In my previous
article, I described how Broke, USA, Gary
Rivlin’s book on the alternative finance industry, shows why regulation is the industry’s
most prominent risk. Regulation is the industry’s best known risk because it can
totally eliminate parts of the alternative finance business, especially payday
lending. Moreover, the book also shows why such regulation is popular,
describing many people’s visceral response to an industry that profits largely through
high interest lending to the poor and middle class. As a result, support for
the restriction or even illegalization of the industry is widespread and bipartisan.
However, in my
opinion, Rivlin’s book also shows why regulation is not necessarily the threat
to investors in the alternative finance industry that many believe it is. As I
described in my previous article, the industry has consistently found ways to
work around regulation, with the larger companies in the industry even turning
regulation into a competitive advantage. Not only can the largest companies
diversify from its riskiest parts, such as payday lending, but they can also
gain market share from smaller operators, who are disproportionately affected
by regulation related compliance costs. One company that has done this is DFC
Global (DLLR), whose strategy was vindicated in June 2014 when it was acquired
for $1.3 billion.
