A Payday Loan Software Blog

Software solutions for beginners

I get a lot of different requests as my phone rings through out the week. Majority of these calls have to do with software inquiries and pricing. The problem is if you don’t know the payday loan industry well, shopping for software technology can be some what vague. You’ll see a lot of different options, all essentially claiming to do virtually the same thing - keep track of your loans. Not knowing the operational structure of payday lending, the only difference that you’ll realize is the price. Every software vendor has different features, but how do these features benefit you and your growing business? How can you figure out if the software solution is right for you without sitting through HOURS of boring demo presentations? Well ladies and gentlemen, that is what this blog is set out to do. But before we get into details lets cover a few basics.

First off, you need to understand that a software solution is usually modeled directly after the software developer’s interpretation of the payday loan business process. If your software developer is inexperienced in the business and its operational standards, their software solution will reflect the same flaws. Remember - software development is nothing short of re-developing the logistics of a business. This very point is something HUGE to take into consideration. Keep in mind that your decision on choosing the correct software solution will directly effect how you manage your business, its money, its borrowers, and ultimately its potential for wide spread growth. Heres a quick example:

Joe Smith decides to purchase a payday lending platform. His decision was made hastily and quickly, and ended up purchasing software which has no ACH scheduling, Installment Lending, or multi-state functionality. As his business grows, he’ll start to realize that his software is missing paycheck dates, and timing ACH activities on the wrong day. The business’ defaults climb up because he is simply drafting money out of his borrowers accounts on the wrong day. His borrowers are unsatisfied with the company because ACH drafts on the wrong day end up over drafting their accounts for no reason. To remedy the problem due to the software’s lack of functionality, Joe has no choice but to hire 4 new employees to process procedures the software simply doesn’t handle. 5 years into the business Joe’s operation spans over 3 cities and 15 stores. He decides to start opening stores in the state next door due to its favorable lending laws. Joe is later notified by his software company that implementation in that state is nearly impossible. Because the software was only designed to work in a handful of states, Joe’s software company quoted him a $25000 price tag for implementation.

Get the picture? These are real life scenarios - I hear of complaints like this from many payday lenders using different competitor software. The point is - when you chose a software solution you are effectively also choosing how you will run your operations, and how easily (and cheap) you will be able to grow your business.

With that in mind - do yourself a favor and don’t just look at the price tag. Make sure to fully understand what the vendor is selling you, and HOW it will benefit your business. Know all the short comings of the software, and prepare in advance to those short comings.

Now that we have a common understanding, lets start figuring out what kind of questions to ask your potential software vendors.

Is your software web based or client server based? This question is imperative to ask. The reason why is because web based software gives you limitless access to your business information, and cuts your IT expenditures in half. Web based software usually means the vendor supports the database server, which means you never have to worry about hiring people to run enterprise servers. As your business grows, a web based application is the easiest and cheapest to scale.

Is your software scalable for multi-state operations? As listed in the example above, the absence of this functionality can literally put a large price tag on your business’ potential for growth. Does it have the ability to handle different APR structures? Can it handle different types of renewal laws from state to state? Can you dynamically set the principle caps from state to state? Many vendors claim they can do this - make them show you! Ask them to run a scenario were you are running in two different states - Utah, and Washington.

Can I run a internet store front with your software? This functionality is relatively new, and its a HOT functionality that everyone is looking for these days. Again, many claim to have it - few can pull it off. A successful internet operation needs to mimic the laws of which every applicant resides in. This means means the software not only has to change its behavior in loan origination, but also collections, and underwriting laws. To maximize your internet visibility, look for the ability to route multiple website applications to a single call center. Retail and internet integration is optimal but rarely seen.

How easily can your software support a growing business? In the payday loan business, state laws reflecting origination, underwriting, and collections can be worlds apart. Make sure the application you are looking at gives you the ability to adjust your business operations in a easy single-point-of-access application.

How secure is your software? The payday loan industry is notorious for its low security software solutions. Make sure your database is at least protected by a firewall, and your data residing in a high redundancy data center. If you are running a internet store front, ask to see if they have SSL encryption for your borrowers safety. The last thing you want when running a multi-million dollar venture is hackers stealing sensitive information or servers crashing due to power, internet, or hardware outages.

What is your customer support contract like? Customer support is a BIG issue in the payday loan business. Because of the pricing trend for the payday advance industry, many software vendors offer cheap software solutions with absolutely no support. By no support I mean it takes a software company 6+ months to fix a mission critical issue. Imagine if you had $70,000 dollars worth of ACH transactions to execute, but due to a bug you couldn’t send out the batches. In this situation, wouldn’t you be more comfortable with being able to contact support 24-7?

In the payday loan software industry, seeing is truly believing. As you do more and more research, you’ll notice a GIANT price margin between software companies. Some software companies sell their applications for as little as $200 dollars, while other companies have price tags as big as $80,000. Remember - theres no such thing as a free lunch, and you can’t get a Cadillac for the price of a Pinto. Do your self a favor and figure out why the pricing is so low, or high - you just might be saving yourself thousands in the future.