Financial: Banking finance and capital market analysis

This report analyzes the Payday/Cash Advance Lending Industry in Australia. It provides an overview of the Cash Advance Lending, risk and opportunity in the Payday loan market, analysis of Payday loan market in USA, and reflection on the pay day loan. The report concludes that Payday/Cash advance lending is a good option to raise funds but should be used only in case of emergency or when attractive investment options are available for the investors.

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Financial: Banking finance and capital market analysis
Research Report

Financial: Banking finance and capital market analysis 1
Table of Contents
Introduction...........................................................................................................................................1
Objective of the report.......................................................................................................................1
Overview of the Cash Advance Lending...........................................................................................1
Risk and opportunity in the Payday loan market...................................................................................2
Analysis of Payday loan market in USA...............................................................................................2
Reflection on the pay day loan..............................................................................................................6
Conclusion.............................................................................................................................................7
References.............................................................................................................................................8
Appendix...............................................................................................................................................9

Financial: Banking finance and capital market analysis 2
Introduction
With the change s in economic, financial institutions and banks have been gaining
momentum in the financial capital market. The capital market of the Australia is highly
volatile and many investors are inclined towards raising funds from the Banks and financial
institutions. There are several ways of raising funds from the market such as bank loan,
overdraft, commercial paper and letter of credit. However, with the changes in time, easy
availability of funds is the prime concern for the investors. The pay day cash is one of the
method to raise funds from the market. In this report document, risk and return inherent in the
financial capital market has been analysed. After that contemporary issues impacting the
financial investment decision and sustainable financial market have been evaluated.
Objective of the report
The main purpose of this report is to analysis the Payday/ Cash advance lending
industry in Australia.
Purpose of the report
The main purpose is to analysis the risk and return inherent in Payday/ Cash advance
lending industry in Australia.
Overview of the Cash Advance Lending
Payday/ Cash advance lending is defined as process which could be used by person to
get the money in emergency if he cannot wait until the payday. With the high volatility in the
Australian capital market, many investors use this Payday/ Cash advance lending to grab the
investment opportunity and create value on their investment.
Payday/ Cash advance lending have been known as small loan market which is valued
approximately $ 400 million a year within 12 months (Robinson, & Schwartz, 2017).

Financial: Banking finance and capital market analysis 3
There are several ways which could be used by investors or other person to raise the
funds from as bank loan, overdraft, commercial paper and letter of credit. However, Payday/
Cash advance lending is the most desirable option to raise the funds within no time. In USA.
UK, Payday/ Cash advance lending has reflected average growth of 22% since last three year
which is remarkable achievement (Marston, Banks, & Zhang, 2017).
Risk and opportunity in the Payday loan market
Payday/ Cash advance lending is accompanied with the high complexity and paper
work. If borrower wants to raise funds from the Payday/ Cash advance lending market then
he firstly needs to write a personal check payable to lender for the amount of capital which he
wrote in the favour of company. After that, lender will lend the money to borrower subject to
the fees charged for the same. Nonetheless, Payday/ Cash advance lending provides easy and
fast availability to borrowers but the fees and amount charged for this is comparatively high.
In addition to this, if borrowers do not make repayment in time then the penalty charges and
other consequences are also high (Stegman, 2017).
Analysis of Payday loan market in USA
The Payday/ Cash advance lending amount is deducted or debited next payday. In
USA success of the Payday/ Cash advance lending is highly remarkable which have become
other venture investors to invest in this market in their respective countries. The success of
Payday/ Cash advance lending is USA has been taken as perfect support pillar for the
investors and borrowers to raise the funds from this mode. Small investors and other
companies have been using this Payday/ Cash advance lending to raise the funds instantly
and meet their requirements (Adeniyi, Whysall, & Brown, 2017).

Financial: Banking finance and capital market analysis 4
Source: https://www.statcan.gc.ca/pub/75-001-x/10407/9617-eng.htm
Payday/ Cash advance lending is the good option to raise the funds but in USA many
of the borrowers do not like this mode of raising funds due to its costing and penalties
charges. As per the federal rules and regulations, Payday/ Cash advance lending has been
regulated like other financial market (Williams, 2017).
There are certain requirements which needs to be complied by the investors before
applying for Payday/ Cash advance lending. It is analysed that the principle loan amount
cannot exceed AUD $ 1500 minimum fees charged on the loan would be 15%. The credit
check will not perform until investors report to credit information services. Borrowers needs
to have employment record and bank account on which they will write checks. These are the
basic conditions which needs be fulfilled by the borrowers before raising funds through
Payday/ Cash advance lending (Raman, et al. 2017).
Source: http://www.responsiblelending.org/research-publication/fact-v-fiction-truth-
about-payday-lending-industry-claims
With the increased GDP rate and national income of Australia, it is analysed that
companies may use Payday/ Cash advance lending process to raise instant money
requirement in their business. However, venture capitalist could also use this Payday/ Cash
advance lending to set up a business plan to create value on their investment. The main
reason of success of Payday/ Cash advance lending is based on its easy availability of the
funds and less complex compliance program (Servon, 2017).
. The Payday/ Cash advance lending loan size from # 100 to $ 1000, based on the
state of legal compliance. The interest fees charged and penalties imposed is based on the
certain criteria which needs to be followed by Payday/ Cash advance lender. The main

Financial: Banking finance and capital market analysis 5
benefit of Payday/ Cash advance lending is related to no security deposit and zero charge
creation on the assets of borrowers. Borrowers only have to comply with the certain rules and
regulations and documents. Nonetheless, failure to pay back the loan under the Payday/ Cash
advanc1e lending may result to high penalties and charges on borrowers (Cuffe, & Gibbs,
(2017).
Source: https://www.citizensadvice.org.uk/about-us/how-citizens-advice-works/
media/press-releases/cap-on-the-cost-of-credit-will-help-fight-exploitative-payday-lending/
The amount of fees charged under the Payday/ Cash advance lending is based on the
amount of capital raised. However, fees increases with the increase in the principle borrowed
amount (Chague et al. 2017).
Investors Amount of Capital
borrowed
Charges Total back payment
XYZ $ 100000 10% $ 1,10,000
CBA $ 1,50,000 15% $ 172500
GHJ $ 2,00,000 15% $ 2,30,000

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The table give above reflects that the % of interest charges under Payday/ Cash
advance lending will increase with the increase in the borrowed amount (Ramirez, 2017).
The banking and finance sector of the Australia is stable and reflects the positive
outcomes. In addition to this, increased balance of trade and high inflow of foreign exchange
reserve may also be the positive point for the borrowers to raise the capital from the market in
no time (Robinson, & Robinson, 2018).
Source: http://www.res.parl.gc.ca/Content/LOP/ResearchPublications/prb0581-e.html
As per the rules and regulation of the Reserve Bank of Australia, bank interest rate
and repo rate have been decreased with a view to increase the flow of capital in Australian
market. However, RBI has also promoted Payday/ Cash advance lending to lend the funds to
borrowers for their particular needs. Payday/ Cash advance lenders also has to comply with
the certain rules and regulations of the RBI in this financial capital market. However, they are
not regulated by the RBI as like other banks. Borrowers are more inclined to raise funds from
the Payday/ Cash advance lending when there is high flow of cash in Australian economy,
availability of the investment opportunity, high volatility in the capital market and increased
level of foreign exchange risk exposure (Mayer, & Martin, 2017).

Financial: Banking finance and capital market analysis 7
Source: https://consumerist.com/2013/04/26/the-average-payday-loan-borrower-
spends-more-than-half-the-year-in-debt-to-lender/
For instance, if ABC investors has option to invest in the foreign exchange market and he
finds that he could create arbitrage profit by entering into the certain future and forward
contract with the banks, then in this case, he would analysis the whether the return on capital
invested is more than the cost of capital raised from the market. In addition to this, easy
availability of funds is given by Payday/ Cash advance lending will be much of use for the
borrowers to create value on their investment (Melzer, 2011).
Reflection on the pay day loan
I have observed that Payday/ Cash advance lending is the most attractive lending
options available to borrowers to raise the funds from the market in instant time. It will assist
borrowers book the investment opportunity to create value on their investment. Payday/ Cash
advance lending charges high interest amount. Therefore, borrowers needs to make sure
whether the return available in the investment object is more than the cost of capital. Payday/
Cash advance lending should be taken only for the short time period. In long term, Payday/
Cash advance lending will be the highly costly for the borrowers. Now I could inferred that
Payday/ Cash advance lending should be used only in case of emergency or when attractive
investment options is available for the investors.

Financial: Banking finance and capital market analysis 8
Conclusion
With the ramified changes in economy, Payday/ Cash advance lending has been
gaining momentum in Australia. There are several venture capitalist who are investing their
money in Payday/ Cash advance lending business process to create value on their investment.
However, it is the best option for the borrowers to raise funds in no time at the time of
emergency. Nonetheless, the Payday/ Cash advance lending will become highly costly when
the loan amount is raised for the long term. The penalties and other consequences are also
very high which should also be taken into consideration by the investors.

Financial: Banking finance and capital market analysis 9
References
Adeniyi, O., Whysall, P., & Brown, A. (2017). Commercial locations and Social Deprivation:
A Critical Assessment of Alleged Anti-Social Retailers’ Locations and Socio-
economic Deprivation.
Chague, F., De-Losso, R., De Genaro, A., & Giovannetti, B. (2017). Well-connected short-
sellers pay lower loan fees: A market-wide analysis. Journal of Financial
Economics, 123(3), 646-670.
Cuffe, H. E., & Gibbs, C. G. (2017). The effect of payday lending restrictions on liquor
sales. Journal of Banking & Finance, 85, 132-145.
Marston, G., Banks, M., & Zhang, J. (2017). The role of human emotion in decisions about
credit: policy and practice considerations. Critical Policy Studies, 1-20.
Mayer, R. N., & Martin, N. (2017). The Power of Community Action: Anti‐Payday Loan
Ordinances in Three Metropolitan Areas.
Melzer, B. T. (2011). The real costs of credit access: Evidence from the payday lending
market. The Quarterly Journal of Economics, 126(1), 517-555.
Raman, G., Arnold, R., & Samuel, D. A. Y. (2017). U.S. Patent Application No. 15/209,407.
Ramirez, S. (2017). Payday-Loan Bans: Evidence of Indirect Effects on Supply.
Robinson, C., & Robinson, D. (2018). Ethical Issues Related to Payday Lending. In Payday
Lending in Canada in a Global Context (pp. 129-145). Palgrave Macmillan, Cham.
Robinson, C., & Schwartz, M. (2017). A Corporate Social Responsibility Analysis of Payday
Lending.
Servon, L. (2017). Are Payday Loans Harmful To Consumers? Response To
Horowitz. Journal of Policy Analysis and Management, 36(1), 255-258.
Stegman, M. A. (2017). Payday lending. Journal of Economic Perspectives, 21(1), 169-190.
Williams, L. (2017). Risk: Real property changes: Risk management tips for solicitors. LSJ:
Law Society of NSW Journal, (30), 76.

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Appendix

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https://www.google.co.in/search?
q=financial+and+global+market+risk+in+australia+stats&source=lnms&tbm=isch&sa=X&v
ed=0ahUKEwj50tbdlcvaAhUDy7wKHcjtDgwQ_AUICygC&biw=1366&bih=588#imgrc=_

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Financial: Banking finance and capital market analysis 13