(1) Switching Costs | Some lenders have built technology, that integrates with their “Point of Origination.” This provides them defensibility via “switching costs.”
Example, Imagine a loan provider whom provides software that is point-of-Sale a precious precious jewelry store. The PoS pc pc software handles requests, money, inventory, etc. But better yet than that, the PoS has got the capability to supply loans to your clients for the precious precious jewelry shop.
This enables the precious jewelry shop to offer to more clients, because instead of just selling to individuals who could manage to purchase a necklace for example lump sum payment, it allows clients to acquire that exact same necklace by making monthly obligations as time passes.
The financial institution who’s supplying the PoS computer software, and originating the loans through it, includes a defensible moat. It’s much simpler because of this loan provider to have usage of its target debtor (the precious precious precious jewelry shop consumer) than another competitor perhaps not integrated in the product product sales procedure. If the lending company began providing 18% prices towards the precious jewelry store’s clients, it’ll be able to likely maintain that yield, regardless if other people try to compete.
If a brand new a competitor informs the jewelry shop it’ll build PoS pc software too, and provide 16% prices to its clients, the jewelry store most likely will not switch — as the price of learning an entire brand new PoS system is more than the responsibility of supplying a 2% high rate to jewelry store’s clients.
The answer would probably be the same, and the same at 14%. (At some point there is a level that is just too great, just like eventually there will be a much better PoS system, but this example is more defensible than traditional lending) if a competitor offers 15%. Continue reading “Component 1: An Intro to On Line Lending. Ali Hamed”