Wonga raises £73m in Series C funding to double-down on massive UK growth

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Wonga, the short-loans company which uses a realtime platform to assess users applications instead of people, has raised a significant £73 million ($117 million) funding round – actually a Series C – as expansion capital. Wonga plans to use the cash to expand further in the UK, it’s home market.

The funding round was led by Oak Investment Partners. Meritech Capital partners, another US VC, and Wellcome Trust, the UK’s largest charity and health-funding organisation, also invested, as did some existing investors. Wonga has also had previous investment from Accel Partners, Greylock Partners, Balderton Capital, Dawn Capital and London based Seed fund TAG. However, we understand from sources that Balderton didn’t invest in this round, making Dawn Capital the only investor to have invested three times in the business, and the only European VC to have invested in this round.

Wonga has attracted criticism and controversy because it makes short-term cash advances at rates of interest equivalent to about 3,000 per cent a year based on an application form and an algorithm. However, critics rarely mention that Wonga’s typical customers are young professionals earning national-average wages and are usually applying for less than £200. Most have never used short-term loans services, so it’s tapping a new market which is able to afford the loan. Wonga was launched in October 2007 and has processed more that 1.8 million applications via the web and mobile and recently made it’s one millionth loan.

Speaking to TechCrunch, founder and CEO Errol Damelin said “Because we make cash advances we need resources to do that so this is expansion capital to fund consumer demand. The vast majority of our customers are using us as an alternative to a bank overdrafts, which come with charges and fees, or credit card debt.”

“We use our own balance sheet to do the lending, using debt and equity. So the round was not raised specifically to lend with, but to give us a strong balance sheet.” He said this was simiar to other financial services businesses. “We never wanted to be more leveraged. We chose to have have a strong balance sheet.” It’s also to make sure Wonga “has the same engineering talent as Twitter or Facebook.”

“Want to keep driving the benefits to customers, so this is about increasing speed and convenience,” said Damelin. “Before Wonga short terms loans were done on the doorstep, or pay day loans or via call centres. We’ve built the world’s fully automated lending platform and that’s unique.” Wonga is certainly scaling – it launched with same day money, then we moved to same hour, then within 15 minutes.

Damelin said Wonga would eventually come to a point where an international strategy was required but this wasn’t it. They are effectively doubling-down on the UK, one of the largest markets in the world for unsecured debt. While the FT seems to think there are US expansions, Damelin told us that is categorically not the case.

Wonga clearly has plenty of revenues. It recently sponsorsed free public transport in London during last New Year’s eve.

Damelin added that the fact the The Welcome Trust – the UK’s bigggest charity – had invested was a reflection that “from their point of view that we think about things in a coherent way, and care about the customer and being a responsible corporate citizen.”

He admitted that Wonga attracts criticism. “It has been controversial, people have issues. It happens to be a space that attracts controversy but we think about it a lot and engage with the arguments. We’ve really met consumer need by being the good guys in the space. We explain what the service levels will be and we over-deliver and under promise. If someone pays off a loan early we’re fine with that – this never happens in financial services.”

Recent (Jan 11) online research, via Populus, with more than 15,000 customers indicated that overall satisfaction was up to 95%, from a previous level of 85% and Wonga is their preferred option for credit, over credit cards, bank loans, overdrafts and payday loans.

  • http://techcrunch.com Erick Schonfeld

    $117M? Wonga!

  • http://twitter.com/ChazClout ChazClout

    I honestly think I would rather starve than use any of their financial help given the need to.

  • http://www.facebook.com/marklittlewood Mark Littlewood

    Smart move, smart guy, smart company.

    This puts Wonga in a position to compete aggressively in an underserved UK market that needs brilliant, disruptive companies with deep pockets to make big changes.

    Wonga is not a startup anymore. Respect.

  • Don't touch them

    This business charges interest rates in excess of 4000, that’s a lot and at some time these niche providers will be regulated and that’s a risk. I wouldn’t invest in those circumstances.

  • Rob Hayden

    How is charging £45 for borrowing £400 for 10 days preferable to an overdraft with interest of probably something like 30% APR? (plus fees in some cases though most arranged overdrafts have none) I guess the truth is it’s only people who have run out of runway on overdraft arrangements who would turn to a service like this. I also don’t see the differentiation from payday loans, so how can Populus’ research claim people prefer this option? Is it just the fact there’s no human involved?

  • buyerbeware

    Walthamstow MP Creasy revealed one of her constituents is being chased by Wonga for £1,600 as she is 40 days late paying when she only borrowed £800 in the first place.

    moneysavingexpert.com 3rd February 2011

    • Vince 06

      Break her thumbs and that will teach her…

  • buyerbeware

    “However, critics rarely mention that Wonga’s typical customers are young professionals earning national-average wages and are usually applying for less than £200.”

    Is this true? I have just searched the forum on money saving expert’s website. The case histories are not what you would expect if it is true that Wonga’s customers are as Mike Butcher claims.

    • http://twitter.com/ScaredyCat Andy Powell

      You have to remember that this post is just a big advert.

      • buyerbeware

        It is published as editorial so must not be inaccurate or misleading. If it is advertising then it should be labelled advertorial. I noticed that it’s is typed for its. Perhaps the piece was published before being edited?

        Do Wonga’s customers use crisis loans from other providers or is this a completely new and different more affluent market as the writer claims?

        When writing about anyone vulnerable such as people in debt or with cancer it is important the truth is not hidden by marketing spin. That’s how America fell for subprime mortgages thinking it was how the poor could be turned into wealthy homeowners

        Where is the third sector in this marketplace with the equivalent of food banks?

  • Annony

    Disgusting company. They pray off the poor, who don’t understand what they are doing. This is essentially legal loan sharking.

    Hopefully the government will clamp down on companies like this. Same goes to the unethical investors behind it.

  • http://twitter.com/mikkojarvenpaa mikkojarvenpaa

    “The vast majority of our customers are using us as an alternative to a bank overdrafts, which come with charges and fees, or credit card debt.”

    4212% annual percentage rate cannot be a good alternative for absolutely anyone. Wonga represents modern usury.

    “We use our own balance sheet to do the lending, using debt and equity. So the round was not raised specifically to lend with, but to give us a strong balance sheet.”

    That shows the kind of circular reasoning that must be required in their line of business to be able to sleep at night.

  • http://twitter.com/mikkojarvenpaa mikkojarvenpaa

    “The vast majority of our customers are using us as an alternative to a bank overdrafts, which come with charges and fees, or credit card debt.”

    4212% annual percentage rate cannot be a good alternative for absolutely anyone. Wonga represents modern usury.

    “We use our own balance sheet to do the lending, using debt and equity. So the round was not raised specifically to lend with, but to give us a strong balance sheet.”

    That shows the kind of circular reasoning that must be required in their line of business to be able to sleep at night.

  • http://twitter.com/mikkojarvenpaa mikkojarvenpaa

    “The vast majority of our customers are using us as an alternative to a bank overdrafts, which come with charges and fees, or credit card debt.”

    4212% annual percentage rate cannot be a good alternative for absolutely anyone. Wonga represents modern usury.

    “We use our own balance sheet to do the lending, using debt and equity. So the round was not raised specifically to lend with, but to give us a strong balance sheet.”

    That shows the kind of circular reasoning that must be required in their line of business to be able to sleep at night.

  • JeffJefferson

    a mere 4000+% APR typical?

    was there not a time when companies like this were called loan sharks? and now we’re covering them on techcrunch? just because it’s a website, doesn’t mean you should be covering it.

  • http://about.me/YaronSamid Yaron Samid

    Congrats Errol and team! Inspiring.

  • http://blog.david.bailey.net/ davidjwbailey

    360% interest rates? 4214% APR? does anyone here know the meaning of the word “usuary”

    This is not a moral business, preying as it does on the most vulnerable. The fact that any VC would back it is evidence that there are some really cold-blooded people in the investment market.

    If you need £400 to pay your bills before payday, how are you going to pay off a loan of £528 next month? Dealing crack? Prostitution? Theft? Organ Doning? Any temporary good they do with a loan is massively undone by the repayment, creating a cycle of dependency and despair.

    Also, following recent financial collapses (Enron, Madoff) bear in mind how hard it is to prove where the ‘repayments’ came from. Has a forensic team investigated this business, tracked the cash flow? Was any equity cash ‘recycled’ through loan repayments to boost the figures?). Were customers checked the proof of identity and independence? Because one or two gambling companies might have been tempted to jolly up their figures like that.

    It has not been going long enough for the truth to emerge, but its constant hunger for cash implies that it is not able to generate its own reserves, nor access liquidity in the market effectively, which is our first warning sign.

    Are there a lot of vulnerable people to prey on? of course. Is this profitable? not proven. How can this exit? no bank or major financial company can (or should) buy it. Can it be floated? only if it can prove it is honest and its business has long term value. Will it survive scrutiny as it gets bigger? unlikely.

    Sell.

  • Anonymous

    I honestly don’t get this comparison of Wonga (and similar services) to loan sharks. Sure, the APR is high, but so are the transaction costs (despite automation) and especially the risk. Should there be a wholesale ban on Wonga and similar companies? Or do they serve useful function but it is just a case of regulatory failure? Would better regulation allow Wonga et al to fulfill a useful function in financial markets? I mean, a high APR is not something that instantly should make something evil or socially undesirable.

    The claim though that Wonga’s is the first automated short-term loan platform is somewhat exaggerated. So called “SMS loan” providers in Scandinavia have been doing this stuff for years. Whether they’re serving a useful function in society or are simply evil parasites is likewise an open question. What is known though that the industry has indeed attracted many shady types including aggressive collection agencies that serve lenders in the sector (whom more established agencies may be less than willing to serve). Wonga, it would appear, belongs to the less shady category. (Disclaimer: Wonga’s founder was one of our mentors at the 2008 Seedcamp and he seemed a nice guy. ;-)

    But still calling for outright prohibition of online short-term lending seems too strong a reaction.

    • JeffJefferson

      According to Merriam-Webster, the definition of Loan Shark:
      loan shark – noun
      : one who lends money to individuals at exorbitant rates of interest

      It’s not a “comparison” between Wonga and loan sharks. Going by M-W, Wonga fits the definition of loan shark perfectly, in my opinion.

      Consider the situation where you need 200-500 $/€/£ at short notice. Most people will go to their bank, ask for an overdraft and then try to pay it off as soon as they can. You can usually do this over the phone, 24 hours a day and it’s instantly set up. You’ll pay ~10% interest on the balance you use for the duration you’re using it.

      The only people who can’t do this are people in dire straits. People who the bank know can’t afford the overdraft, let alone a 4000% loan from some shark. People who have gambling problems and will do anything to get a bit more capital to feed their addiction. Ill-educated people who simply don’t know better and think people like Wonga are their only option. People who already have a maxed out overdraft and are drifting further and further into debt.

      “pay day loans” are just a shameless way to legalise giving exorbitant loans to the desperate.

  • http://www.competitionhunter.com Iain

    Wonga is one loan company out of hundreds and hundreds in the UK, either online or offline. Loads of providers offer asset-backed/unsecured/pay-day style short term loans and wonga is getting the flack because it’s being highly successful. The market provides a massive choice to consumers for loans or advances. If Wonga really is as terrible as people seem to think, then consumers will vote with their feet. But they don’t, as Wonga is very successful at what it does and consumers are clearly chosing it – simple as that.

    • JeffJefferson

      Iain, Wonga is getting the flack here because it’s an article about Wonga. If Techcrunch were covering some other ultra-high interest rate lending company, people would be criticising that.

      and this isn’t a standard “invisible hand of the market” affair. People aren’t *choosing* to take out 4000%+ APR loans, most of them believe they have no other choice.

      • http://www.competitionhunter.com Iain

        Well I certainly take your point on the fact that it’s an article about Wonga and so critisism will be pointed in that direction. But I disagree that people are somehow being coerced into taking a loan through lack of transparency or information. Wonga clearly isn’t the most cost-effective solution to short term lending, but it’s most likely the most convenient. Convenience has a price, and that price is set out.

        I could hardly imagine a bank having a 95% customer satisfaction rating…

      • JeffJefferson

        Of course. In no way am I suggesting that Wonga are coercing people into using their service. I’m simply saying the people that tend to use so-called “pay day” loan services are the kind of people that don’t have a choice. Quoting myself:
        “The only people who can’t do this [get a low-interest overdraft from their bank] are people in dire straits. People who the bank know can’t afford the overdraft, let alone a 4000% loan from some shark. People who have gambling problems and will do anything to get a bit more capital to feed their addiction. Ill-educated people who simply don’t know better and think people like Wonga are their only option. People who already have a maxed out overdraft and are drifting further and further into debt.”

        You don’t need to do much digging to see the kind of damage and misery that pay-day loan companies inflict on people’s lives. People go month to month on these services. Taking out a loan one month, paying it back only to take out another the next with a different company. Sometimes juggling four or five different companies.
        As noted below, Wonga aren’t a solution to most of these problems. They’re just a way to make money off the desperate: “Walthamstow MP Creasy revealed one of her constituents is being chased by Wonga for £1,600 as she is 40 days late paying when she only borrowed £800 in the first place.”

        As for the final paragraph:
        “Recent (Jan 11) online research, via Populus, with more than 15,000 customers indicated that overall satisfaction was up to 95%, from a previous level of 85% and Wonga is their preferred option for credit, over credit cards, bank loans, overdrafts and payday loans.”

        If that doesn’t scream skewed research, then i don’t know what does.

      • JeffJefferson

        Here’s an interesting Planet Money show on “pay day lending” services in the US. Obviously there’s a lot of differences between the US and the UK, but the same basic principles apply and people in the same kinds of situations will be attracted to services like Wonga:
        http://www.npr.org/blogs/money/2010/05/the_tuesday_podcast_payday_len.html

      • http://twitter.com/ScaredyCat Andy Powell

        “I could hardly imagine a bank having a 95% customer satisfaction rating… ”

        The problem is I think you might be assuming they mean “95% of all their customers are happy” when in reality they mean “95% of the people they asked” said they were happy. That could easily mean they asked 10 or even 100 people. 95% means nothing if you have no real figures.

      • http://www.competitionhunter.com Iain

        As a point of order they asked over 15,000 customers.

      • JeffJefferson

        I imagine there’s some crack dealers with some pretty impressive customer satisfaction ratings as well… that doesn’t mean they’re actually a good thing.

      • Anonymous

        Exactly!

      • http://twitter.com/ScaredyCat Andy Powell

        Thanks, didn’t see that figure in the article.

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  • Kal

    I think there is a real lack of understanding of the APR measure and the cost of providing short-term loans.

    Every borrower has to be verified and credit checked – which is an expensive process. Experian, a credit rating agency, charges GBP 12 to access their database every time. Therefore there are fixed costs per every loan, which can add up to, say, GBP 20. If I want to lend someone GBP 100, I need to cover these fixed costs as well as other numerous variable costs and add a margin. This would take the cost of the loan per GBP 100 lent to say GBP 35, and for a 1 month loan the APR is therefore extremely high.

    That is why banks only provide loans from GBP 2000 or so and for 3 month or more. This is because they too would be forced to charge high APRs for any shorter or smaller loans, assuming they didn’t want the loans to be loss making. Their strategy to make money is to charge APR of, say, 10%, but to force borrowers to take larger loans and for longer periods.

    I agree that the people get into trouble by rolling over loans or borrowing from multiple payday lenders. This is why we need a database to share information between payday loan providers.

    Also, many people do not have access to simple banking services and therefore to credit. These people are usually unattractive to banks as they are either low earners and present few opportunities to cross-sell other banking products. Do you think current account are free because it costs the banks nothing to provide them? They are free so that the bank can cross-sell you other products and make a profit.

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  • ahmet tayfur

    We’ve built the world’s fully automated lending platform and that’s
    unique.” Wonga is certainly scaling – it launched with same day money,
    then we moved to same hour, then within 15 minutes.magic bullet

  • ahmet tayfur

    Damelin said Wonga would eventually come to a point where an international strategy was required but this wasn’t it.
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  • http://pulse.yahoo.com/_Y5MP42FNKAI24RUJJSMJGT6GG4 John Atkinson

    I’m glad the overal customer satisfaction is going up.  Thats great to hear!

    Buy Targeted Traffic

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