The ancient business of money-lending as updated by Wonga

Wonga has been accused of being the latest success in the history of exploiting poverty through money-lending. Errol Damelin, Wonga’s founder, sees it differently

Wonga is another Google

Mr Damelin sees his company having a similar business model to firms like Google, Amazon, PayPal and Netflix:

“Wonga is a platform for the future of financial services, the digital revolution has not yet begun in financial services . .. Wonga is on a multi-year and multi-decade journey to build the future of financial services, using data and technology to make objective and unprejudiced decisions.

We have built the world’s first, completely straight-through processing system for credit, so when somebody comes to Wonga as an individual, or as a business-owner, and applies for a cash advance, the whole process is completely automated”

Responsible lending

The Wonga website explains its code of contact and its approach to responsible lending

Our service is designed to put you in control of your cash flow, for those occasional times when an unexpected expense catches you by surprise. Unlike most lenders, we enable you to choose exactly how much money you want to borrow – down to the last pound – and for exactly how many days. We don’t force you to borrow a fixed sum you might not need, nor do you accrue interest for longer than necessary. The amount you apply for and the length of the loan naturally affect the cost of repayment too, so you can make adjustments until you’re happy with all elements of your application.

Our technology enables us to assess applications in seconds and helps to ensure we only lend to people whom we believe are able to repay us – we simply aren’t interested in lending to anyone who isn’t. Because we carry out a credit check as part of the application process, you may also see an improvement to your credit history when you repay an online cash advance from Wonga. That’s because we inform our credit bureau partner of your trustworthy behaviour with any timely repayment.
We urge you to think carefully before applying for a Wonga loan, because we expect it to be repaid when you promise to. We describe the potential consequences of failing to do so, [and] offer tips for anyone already struggling with debt.

Applying for any form of credit isn’t a decision to be taken lightly. Please remember that if your Wonga application is approved, it becomes a two-way street and you’ll need to keep a serious promise. We want our relationship to be a happy and trusting one, so we lay out the facts as clearly as possible. Only you can decide whether to apply or not, however, so please only do so if you’re confident you’ll have the funds to comfortably make repayment on your chosen date.

The Business Model

The interest rates are explosively high. And yet, there remains a dilemma. A corporate spokesperson explains the rates in terms of someone deciding to take a black cab for convenience, even if it is expensive.

The Guardian newspaper explored Wonga’s business model.

Last week, [May 2012] the Office of Fair Trading launched a review of the payday lending sector in response to concerns that “some payday lenders are taking advantage of people in financial difficulty” and not meeting “guidance on irresponsible lending”. The OFT said it aimed to drive out companies that are not fit to hold consumer credit licences.

Wonga does not expect to be one of the companies driven out of the market, and the company’s advertising strategy tries to set Wonga aside from the myriad of evocatively named rival online companies that offer money if you Google payday loans.

Note to students of leadership

Wonga is a word found in English vernacular, where it (roughly) means money. Wonga sponsors Blackpool football club. Its business model repays a close study. Breaking news: The Economist examines Wonga’s business.

See also growing media attention to the underlying problems of people needing pay day bridging loans