Short Term Loan Impacts on Brand Perception

Part
01
of one
Part
01

Short Term Loan Impacts on Brand Perception

An extensive search revealed limited results for parent companies that owned short-term loan companies which negatively impacted their reputations or other business lines. However, three cases of payday lenders align closely, although not completely, with the request instructions. Furthermore, other resources besides case studies corroborate the risk that payday lenders pose to the reputation of other businesses in a parent company's portfolio.

METHODOLOGY

In our first attempt to answer your request, we conducted an extensive search of published examples of a decline in positive brand perception following the addition of a payday loan business to the portfolio of the business. This search failed to return satisfactory results. On the one hand, the information detailing brand damage associated with the ownership of a short-term loan business mostly took the form of industry-level analyses of payday lending, like in this report, or stock evaluations, like in this report, both of which we will discuss later. On the other hand, information that discussed particular payday businesses and individual owners failed to reveal a clear narrative of brand damage to parent companies or other lines of business.

Next, we used this list (see page 18) of parent companies that owned payday lenders and had received a high number of complaints to attempt to establish that these payday lenders had impacted other aspects of the portfolio. As the list used information from 2011, it was outdated, and upon further inspection, the companies listed had either gone of out business, or transformed significantly. Still, this revelation adds evidence to the theory that payday loan business are risky, and led us to one of our examples below: moneysupermarket.com.

Last, we compiled a list of short-term loan businesses that had experienced significant losses, in the form of widespread store closings, compliance and legal issues, or noteworthy bad press. Then, we searched for their parent companies in an attempt to demonstrate a negative impact on their reputations. This search uncovered two businesses that come closer to the request instructions than anything else found: Karrot Personal Loans and LendUp.

MONEYSUPERMARKET.COM

The UK-based website moneysupermarket.com is a major price comparison website. They offer price comparisons on a number of different products, and until 2013, those products included payday loans. However, they stopped offering this comparison because of public scrutiny and criticism. This criticism did not seem to impact their other services, and they have continued to offer a variety of products now, including loans.

KARROT PERSONAL LOANS

Parent company Kabbage recently discontinued its personal loan service, which offered unsecured short-term personal loans. The company cited its decision to focus on small businesses as the reason for the termination of this service. However, we uncovered no evidence that this discontinuation was a result of negative brand perception, but the business does appear to be doing well now and is growing and expanding following this strategic decision.

LENDUP

LendUp, a short-term loan company with the same parent company, Alphabet, as Google, marketed itself as an alternative to payday loans. Ultimately, however, the company had to pay $6.3 million in fines because it miscalculated interest fees and misled its clients. This legal misstep by LendUp reflected negatively on Alphabet, especially because Google had recently announced it would limit the appearance of payday lenders in search results. However, given the institutionality of Google, any assumption that this issue negatively impacted Google's brand perception in a meaningful way is unlikely.

EVIDENCE OF POTENTIAL REPUTATIONAL RISK

A UK-based industry analysis of payday lending companies documented the reputation risk of offering short term loans with high APRs. In pages 240 and 241, the report details that the banks Lloyds and Barclays did not offer products with high APRs because of the "potential brand damage" and "reputational unease." Furthermore, the report explains how Google restricts advertisements about payday lending from appearing among search results, so some businesses are wary of including payday lending because they may receive fewer hits on their website.
Research conducted by investment company Ausbil demonstrates the risk of payday lending companies because of the damage to intangible assets, which it defined as issues like staff morale, brand perception, and customary loyalty. The report further illuminated that intangible assets are increasingly important, citing their growing relevance in S&P 500 market value determination.
In an evaluation of the payday lender Money3 Ltd., Australian underwriting company Hartleys Ltd. assigned the company as a "speculative buy" because of the potential of "reputation risk and associated brand damage."

SUMMARY

Despite a lack of case studies that show the negative impact of short-term loans businesses on other business lines in a parent company's portfolio, three cases demonstrate close to the same effect: moneysupermarket.com, Karrot, and LendUp. Each of these businesses changed or paid because of their payday loan practices, and ultimately affected their parent companies, although to different degrees. Furthermore, other resources corroborate the theory that payday loans represent risky offerings for companies.
Sources
Sources