Author: Daniel O'Boyle
Google is the company that famously included ‘do no evil’ in its original mission statement. This was always a bold claim, and the debate rumbles on about whether it has always lived up to these very exacting standards.
Indeed, in 2015, it decided to drop the motto from its code of conduct in favor of ‘do the right thing.’ While this new wording is a little more open to interpretation, it shows that there’s still a place for sound business ethics in the increasingly powerful, more profitable Google.
Google is currently pointing its moral compass at payday loan providers. Starting 13th July, there will be a complete ban on all Google ads promoting loans that have to be repaid within 60 days. In the US, the ban extends to loans with an APR of 36% or higher.
According to the company’s blog, this policy is “designed to protect our users from deceptive or harmful financial products.” Judging by the tone of most of the media coverage around the short term loan market, Google may have a point. Stories of irresponsible lending practices and heavy-handed debt collection procedures have dominated the industry headlines over recent years.
But how reflective are these headlines of what’s really happening in the payday lending industry?
Over recent years a raft of targeted regulations has been introduced to make the industry more transparent, fair and affordable. These include the Financial Conduct Authority’s cap on interest charges and fees. Any legitimate lender offering short term loans today has jumped through a considerable number of regulatory hoops.
If the regulators are satisfied that these firms are operating responsibly, why isn’t Google?
It’s not only pressure from the regulators that has re-shaped the market. Many lenders are self-aware enough to recognize that their long-term success will be in jeopardy if they risk lending to customers who can’t repay their debts. Credit risk analytics and due diligence procedures are vastly improved, as is customer service. Take for example alternative lender Oakam, which recently picked up an industry award in recognition of its customer-centric service offering.
There’s a bigger point to make. Payday lenders provide a much needed line of credit to those consumers who are often overlooked by traditional lenders.
Today it’s estimated that 2.5 billion people don’t have a credit rating. That’s 2.5 billion people who can’t turn to their bank for a loan or who can’t apply for a credit card. These aren’t always people who are struggling to make ends meet or who have difficulty managing their money. They might just need quick access to money to fund an unexpected expense who don’t have time to wait for a bank to assess their application. They might be someone moving country for work, who only has a credit history in their place of birth.
For these people, short term loans aren’t the ‘harmful or deceptive financial products’ described in Google’s blog. They’re a practical, quick and clearly-communicated way of accessing much needed credit.
In their short history, alternative lenders have been smart enough to spot and plug a gap in the lending market, adaptable enough to meet stringent new regulatory requirements and savvy enough to develop more customer-centric service portfolios.
Google’s ad ban is an inconvenience which will most definitely spark changes in the market. Expect larger brands to snap up smaller companies struggling to gain a foothold in the market, together with increased spending on alternative digital marketing tools, such as SEO and lead generators. But don’t expect the market to disappear. There are just too many consumers who have learnt to rely on and value these services.