of work and the unemployment rate soared to 10.0% in 2009. With no funds to cover monthly bills such as mortgage payments and car loans, many people were forced to seek out industry services. Additionally, the average length of employment increased significantly, causing the poverty rate to spike. “As a result, industry firms distributed more small-sum, short-term, high-rate loans, thus generating a steady stream of revenue,” said IBISWorld industry analyst Eben Jose. In the five years to 2012, industry revenue is expected to increase at an annualized rate of 2.5% to $10.1 billion, with estimated growth of 2.0% over 2012. Although the recession may have fueled revenue growth over the period, the increase in industry activity also attracted the attention of politicians and commercial banks.
Federal and state governments have increasingly turned their focus to passing legislation that regulates the industry. According to Jose, the majority of states have regulatory requirements that force industry firms to file for a license to operate in addition to adhering to strict laws regarding the principal amount of loans and loan interest rates. Furthermore, the federal government has continually increased their oversight of the industry through pieces of legislation that increase industry transparency. As a result, profit margins have decreased due to higher compliance costs and barriers to entry have increased, bringing domestic industry expansion down from pre-recession levels. In addition to federal regulators, commercial banks have also taken a closer look at the industry's business model. After recognizing the high level of demand, they decided to craft similar loan products, putting even further pressure on industry revenue and profit margins.
In the five years to 2017, pressure from state and federal governments as well as commercial banks will continue to inhibit revenue growth. As a result, IBISWorld forecasts industry revenue to increase at a slower rate than the previous five-year period. Furthermore, these factors will force many firms out of business, resulting in a decrease in the number of industry firms over the next five years. On the other hand, international expansion will provide a bright spot for the industry and will be the primary driver of revenue going forward. The Check Cashing and Payday Loan Services industry exhibits a low degree of market share concentration. Many small firms operating in local or regional markets characterize the industry. Only the largest companies (DFC Global, ACE Cash Express and Cash America, among others) exhibit the ability to operate more than a thousand establishments across domestic and international markets. Low barriers to entry make it relatively easy for new entrants to begin offering check cashing and payday loans, while relatively moderate degrees of competition allow increased potential for new firms to exploit a niche. Market share concentration has been decreasing in line with the addition of more enterprises, with firm numbers expected to increase at an annualized rate of 1.7% during the five years to 2012. For more information, visit IBISWorld’s Check Cashing and Payday Loan Services in the US industry report page.
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IBISWorld industry Report Key Topics
This industry cashes checks, drafts or money orders for the general public. Companies in this industry may also offer payday loans, installment loans and other financial services. Examples of industry operators include Check Into Cash and Check 'N Go. Banks and firms that operate exclusively online are excluded.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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