The payday loans market has been one of the few areas in the world of personal finance to have seen significant growth since 2008. Whilst major lenders have been tainted by PPI mis-selling, huge losses and intense consumer backlashes, the short term loans market has grown dramatically. As traditional High Street lenders evaluated and became more selective with their lending criteria, short-term, high interest lenders filled a sizable gap in the market. As a result, the sector grew from around £900m in 2008/09 to £2.2bn in 2011/12.
But there are choppy waters ahead for the sector, and not just from the storm that the Financial Conduct Authority is creating. There are also bleak forecasts online, which could see some of the sectors biggest names disappear from view.
The decline of payday loans in search
One of the key findings from the Stickyeyes Consumer Finance Intelligence Report 2014 is that payday loan providers are struggling to retain their market visibility when compared to 12 months ago.
However, online interest in payday loans has fallen in 2014 (although admittedly, at a smaller rate than the loans market overall). In 2011/12, payday loans were the second-most search for financial product (behind car insurance), with 21% of all searches in the market relating to PDLs. In 2013/14, that figure was just 9%, placing payday loans behind car insurance, mortgages, travel insurance and personal loans.
This creates significant challenges for growth in the payday loans sector, particularly as it is one that Google is watching very closely.
Keeping on the right side of Google
Google has made no secret of the fact that it considers the payday loan search results to be particularly ‘spammy’, with the search giant releasing a number of algorithm updates specifically targeted at the payday loans market.
As a result, we have seen the quality of the search engine results pages (SERPs) improve dramatically between 2013 and 2014. We have seen the average domain authority (DA) in the payday loans market increase from 34 to 47 (out of a possible 100), whilst the number of unique domains across the search results has more than halved – dropping from 118 to 56.
This reflects a much more selective and exclusive SERP than before, with Google rewarding those brands that enhance the user experience and making it harder for new or less credible brands to rank through the use of ‘spammy’ search techniques.
These factors are the result of the growing prominence of price comparison sites, which are squeezing out payday lenders from the organic search positions.
Following a series of Google algorithm updates, 60% of the brands that were previously indexed have been removed from the top 10 including Pay Day Express, which had almost 20% of available click share in 2012. These have been replaced by sites such as Money.co.uk (which holds almost a quarter of the overall click share), MoneySavingExpert and MoneySupermarket. Whilst offering a comparison service, these brands also host a wealth of information for consumer benefit which is testament to the value of content in the current search landscape.
Many lenders are addressing this challenge through paid search, with Quick Quid in particular adopting an aggressive paid search campaign to take close to 25% of the total paid click share across the top ten brands. Six of the ten most visible paid search brands do not appear in our top ten for organic search.
However, this may not be a viable search strategy long-term. With the Financial Conduct Authority about to significantly cap the profitability of payday loan products, can lenders afford aggressive paid campaigns in the long term?
The FCA is clamping down
The payday loans industry is one that has drawn a considerable level of media and regulatory scrutiny. Both the Advertising Standards Agency (ASA) and the Financial Conduct Authority (FCA) have previously clamped down on a number of operators for breaches of their respective code of practice, whilst media scrutiny on a number of operators has remained high.
In July 2014, the FCA announced a series of measures to, in its view, clean up the industry. These included a cap on interest rates, limits to how many times a loan can be extended (known as ‘rolling over’) and a cap on default charges. It has been suggested that as many as half of the lenders operating in this sector could either withdraw or be excluded from the market as a result of these changes.
But if Google is squeezing out lenders from organic search, and the FCA is taking steps that could make paid search unviable for many brands, where does that leave the industry?
Remember Google’s mantra: “Don’t be evil”
You don’t have to search far for complaints about the way payday lenders operate and the industry will continue to attract conflicting views.
But Google has made it clear that offering an attractive proposition, meaningful and valuable content and providing an enriching online experience for its users is what will be rewarded. The lenders that remain in the industry and revamp their proposition and their communication methods to suit Google’s tougher algorithms will be the ones that take the greater chunk of a seemingly diminishing marketplace.
To read the insight in full, request your free copy of the 90-page Stickyeyes Consumer Finance Intelligence Report.