Wonga.com, also known as Wonga, was a British payday loan firm that was founded in 2006. The company focused on offering short-term, high-cost loans to customers via online applications, and began processing its first loans in 2007. The firm operated across several countries, including the United Kingdom, Spain, Poland, and South Africa; it also operated in Canada until 2016, and in Germany, Switzerland, Austria, and the Netherlands through the German payments business, BillPay, between 2013 and 2017.
The company was responsible for inventing fully automated risk processing technology to provide short-term, unsecured personal loans online, including via tablet and mobile app. However, it also drew wide criticism for the interest it charged, equated to an annual percentage rate (APR) of 1,509%; an example of this was that a loan of £100 over seventeen days (Wonga's average loan term) required £113.60 to repay. The company was criticised heavily by politicians, including former Labour Party leader Ed Miliband as a leading example of predatory lending. The firm's debt collection practices were also scrutinised by the Financial Conduct Authority (FCA), who found the firm had lent money to many who would never be able to repay and Wonga agreed to compensate 45,000 customers for unfair and misleading debt collection practices.
By 2015, the company began to incur losses, which were further increased by discontinuation of sponsorship deals, a data breach in 2017, and a surge of customer compensation claims. Despite an emergency cash injection from shareholders to prevent it becoming insolvent, the firm fell into administration on 30 August 2018, with Grant Thornton appointed to wind down the business, sell assets and identify creditors. By March 2019, administrators noted that compensation claims against the firm increased, but with many claimants unlikely to receive the full value of their claim.
History Founding and growth Wonga was co-founded by Errol Damelin and Jonty Hurwitz in October 2006, who derived the name from the Romany slang term for money that was in use in some parts of Britain since the 1980s.Oxford English Dictionary, 2nd ed. The plan for the company was to disrupt the short-term credit industry with a new branch of lender that provided transparency, exact control of amount and payment date, and immediate access to funds to customers, without hassling them through faxing or emailing documents. Although both men had previous experience in internet start-up operations, neither Damelin or Hurwitz had any within retail banking, which presented a problem when seeking out funding, as many potential investors they approached perceived the short-term, small-loans business as an unprofitable, risky backwater. After being denied funding by UK banks, Wonga secured venture capital through Balderton Capital.
The company's first year was spent on software development for a beta website. 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 addition, Damelin and Hurwitz required the co-operation of leading banks to help get funds directly to customers' bank accounts as quickly as possible, by convincing them that customer identity could be provided without physical documentation, a factor in their plan that banks were uncertain with. A beta website was eventually finalised and launched in 2007, and within five minutes, Wonga was processing its first loan application; within a week, the firm faced its first loan default. The subsequent months of operation showed increased demand, but traditional methods of credit risk assessment proved inadequate, leading the company to experience default rates of around 50%. During the first year of operations, the company used this period to gather data on customer behaviour in order to develop their own proprietary risk technology.
The full market launch of Wonga.com was officially made in July 2008, and within a year it had processed around 100,000 loans. 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 £13.9m of funding in a Round B led by Accel Partners, Greylock Partners, and Dawn Capital. In 2009, the company was already profitable and default rates were below 10%, less than the average for credit cards. A third round of funding was completed in 2011, for £73m led by Oak Investment Partners, including additional investors Meritech Capital Partners and the Wellcome Trust. By the end of 2011, Wonga's technology could reliably reject two-thirds of applications and predict the ability of a customer to repay a loan by an accuracy of around 93%. In May 2012, the firm expanded into South Africa, offering consumer loans, and began testing their technology in November that year for a possible expansion into Canada.
By 2011, Wonga had started to make significant profits and in September 2012 it reported profits of £45.8m for 2011 from revenue of £185m, up from a profit of £12.4m in 2010.
Decline and collapse On 30 September 2014, Wonga announced that its profits for the previous year had fallen by 53% to £39.7 million. The company blamed the cut in profits to "remediation costs" – compensation paid to customers – which in total cost the company £18.8m, and predicted its profitability would be reduced through new controls set out by the Financial Conduct Authority (FCA) from June of that year. Along with conforming to the new rules set out by the FCA, which limited roll-overs of loans and forced them to increase affordability checks, price caps were introduce from the start of 2015. The tougher regulations on the payday loan sector impacted the firm significantly, doubling its loss as its UK consumer base was greatly reduced; around almost 3.8 million of the 4 million loans it granted around that time were to UK customers. By the end of 2015, the company reported a pre-tax loss of £80.2m for the year – up from £38.1m the year before . In April 2017, Wonga suffered a data breach which affected around 245,000 of its customers in the UK. The range of information stolen in the breach included details on customers' bank cards – information used by some banks as part of the login process for online accounts.
On 4 August 2018, the company received an emergency £10m cash injection from shareholders after its chief executive warned it was in danger of becoming insolvent due to a surge in customer compensation claims. On 26 August, Grant Thornton were lined up to act as administrators in the event Wonga became insolvent, pending a decision to be made within weeks, and assumed these responsibilities the day after the firm went into administration on 30 August. Grant Thornton focused on conducting a wind-down of the business that would involve the sale of assets and identifying creditors, along with handling claims for compensation. By March 2019, the administrators informed the Treasury Select Committee that the number of claims had increased fourfold - increasing from around 10,500 to over 40,000 - since the firm's collapse, but that the lack of assets and the sheer volume meant that many claimants — denoted as unsecured creditors — were likely to receive much less than they were entitled to.
By January 2020, the number of claimants was 358,000. They shared around £23m in compensation, around 4.3% of what they were owed.
Wonga was dissolved on 19 December 2020.
Ownership and corporate structure
Over 180 million shares of the company were owned by venture capital firms, around 77.1%. The balance of the company was owned by staff, board members and founders with Errol Damelin owning 26.5m shares through Castle Bridge Ventures, an offshore trust based in the British Virgin Islands, while Jonty Hurwitz owns 12.6m shares (around 5.5%) through a BVI company."Wonga sets £1.2bn target" by Simon Duke in The Sunday Times, Business section, 10 November 2013, p. 2. Damelin resigned as Chief Executive in November 2013 to become part-time chairman and non-executive director. He resigned entirely as a Director in June 2014. Hurwitz resigned from the company in November 2011 and left the board of Wonga in November 2013."Wonga co-founder is the latest to exit payday lender" in The Times, 14 June 2014.
CEOs December 2006 to November 2013 – Errol Damelin. November 2013 to May 2014 – Neil Wass. May 2014 to November 2014 – Tim Weller. November 2014 – Tara Kneafsey – Managing Director.
Customer profile Wonga claimed that its customers were "tech-savvy young professionals who previously used the banks to borrow money". It accepted that its APR was "not cheap" but claimed that its typical customer was someone on a mid-level salary temporarily short of cash because of an unexpected bill, for example to buy a new central heating boiler or tickets to a music festival.
Dr Gathergood of the University of Nottingham described payday loan users as falling into two groups, those who have had a financial shock but can repay the money and those who were unable to control their expenditure, though he said lenders preferentially associated their clients with the first group. A Parliamentary committee also looked at credit unions. Mark Lyonette of Association of British Credit Unions said that although credit unions now provided 90 million loans in the United States, they were not able to match the "sophisticated automation and credit scoring behind the scenes" of the "high-tech, payday-lending Wonga model", though he welcomed the possibility of using post offices as a vehicle to expand the Credit Union market in the UK.
Wonga said that most applicants were not credit-worthy enough to obtain a loan from the firm, but that it only lent to those with a good credit record. Some commentators, however, warned that taking a loan from a payday lender could damage the customer's credit record and their ability to obtain a mortgage, even where the loan was repaid years prior. Ray Boulger of John Charcol, for instance, told BBC Newsnight that "Our experience is that mortgage lenders will often turn down requests for people who have had a payday loan...",Wonga boss answers Newsbeat listeners' questions BBC Radio 1 Newsbeat, 5 November 2013. Retrieved 7 November 2013. and Robert Sinclair, Chief Executive of the Association of Mortgage Intermediaries, said "From a consumer perspective, anybody who takes out a payday loan is clearly showing some financial distress and existing lenders will think these consumers may be maxed out."Payday loans spell trouble for mortgage applications by Devraj Ray in Moneymarketing.co.uk, 17 November 2013. Retrieved 23 November 2013. Archived here.
Defaults and renewal of loans
Wonga stated that if the money was not available on the day a customer has nominated to pay it back, a £30 fee would be charged and interest would accrue for a maximum of 60 days and that it did 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.
On 28 November 2012, following concerns that small loans, intended to be short-term, could become prohibitively expensive, the government announced it would give the Financial Conduct Authority powers to prevent indefinite rolling over of loans and effectively limit charges.
In August 2018, the company announced that it would not be offering more loans because of the critical financial situation of the company. However, it decided to only entertain their existing clients.
Sponsorship and public relations