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Google earns tens, if not hundreds of millions of dollars a year in ad revenue from Retail Forex (and other) brokers. However Google’s recent ban on ads from PayDay Loan lenders clearly shows that Google is willing to forego ad revenue in favor of principle.
Bart Burggraaf, Managing Partner at MediaGroup Worldwide takes an interesting look at the recent Google ban on the PayDay Loans sector, and what it might mean for Forex brokers.
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With the recent news of Google (and Facebook) banning adverts for the payday loan industry globally, Brokers should be concerned too.
Google cites the high interest rate of such loans and the need to protect their users from financial harm as reason for the ban. It is not hard to imagine Google, Facebook and other media companies caving to pressure to ban ads for Forex and Binary options, too, given the high percentages of customers losing money trading these products.
From a wider perspective, this move to ban payday lenders brings into question the role of media companies in censoring advertising and cherry picking industries it likes and doesn’t like. In many jurisdictions, payday lending is not against the law and in fact serves an important role in providing credit to those that need it most. High interest rates are necessary in order to protect against downside risk, and in economies of supply and demand (with a pinch of regulation), should achieve an equilibrium interest rate just above default rates.
So what happened here is that two media companies with a monopoly position in the online advertising market have essentially cut off an entire industry from advertising. Sure, you might not like what these companies do, but what happens when the not so unlikely scenario I laid out above happens, and Google decides that FX trading is bad too?
Now, the payday lending industry ‘enjoys’ a reputation just slightly above Gambling and Porn, so few outside this industry are going to fight for them. I am not a lawyer, but add to that the loose regulation regime for Silicon Valley companies in the US, and it seems that in such cases the European Commissions’ antitrust division could be the only, unlikely, saviour. It has in fact sued companies such as Google and Microsoft for abuse of power and monopoly-like behaviour, so this doesn’t seem outside the realm of possibilities.
Getting back to Brokerages, it is important the industry pulls together and lobbies the public, media companies and governments to stop similar things from happening in this industry. The moment such a decision is announced will be too late to do much about it, so it’s important goodwill is created before. I would say that, given the strict regulation and the required capital to compete in the online trading industry, we see a lot less cowboy brokerages these days. But how much pressure are these gigantic media companies willing to take from the public, before they give up the relatively small income from brokerages?
Sure, there are plenty of other options for advertising your brokerage, but the average online trading company spends 30% or more of their advertising budget on PPC, because it works. I’d hate for that opportunity to go away, however unlikely that might seem right now.