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Despite 4,200% interest rates and aggressive advertising, the payday lender sees itself as a social champion. We find out why
Errol Damelin wants to get one thing straight: Wonga isn’t a loan shark or a payday lender.
The internet company has spent millions plastering its brand on football shirts and Tube trains to find customers for its quick and easy loans at astronomical interest rates. Just don’t mix it up with the shabbier end of the financial industry — at least within earshot of Damelin, its fast-talking South African founder.
“The reality is that the product is completely different,” he said. “We offer daily cash advances. Yes, we are an alternative to a payday loan, but we are much more of an alternative to bank overdrafts or credit cards.”
He likes to think of Wonga as a consumer champion — a money lender that has harnessed technology so people can be granted a short-term loan in 20 minutes. All its customers have bank accounts, and most have credit cards, but that hasn’t stopped Wonga dishing out 2m loans to them in three years.
In courting consumers, it has had to court controversy. But can Damelin’s formula turn Wonga into one of Europe’s internet giants? The early signs are promising. Accounts to be filed next month at Companies House will show that Wonga’s turnover rose fourfold last year to £74m.
Damelin said it hasn’t thrived because the banks have stopped lending, but because of the convenience it offers.
Do you need cash in a hurry for concert tickets or a weekend break? Borrow £200 for two weeks and you will end up paying back the principal, plus £33.88 in fees and interest. That sum includes a £5.50 transaction charge and interest at 1% per day.
Put that way it doesn’t sound too hefty, but the 4,214% representative annual percentage rate (APR) Wonga must display on its website tells a different story. Because its loans are limited to 30 days, an annual rate isn’t relevant, Damelin said — and just think what those unauthorised overdrafts and credit card charges add up to.
You don’t need to spend much time with him to see the scale of his ambition. “If you look at the growth rates here, we have grown faster than almost any company in history,” he said.
Damelin’s benchmark is high. Research from the venture-capital industry suggests Wonga compares favourably with the early days of hot internet stocks such as Twitter, Groupon and Google — and none of these achieved profitability so soon.
Damelin added: “We want to build something that when people think about cash and credit they think about Wonga, just like you can’t think about online retail now without thinking about Amazon, or payments without PayPal, or search without Google.”
The backers of the north London company include Balderton Capital and Silicon Valley’s Accel Partners and Greylock Partners. Wonga raised £73m in February when Wellcome Trust, Britain’s largest medical charity, joined the shareholder list.
“Wonga picked a large existing market and totally disrupted it, similar to how Skype redefined the telecommunications industry, or Spotify in music,” said Frederic Court at Advent Venture Partners.
It might have wowed the internet community but politicians aren’t so sure. The company has been caught in the crosshairs of a campaign by Stella Creasy, the Labour MP for Walthamstow, to introduce a rate cap on personal loans to protect vulnerable consumers.
“Wonga is a legal loan shark within the market that it operates,” said Creasy, adding that consumers can be trapped if loans are rolled over by short-term lenders.
Consumer Focus, the government watchdog, suggested last year that struggling families should not be allowed to take out more than five loans a year to tide them over until payday.
Wonga’s customers typically use the website three times a year, borrowing an average of £180 each time.
Predictably, Damelin doesn’t want to see further legislation, citing the distance marketing and data protection rules Wonga must comply with, plus its Office of Fair Trading credit licence. “There is a lot of regulation in this space, much more than for almost any other sector,” he said.
Nor is Wonga lending to everyone. Its software checks 8,000 bits of public data for each application, only to reject two-thirds of applicants.
International expansion is already being mooted, with Australia and Canada on the horizon. However, state-by-state regulation in America means it won’t be easy there.
The Sunday Times
Errol Damelin wants to get one thing straight: Wonga isn’t a loan shark or a payday lender.
The internet company has spent millions plastering its brand on football shirts and Tube trains to find customers for its quick and easy loans at astronomical interest rates. Just don’t mix it up with the shabbier end of the financial industry — at least within earshot of Damelin, its fast-talking South African founder.
“The reality is that the product is completely different,” he said. “We offer daily cash advances. Yes, we are an alternative to a payday loan, but we are much more of an alternative to bank overdrafts or credit cards.”
He likes to think of Wonga as a consumer champion — a money lender that has harnessed technology so people can be granted a short-term loan in 20 minutes. All its customers have bank accounts, and most have credit cards, but that hasn’t stopped Wonga dishing out 2m loans to them in three years.
In courting consumers, it has had to court controversy. But can Damelin’s formula turn Wonga into one of Europe’s internet giants? The early signs are promising. Accounts to be filed next month at Companies House will show that Wonga’s turnover rose fourfold last year to £74m.
Damelin said it hasn’t thrived because the banks have stopped lending, but because of the convenience it offers.
Do you need cash in a hurry for concert tickets or a weekend break? Borrow £200 for two weeks and you will end up paying back the principal, plus £33.88 in fees and interest. That sum includes a £5.50 transaction charge and interest at 1% per day.
Put that way it doesn’t sound too hefty, but the 4,214% representative annual percentage rate (APR) Wonga must display on its website tells a different story. Because its loans are limited to 30 days, an annual rate isn’t relevant, Damelin said — and just think what those unauthorised overdrafts and credit card charges add up to.
You don’t need to spend much time with him to see the scale of his ambition. “If you look at the growth rates here, we have grown faster than almost any company in history,” he said.
Damelin’s benchmark is high. Research from the venture-capital industry suggests Wonga compares favourably with the early days of hot internet stocks such as Twitter, Groupon and Google — and none of these achieved profitability so soon.
Damelin added: “We want to build something that when people think about cash and credit they think about Wonga, just like you can’t think about online retail now without thinking about Amazon, or payments without PayPal, or search without Google.”
The backers of the north London company include Balderton Capital and Silicon Valley’s Accel Partners and Greylock Partners. Wonga raised £73m in February when Wellcome Trust, Britain’s largest medical charity, joined the shareholder list.
“Wonga picked a large existing market and totally disrupted it, similar to how Skype redefined the telecommunications industry, or Spotify in music,” said Frederic Court at Advent Venture Partners.
It might have wowed the internet community but politicians aren’t so sure. The company has been caught in the crosshairs of a campaign by Stella Creasy, the Labour MP for Walthamstow, to introduce a rate cap on personal loans to protect vulnerable consumers.
“Wonga is a legal loan shark within the market that it operates,” said Creasy, adding that consumers can be trapped if loans are rolled over by short-term lenders.
Consumer Focus, the government watchdog, suggested last year that struggling families should not be allowed to take out more than five loans a year to tide them over until payday.
Wonga’s customers typically use the website three times a year, borrowing an average of £180 each time.
Predictably, Damelin doesn’t want to see further legislation, citing the distance marketing and data protection rules Wonga must comply with, plus its Office of Fair Trading credit licence. “There is a lot of regulation in this space, much more than for almost any other sector,” he said.
Nor is Wonga lending to everyone. Its software checks 8,000 bits of public data for each application, only to reject two-thirds of applicants.
International expansion is already being mooted, with Australia and Canada on the horizon. However, state-by-state regulation in America means it won’t be easy there.
The Sunday Times
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