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Wonga.com

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Wonga.com
Company typePrivate
Wonga.com
IndustryTechnology Finance
Founded2006
FounderErrol Damelin,
Jonty Hurwitz
Headquarters
London
,
United Kingdom
Key people
Errol Damelin, (CEO)
Neil Wass (COO)
ProductsPayday loans and Short-term high-interest credit
Number of employees
220
Websitewww.wonga.com

Wonga.com Ltd of London, UK, is a payday loan[1][2][3][4] company currently charging its borrowers a "representative" 4,214% APR rate as of August 2012.[5][2] It also owns a subsidiary known as Wongabusiness.com which has extended the payday loan model to small business.[6] It was the first company to use fully automated risk processing technology,[7] providing short-term, unsecured personal loans online and via mobile. The company was founded by Errol Damelin and Jonty Hurwitz.[8] The initial product was launched in October 2007 [9] and subsequently was the first to provide an instant lending app on the iPhone.[10] As of February 2012, it had funded over 3 million loans.[11]

Products

Wonga.com

Wonga.com offers loans up to £400 for new customers and up to £1000 for existing customers for 1–30 days.[12] Customers select the amount and number of days using two sliders as the total cost of credit is displayed. Total cost is calculated in real-time as 1% percent simple interest per day on the loan amount and transmission fee, equivalent to £1 for every £100 borrowed per day.[13] Required information is entered and a decision is returned immediately. If successful, funds are deposited into the customer's bank account in an hour. +[8]

WongaBusiness.com

Wonga for Business offers loans between £3,000 and £25,000 (£10,000 for new customers) for any term between one and 52 weeks.

History

Wonga was founded by Errol Damelin and Jonty Hurwitz in October 2006.[8] Both founders had previous start-up experience, however neither had any experience of retail banking.[14] When they first started looking for funding, potential investors saw the short-term, small-loans business as an unprofitable, risky backwater.[15] After being denied funding by UK banks, venture capital was eventually secured through Balderton Capital and angel investors.[16] The first place of business was in a shared office space in St. John's Wood, London.[17] After a year of development a beta website was launched in 2007.[18] In interviews, Damelin has said that the goal was to disrupt the short-term credit industry by providing transparency, exact control of amount and payment date, immediate access to funds, and no faxing or emailing documents.[15] The business model of lending only to those who could pay back reliably, as opposed to the much wider catchment practice of payday loans required an algorithm that could fully determine risk in an automated manner - something they had difficulty developing in the early stages. In order to get funds directly to customer's bank accounts as quickly as possible, cooperation from leading banks was required. Banks were reportedly dismissive of Wonga's plan saying they would not be totally satisfied with customer identity without physical documentation.[15]

Within five minutes of launch, the first loan application was processed, within a week the first loan default occurred.[15] The subsequent months of operation showed increased demand, however traditional methods of credit risk assessment proved inadequate and the company experienced high default rates. The company used this period to gather data on customer behaviour and began developing their own proprietary risk technology. The full market launch of Wonga.com was July 2008 and 100,000 loans were reached by June 2009.[19] Through the experience of processing these loans, the company developed technologies which began to dramatically reduce the percentage of defaults. In July 2009 Wonga raised a further £17m of funding in a Round B led by Accel Partners, Greylock Partners and Dawn Capital which improved the technology and the launch in December 2009 of the first end-to-end iPhone credit app.[10] A third round of funding was completed for £73m led by Oak Investment Partners including additional investors Meritech Capital and the Wellcome Trust.[20] By the end of 2011, Wonga's technology could reliably reject 2/3 of applications and predict to 93% accuracy the ability of a customer to repay a loan.[11]

Criticism and debate

Wonga has been criticized in the Harvard Business Review as "The worst business model in the world".[21] The criticism found fault with Wonga as being economically, strategically, competitively, and ethically "bankrupt".

GE Loans, a subprime[1] UK lender, has announced that it will no longer consider applicants for mortgages who have utilized Wonga and other payday lenders, even if the money was repaid,[1] this followed a decision by the credit reporting agency Experian to separately list payday loans[22] and was viewed by Dow Jones Marketwatch as "further evidence that payday borrowing can impact a person's ability to use other financial products in the future."[22]

Wonga has been criticised for an Annual Percentage Rate (APR) of over 4,000%.[23] A House of Commons committee[24] disputes the relevance of APR as a comparison method proposing to replace it with total cost of credit.[25] The interest rate shown increases exponentially the shorter the term and is compounded to represent how the loan period would look if spread across a year,[24] even though Wonga states that they do not offer loans for a year.[26] It is "often not be the most informative measure of the cost of credit" according to Edward Davey MP, Minister for Employment Relations, Consumer and Postal Affairs.[25] Wonga displays the APR on its website, along with actual interest rate and total cost of credit.

An Early Day Motion tabled in November 2011 highlighted Wonga's high APR and seeks to restrict the level of interest that can be charged on all loans by financial institutions.[27] MP Stella Creasy also has proposed legislation for interest rate caps.[28] A Policis report on proposed interest rate capping said it would cause an exit from the market and those with access to the credit mainstream would be diverted to products such as overdrafts and revolving credit that could be higher cost than high APR products and those without access to credit would be diverted to the black credit market.[29] The Times said capping will further limit the availability of credit to people from regulated entities.[30]

A Daily Mirror article claims that if a customer fails to repay a loan with Wonga, interest will continue to accrue on the balance.[31] Wonga states that if the money is not available on the day a customer has nominated to pay it back, a £20 fee will be charged and interest will accrue for a maximum of 60 days[12] and does not allow automatic "rolling over" of loans, limiting to specific requests and to a maximum of three instances in accordance with the Finance and Leasing Association lending code.[32][33]

In May 2012 the company was informed by the Office of Fair Trading that it must improve its debt collection practices, after it emerged it had sent letters to customers in 2010 accusing them of committing fraud. Wonga has appealed the decision and said it believes it had grounds for suspecting dishonest conduct by the specific customers to whom letters were sent, that they were sent on isolated occasions more than 18 months ago and have not been sent since that time. It stated that it had put in place procedures to make sure similar problems did not occur in future, and that it now referred cases of suspected fraud to an in-house team to investigate. The phone scripts had not been used since January 2010, it said.[34]

See also

Awards

  • Fastest Growing Company - Media Momentum Awards 2012[35]
  • Number 1 in The Sunday Times Tech Track 100 2011 [36][37]
  • Winner The Guardian Digital Innovation Digital Entrepreneur Award 2011[38]
  • Credit Excellence Award in Consumer Credit Management 2010[39]
  • UK Customer Experience of the Year, Financial Services 2010[40]
  • The Sunday Times Top 100 Best Small Companies to Work for 2011[41]
  • Alternative Lender of the Year - Credit Today Magazine 2010[42]
  • Webby Awards Best Site of the Year, Banking & Bill Payment 2010[43]
  • Fastest Growing Business in Europe - Media Momentum Awards 2010[44][45]

References

  1. ^ a b c http://www.guardian.co.uk/money/2012/jul/12/ge-money-refuses-mortages-payday-loans?newsfeed=true
  2. ^ a b http://www.guardian.co.uk/business/2012/mar/01/wonga-real-cost-payday-loan
  3. ^ http://www.portsmouth.co.uk/lifestyle/payday-loans-road-to-ruin-or-a-lifeline-1-4090408
  4. ^ http://www.reuters.com/article/2012/05/07/net-us-wonga-idUSBRE84605720120507
  5. ^ http://www.wonga.com/money/apr/
  6. ^ http://techcrunch.com/2012/05/07/wonga-extends-its-payday-loans-to-small-businesses-in-uk/
  7. ^ Lewis, Tim (16/10/2011). "Your prosperity could count on an algorithm". The Observer. Retrieved 17/03/2012. {{cite news}}: Check date values in: |accessdate= and |date= (help)
  8. ^ a b c Basheera Khan. "Wonga.com to expand globally following $22m financing round". Retrieved 2011-12-7. Founded by Errol Damelin and Jonty Hurwitz, Wonga provides cash advances to UK consumers {{cite web}}: Check date values in: |accessdate= (help)
  9. ^ wonga.com. "About Wonga". Retrieved 2011-12-7. {{cite web}}: Check date values in: |accessdate= (help)
  10. ^ a b Heming, Tim (18/01/2010). "Now iPhone for an instant loan". The Sun. {{cite news}}: |access-date= requires |url= (help); Check date values in: |accessdate= and |date= (help); Unknown parameter |name= ignored (help)
  11. ^ a b Krieger, Candice (9/2/2012). "We want to be as big as Apple, says Wonga chief". The Jewish Chronicle. Retrieved 17/03/2012. {{cite news}}: Check date values in: |accessdate= and |date= (help); Unknown parameter |name= ignored (help)
  12. ^ a b Murray-West, Rosie (19/09/2011). "Wonga's interest rate of 4,200pc? It's not an automatic red card". The Daily Telegraph. Retrieved 17/03/2012. The company's loans of up to £400 are available for one day to a month, and interest is charged at 1pc a day. {{cite news}}: Check date values in: |accessdate= and |date= (help)
  13. ^ Palmer, Maija (24/05/2009). "Wonga pushes web loan innovation". The Financial Times. Retrieved 17/03/2012. {{cite news}}: Check date values in: |accessdate= and |date= (help)
  14. ^ "Errol Damelin, founder and CEO, Wonga". Guardian. 01/05/2011. Retrieved 19/03/2012. {{cite news}}: Check date values in: |accessdate= and |date= (help)
  15. ^ a b c d Shaw, William (05/05/2011). "Cash machine: Could Wonga transform personal finance". Wired. Retrieved 19/03/2012. {{cite news}}: Check date values in: |accessdate= and |date= (help)
  16. ^ Kaplan, Dan. "Wonga, the fastest personal loan you can get". Venture Beat. Retrieved 29 March 2012.
  17. ^ O'Sullivan, Alan. "Wonga, best of a bad bunch". This is Money. Retrieved 18/03/2012. {{cite web}}: Check date values in: |accessdate= (help)
  18. ^ Quinn, James (10/4/2011). "Wonga sees opportunity for growth in Ireland". The Telegraph. Retrieved 19/03/2012. {{cite news}}: Check date values in: |accessdate= and |date= (help)
  19. ^ "Angel or VC-backed Business of the Year, Wonga.com". Growing Business. Retrieved 19/03/2012. {{cite web}}: Check date values in: |accessdate= (help)
  20. ^ Moules, Jonathan (16/2/2012). "Wonga raises £73m to feed loan appetite". Financial Times. Retrieved 19/03/2012. {{cite news}}: Check date values in: |accessdate= and |date= (help)
  21. ^ http://blogs.hbr.org/haque/2009/06/wonga.html
  22. ^ a b http://www.marketwatch.com/story/payday-loans-are-the-hit-and-run-of-financial-products-2012-07-18
  23. ^ Simon Bowers. "Wonga boss fights back against critics". Retrieved 2011-12-7. {{cite web}}: Check date values in: |accessdate= (help)
  24. ^ a b "Business, Innovation and Skills Committee". House of Commons Committee on Business Innovation and Skills. Retrieved 17/03/2012. {{cite web}}: Check date values in: |accessdate= (help)
  25. ^ a b "BIS Select Committee Debt Management". Business, Innovation and Skills Committee for Parliament. Retrieved 17/03/2012. {{cite web}}: Check date values in: |accessdate= (help) Cite error: The named reference "BIS Report" was defined multiple times with different content (see the help page).
  26. ^ Murray-West, Rosie (19/11/2011). "Wonga's interest rate of 4,200pc? It's not an automatic red card". The Daily Telegraph. Retrieved 16/03/2012. because it offered loans limited to 30 days, the APR was not relevant, and the loan was often cheaper than unauthorised bank charges for the same amount. {{cite news}}: Check date values in: |accessdate= and |date= (help)
  27. ^ "Early day motion 2448 - LEVEL OF INTEREST RATES ON LOANS". Retrieved 2011-12-7. {{cite web}}: Check date values in: |accessdate= (help)
  28. ^ Creasey, Stella. "Consumer Credit (Regulation and Advice) Bill 2010-12". UK Parliament. Retrieved 18/03/2012. {{cite web}}: Check date values in: |accessdate= (help)
  29. ^ "Briefing note on the potential impact of price caps on low income credit users" (PDF). Policis. Retrieved 18/03/2012. Some of those who lose access to credit will be diverted to the black credit market, where costs and risks will be significantly higher and outcomes more damaging {{cite web}}: Check date values in: |accessdate= (help); line feed character in |quote= at position 92 (help)
  30. ^ King, Ian (24/01/2012). "Lending in the Public Interest". The Times. Retrieved 18/03/12. The upshot of placing restrictions on the terms at which payday loan companies do business will further limit the availability of credit to people from regulated entities. Such customers will then, likely as not, head to unregulated lenders whose complaints management procedure involves not the Financial Services Authority but baseball bats and snarling dogs. {{cite news}}: Check date values in: |accessdate= and |date= (help)
  31. ^ "Why credit cards are better than payday loans". Daily Mirror. 24/2/2012. Retrieved 18/03/12. {{cite news}}: Check date values in: |accessdate= and |date= (help)
  32. ^ "Lending Code 2012". Finance and Leasing Association. Retrieved 18/03/2012. {{cite web}}: Check date values in: |accessdate= (help)
  33. ^ Read, Simon (30/1/2012). "Roll Over Curbs Agreed by WOnga". The Independent. Retrieved 18/03/2012. Britain's biggest payday loan company, Wonga, has signed up to a new code of practice being introduced on Wednesday that will restrict the number of times a loan can be extended. {{cite news}}: Check date values in: |accessdate= and |date= (help)
  34. ^ OFT criticises Wonga debt collection practices (retrieved 22 May 2012)
  35. ^ "Media Momentum Awards".
  36. ^ "Sunday Times TechTrack 100". Fastrack & Sunday TImes. Retrieved 16/03/2012. {{cite web}}: Check date values in: |accessdate= (help); Unknown parameter |name= ignored (help)
  37. ^ "Toast of the Tech Champs". The Sunday Times. Retrieved 16/03/2011. {{cite news}}: Check date values in: |accessdate= (help)
  38. ^ "Guardian Digital Innovation Awards Winners 2011". The Guardian. 24/03/2011. Retrieved 16/03/2012. {{cite news}}: Check date values in: |accessdate= and |date= (help)
  39. ^ "Credit Excellence Awards". Credit, Collections & Risk Magazine. Retrieved 16/03/2012. {{cite web}}: Check date values in: |accessdate= (help)
  40. ^ "UK Customer Experience Awards 2012". UK Customer Experience Awards. Retrieved 16/03/2012. {{cite web}}: Check date values in: |accessdate= (help)
  41. ^ "The Sunday Times Best Companies to Work for 2011". The Sunday Times. Retrieved 16/03/2012. {{cite web}}: Check date values in: |accessdate= (help)
  42. ^ "Credit Today Awards". Credit Today Magazine. Retrieved 16/03/2012. {{cite web}}: Check date values in: |accessdate= (help)
  43. ^ "Webby Awards 2010". Webby Awards Inc. Retrieved 16/03/2012. {{cite web}}: Check date values in: |accessdate= (help)
  44. ^ "Media Momentum Awards 2010". GP Bullhound Summit. Retrieved 16/03/2012. {{cite web}}: Check date values in: |accessdate= (help)
  45. ^ Barnett, Emma (13/05/2010). "Winners of the Media Momentum Awards 2010: Wonga, Bigpoint and Venteprivee". The Telegraph. Retrieved 16/03/2012. {{cite news}}: Check date values in: |accessdate= and |date= (help)
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