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Wonga pushes web loan innovation

Wonga.com, a UK internet loans company, is seeing its business boom in the downturn. With banks reluctant to lend and credit card interest rates rising, thousands of people are coming to the start-up website each month for short-term loans.The company expects to have made more than 100,000 loans by the beginning of next month. Although the loan sizes are small – on average about £200 – Wonga will have lent about £20m since it opened for business just 10 months ago. The company expects revenue of some £15m this year and is already profitable.

Customers tend to be young urban professionals, the 20-40 crowd in first or second jobs, who find themselves short of a few hundred pounds for things such as holidays or unexpected boiler repairs. Interest rates are an eye-watering 1 per cent a day – a £100 loan for two weeks will cost £14. The maximum loan is £750 and the maximum term is 30 days. “We are not cheap,” admitted Errol Damelin, founder and chief executive. “We are a premium service. Its very fast and convenient and you have to pay for that.” Despite its high fees, Mr Damelin believes Wonga is “more honest” than banks, who attract customers with seemingly low rates but often sting them for late payments and overdrafts. “Many people think banks are dishonest when they hang a big sign in the window for loans at 7.9 per cent, but then make their real money when people can’t pay back on time. We are completely upfront about our charges.” Tougher economic times have also benefited a number of other new financial services companies, such as Zopa and Prosper.com, which help customers bypass high street banks. All kinds of payday loans companies have seen a rise in interest. However, Wonga is pushing innovation in this market, harnessing technology to create a faster, slicker, more foolproof service. The online service is entirely automated and available 24 hours a day. Once a user has entered their details, the system pulls in about 1,500 data points to build a picture of their credit history. If accepted, the money can be in a borrower’s bank account within the hour, even at 2am.

Default rates at Wonga are fairly low, less than 10 per cent, which is better than the average for credit card repayments. The company is, however, very selective about who it lends to. Only about 20 per cent of applications are successful.“It’s not for people who constantly need money. If you are £1,000 behind every month, you have a problem and we wouldn’t lend to you. This is for people who, two or three times a year, might be surprised by something and need cash for a short time,” Mr Damelin said. “We try to lend responsibly. We have budgeting tools on the site to help people. We want this to be a sustainable business.”