In my
previous article, “Understanding The Alternative Finance Sector Through
Gary Rivlin's Broke, USA, Pt. 1: Competitive Advantages,” I described how
one can learn about the alternative finance business by reading Broke,USA, Gary Rivlin’s book on the industry. In that article, I noted that the
book shows how the strengths of such companies as payday lenders, pawn shops,
and rent-to-own stores include high returns on investment, pricing power, and
growth opportunities.
That said, it
would be wrong to focus on only the industry’s competitive advantages. This is
an industry that, after all, focuses on making high interest loans to lower and
middle class people. As a result, an investor in this industry faces many
risks, the most prominent of which is regulation.
Regulation is
the best known risk to the alternative finance industry because it can totally
eliminate some parts of the industry, especially payday lending. As Billy
Webster, the founder of America’s largest payday lending chain, Advance America
Cash Advance, says in Broke, USA, “it’s hard to invest in the
future earnings of a company if you don’t know if it’s going to have a future.”
And yet, Broke,
USA also shows how regulation is not necessarily the threat to the
alternative finance industry that some would believe. (Read
More)
