The forces of Porter’s five forces model include the threat of new entrants, the threat of substitutions, the bargaining power of customers, the bargaining power of suppliers, and industry rivalry. In the payday loan industry, the emergence of new lenders provides stronger competition within the industry, thus making it difficult for industry leaders to maintain the level of business and incoming revenue that they may have once experienced. Due to the easy accessibility and convenience of payday lending options, emerging competitors make the industry more redundant in terms of effective competition. Since consumers are able to reap the same benefits among most payday lenders, the threat of new entrants strengthens the inability to monopolize the market.
On the other hand, the threat of substitutions has been present before the modern concept of payday lenders. Banks and credit unions have made a tradition out of providing loans and lines of credit to consumers, both of which typically have more substantial monetary value than what a payday lender can offer. Substitutions in this regard provide more flexibility regarding repayment terms and can prove to be more lucrative by assessing smaller amounts of interest over a longer period of time. While this provides consumers with easier, long-term payment options, they often get stuck in a longer cycle of debt than what a payday lender may assess.

The bargaining power of consumers and suppliers is often limited in payday lending institutions. The amount of credit which consumers can take out is usually predetermined by polices of the lender that they are borrowing money from. These can be based on the income of the consumer, how frequently they are paid, and other factors based on how likely they are to pay back their debt to the lender in full. In this sense, the bargaining power of the supplier is often determined systematically by preconceived terms. As far as the consumer is concerned, their bargaining power is limited by their income, credit, and other determining factors of the credit they can receive through these institutions. In this sense, their bargaining power only exists in the sense that they can choose the monetary amount to borrow, assuming that it doesn’t exceed the maximum predetermined amount. This bargaining power may vary among institutions and can be attributed to industry rivalry. While new entrants may not have the resources needed to accommodate even those with bad credit or no income, the most notable rivals in the payday lending industry offer this flexibility and more bargaining power for the supplier.

The strength rating of these forces reveal that the payday lending industry is one which has had proven success, thus indicating the demand for borrowing money by the average consumer. Since the industry began thriving in the 1980’s and has shown much promise in terms of competitors and consumer appeal, the attractiveness of the payday lending option indicates a debt problem across the nation. This phenomenon has been shown to be lucrative for the industry, as many consumers that find themselves relying on credit end up in a hard-to-break cycle. This creates returning customers, which stimulates the revenue of their payday lender of choice. The seemingly attractive features of the payday lending industry have made it easier for consumers with less-than-perfect credit to access money that they do not have. This industry has proven to be effective by driving up debt levels of those who may not have had such significant problems in the past. The strengths of these five forces shows that while there is a limited amount of bargaining power, especially regarding the consumer, the supposed need for a payday advance is great enough for the market to grow within a relatively short period of time.