Wonga.com to expand globally following $22m financing round

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Wonga.com, the startup that has started to change the face of short-term lending in the UK, has closed a $22.25m round of funding led by Accel Partners and Greylock Partners, with the support of its existing investor, Balderton Capital.

Founded by Errol Damelin and Jonty Hurwitz, Wonga provides cash advances to UK consumers, helping solve occasional cash flow problems. It’s provided nearly 100,000 flexible cash advances of up to 30 days since it launched eleven months ago.

The killer USP is that Wonga is the first consumer finance company to fully automate the lending process, providing a completely online credit solution around the clock. Via a Web interface applicants select exactly how much cash they need, up to £750. They can then determine their own price by then selecting how many days they want the money for. The company’s risk and decision technology means applicants receive an instant answer, and if they’re successful, Wonga deposits cash into their bank account within an hour, at any time of day or night. However, it’s not cheap. Interest on a £100 loan for 10 days costs £1 a day. So including fees, a £100 loan for 10 days would have to be repaid at £115.91. APR is generally more than 2,000pc. The maximum loan is £750 and the maximum term is 30 days.

Damelin attributes Wonga’s rapid profitability to its technical innovation and desire to “amaze” its customers. He says Wonga has been built to scale, and plans to expand very rapidly now that the funding is in place.

Accel has a track record of backing some of the fastest growth companies of the last two decades, Facebook included, while Greylock Partners is a long-term investor. Between these approaches, we can expect to see rapid development of the service offering, and expansion into global markets.

Given the global economic situation and the need for a collective rebooting of the lending models that make the world turn, it’s good to see VCs supporting a disruptive lender that makes no bones about focusing on responsible lending and a sustainable business model.

  • Chris Oliver

    Find the big APR number funny. Typical 2689% APR. Not funny if it is your only option for credit, which i imagine is increasingly the case for some.

  • damon

    WTF guys !

    Start the Apple/iPhone coverage already.

  • http://praguebob.com Robert Morrison

    Usury? Seems to me that such exorbitant interest rates would attract the attention of regulators everywhere… Or more simply put, “Mafia, move over”? :-) see wikipedia.org/wiki/Usury#Usury_and_the_law

    • http://twitter.com/chrisco Chris Comella


    • TCCritic

      Good comment, I agree.

      It’s shocking how successful this start-up could be but not surprising.

      The need is out there, but there again there’s also a need for web 2.0 sites that can help someone buy heroin find a prostitute. I would not want to work in either one. And I probably wouldn’t want to work with any VC who is willing to back usury.

      Sad day for Accel – I would have expect more from them.

  • http://www.wonga.com John

    APR really isn’t a great measure for loans of a few days or weeks. The number actually gets bigger as our cash advances get shorter/cheaper!

    However, we couldn’t be more transparent about the APR, or the actual cost of each loan. For anyone who is interested (excuse the unintentional pun), we explain a bit more about why the APR numbers are big here – http://www.wonga.com/is-this-apr-expensive

    Our service is not used as a last resort by any means, but as a short term, flexible and simple alternative to traditional credit. At least that’s what our customers tell us during research. Cheers

  • Drew Robertson

    Accel and Greylock are scum

    • Alex

      Objection, your honor! They are scams.

  • http://www.whoarein.com Gilad

    Who needs 100$ for 5 days ?

  • TP

    John, Your APR explanation is disingenuous verging on fraudulent. If I borrow $100 from Wonga and the APR is 2,689%, that means the same $100 loan for a year would mean I owe Wonga $2,659, e.g. borrow $100 from Wonga and keep borrowing each month to repay capital & interest will cost you $2,659 after 12 months. This we call loan sharking.
    You use the same language as the door step loan sharks but seem to think your technology makes you different. You’re not & I hope you fail and fail miserably.

  • http://www.facebook.com/people/George_Bevis/36913823 George Bevis

    Discussing APR is totally meaningless in this context. People who have ever run out of money at the end of the month understand that it’s entirely sensible to pay a small £ fee for a small £ loan, even if a quick repayment generates a high technical APR. It is actually rather difficult to get into serious debt if you are only borrowing small amounts. The social risks of “pay day loans” are low, and the personal utility is astronomical if you need them occasionally.

    • http://www.talkingbollocks.net Nigel Chaloner

      Just came across this again and read George Bevis saying: “Discussing APR is totally meaningless in this context.”

      Mr. Bevis has a face book link where he claims to be a Labour supporter and have studied Social and Political Science at Cambridge!!

      I wonder if that is where they taught him that “It is actually rather difficult to get into serious debt if you are only borrowing small amounts.” and “The social risks of “pay day loans” are low..”


      So, is Mr. Bevis merely a false identity? Yet another pretend person who works for Wonga and is leaving messages to promote the company? Or, is he real and maybe did study politics but then copped out when he got a job for Wonga and started spouting nonsense to promote loan sharks?

  • http://www.wonga.com John

    ‘Thanks’ TP, everyone’s welcome to their opinion.

    We don’t provide loans for a year, nor compound interest, both of which the APR calculation (and you) assumes.

    I don’t think our technology makes us different, I know it. We are highly selective as a result of our innovation, declining the majority of first-time applicants and achieving lower default rates than the credit card industry.

    We also don’t hard-sell our credit and our customers themselves tell us that, given the choice, they frequently prefer using Wonga over traditional sources. May sound like a cheesy line from an ad, but that’s the fact. We offer an alternative and a lot of people like it.

    This same technology checks every loan application we receive, including from existing customers, so we also decline them if we see any worrying patterns or changes in circumstances.
    Whatever your view on APR, we are 100% transparent and simply aren’t interested in lending to people who can’t pay us back quickly.

    • http://www.talkingbollocks.net Nigel Chaloner

      The fact that you do not provide loans for a year is irrelevant and you know it is irrelevant Jon, if that is your real name and you are not another wonga pretend person. APR is a way of comparing loans, whether they are short term or long term. It allows a comparison to be made and you know that don’t you JON?

  • TP

    John – your P&L works on a loan book earning 2,000%+ interest. The fact that your technology reduces default rates just means more of that drops to the bottom line.
    Whilst this is undoubtedly a good business model, it does not constitute “responsible lending”. Two things –
    1) If Natwest or any other High Street Bank were as disingenuous about APR as you are, there would be uproar. OFT regulation seems to be somewhat lacking here.
    2) You make much of your KIVA link. The whole purpose of KIVA is so that entrepreneurs in developing economies can start their own business without being crucified by loan sharks.
    Imagine if KIVA charged 2,000%+ interest rates…

  • dave g

    loan shark 2.0

    this company preys on the poor – I hope a huge publication (or many of them) publicly trashes the investors for being a part of this. pathetic souls.

  • Craig

    Tp I think you miss the point of short term low value loans. If you borrow £100 for 2 weeks to stop you going overdrawn, then you will pay £14 (1% per day). Compare that with Nat West, who would probably charge you £25 for going overdrawn and then a similar amount to bounce every payment you tried to make.

    I think that just shows that Nat West and the other high street banks are the ones who are disingenous and underhand. Charges are not included in APR calculations, so they sound much cheaper than they actually are. At least Wonga is upfront and open about its charges. It is certainly not cheap for a longer loan, but is a great deal cheaper than any of the high street banks for a short term, low value loan. Surely that is the point of their business model.

    Why else would 100,000 people have taken loans out?

  • TP

    Because they cannot get credit elsewhere. Most would if they could simply extend their overdraft limit = no fees & 20% APR.
    A disruptive model would be to charge 99% APR, i.e. undercut loan sharks, not charge more than them.

  • Craig

    I am not sure when you last tried to extend an authorised overdraft. But I can assure you that you are in a very small minority if your bank will do that instantly and for no charge whatsoever.

    The difference with loan sharks is that they lend without checking someone’s ability to repay, they compound the interest and they have questionable methods of collecting the debt afterwards.

    • http://www.talkingbollocks.net Nigel Chaloner

      If that is really your name.
      The point is not that other lenders would not charge at all, the point is that they would charge a preposterous 2,689%.
      Wonga could run the same business that they are runing with a far far lower interest rate and still make money. That is why you are sharks. And you know it.

  • james t

    Dave g, PT,

    I absolutely understand your reservations about money lending, but I feel like usury in general needs to be considered more carefully than you’re allowing for.

    If you’ve got a fundamental issue with profit being made on people requiring credit, it would seem odd to confine it just to this space. The amount repaid on a credit card over 5 years, or the exorbitant fees charged by banks for unauthorised overdrafts, would seem equally problematic.

    The difficulty is that the economy, particularly now, absolutely relies on credit to allow consumption that in turn fuels growth and creates jobs. The key issue is, that credit which sustains consumers, not be structured in such a way that removes the possiblity of ever being debt free or finanically stable in the future. I feel this is the key criticism that can be levelled at credit cards, where consumers end up treating their credit cards like a second mortgage hitting minimum payments ad infinitum.

    So do I think Wonga are loans sharks? In truth, I do not. In many ways I feel more comfortable with this kind of lending which is complete in a single salary cycle, than I do with the inescapable credit card burdens hanging over most of our heads! We’ve built a society around credit, now we need to be measured in our analysis of how to make it work for us in the future.

    • dave g

      Here is the thing. You will find the kind of companies (pay day loans) that this company is trying to disrupt in poor neighborhoods across the country. It is usury that exploits the poorest among us.

      Im not saying it is against the law to run this kind of despicable business, im just saying it is a despicable business.

      I have 3 very simple rules I look at when evaluating a business opportunity. Is it legal, moral and ethical? This business fails the test.

  • Alex

    “The killer USP is that Wonga is the first consumer finance company to fully automate the lending process, providing a completely online credit solution around the clock.”

    Oh! Really? REALLY? hehe

    What is this thing in your pocket called Credit Card then?

    You are just plain funny here, geeks.

  • http://www.drakenhart-studios.net HLBryant

    No, not loan sharking, nor usury, Per Say…. No this is the equivalent of the “Pay Day Loans” companies that are wide-spread in the U.S. Having had to deal with three different companies in order to get our bills paid, I know this model type personally. Yes the Interest rates are stupid-high, but I’ve seen and paid worse. They did what they needed to do in order to get our bills paid and keep out utilities on. Mostly we got them because we needed the money _NOW_ and waiting for our paychecks would have made it impossible to pay bills. It was a loose loose situation but better then having our electricity shut off.

    I URGE folks to read their TOS about what happens on a default or how many days they give you in case you miss the payback date. In the U.S. many of these companies have the RIGHT to freeze your bank account.. which means you have no way to pay anything, not even get food for yourself, until they are paid in full. Once paid in full they release the bank account. It may seem harsh, but with so many people who default in this day and age it’s a “cover their rears” sort of policy. I can’t fault them for it, but dang does it add stress to one’s heart. Urgh.

  • nmiakel

    yep. Loan sharks have moved onto the internet. Plain and simple.

    Cant wait for this service to get shut down.

  • http://business-loan.info/?p=183 » Wonga.com to expand globally following $22m financing round Business Loan Information:

    […] Follow this link: Wonga.com to expand globally following $22m financing round […]

  • Dave Clarke

    In a former job I once had a meeting with the sharks at MEM capital – the company behind the brand paydayuk. They were saying that in terms of marketing they actually barely break even on the first loan they provide and that the real profit is when a customer comes back for a 3rd 4th or 5th loan.

    With Wonga’s “selective” loan issuing policy I reckon they work to the same sort of model (eg you make the profit on the 3rd time a customer uses their service). So in my humble opinion companies like this are simply sharks. You can dress it all up in swishy web 2.0 logos, but at the end of the day Wonga are just the same as Provident and MEM. All companies that pray on the weak and encourage bad financial habits.

    Sure we are all adults and are free to make our own choices in this world. But I personally think running a business like this is bad energy, and I think that people intelligent enough to setup their own business should be thoughtful enough to contribute something good to this world, not something utterly scummy such as this.

    No words of good luck or congratulations from me either.

  • http://startupmeme.com/wonga-raised-225-million-for-its-short-term-loan-service/ Wonga raised $22.5 Million for its short term loan service | Startup Meme - Technology Startup and Latest Tech News

    […] which provides consumers in the UK with cash advances on short term lending has raised $22.5 million in its current round of funding. The funding came from its existing investor, […]

  • http://www.facebook.com/people/Jon_Bischke/500456005 Jon Bischke
  • http://www.facebook.com/people/Jon_Bischke/500456005 Jon Bischke
    • Falafulu Fisi

      Jon, that’s an excellent article. Thanks for posting the link to it.

      I frequently post technical information here at TC, just to share knowledge with other developers, but sometimes I frequently see unnovation startups (in Umair Haque’s words) and it is something that I am curious to know about in how those venture investors get to pour money into such startups.

  • Falafulu Fisi

    I checked out the wonga site and it looks interesting.

    Wonga developers may be interested in checking out the following paper (if it isn’t the decision engine that you’re currently have) on using FIS (fuzzy-logic inference system) in loan decision-making. Wonga’s use of slides (on their main page) to indicate variables as amount and duration fits perfectly with the paradigm of FIS. FIS is a universal approximator, exactly as ANN (artificial neural network) is and they’re structurally the same (ie, FIS & ANN), however computationally different. You can design a MIMO (multiple inputs multiple outputs) or MISO (multiple inputs single output), where the latter is the one I suspect that you’re adopting if not FIS but ANN or SVM (support vector machine). The advantage of FIS over ANN & SVM is that you know your decision rules as a priori.

    Credit risk has always been a major concern for banks and other financial intermediaries. The uncertain domain of risk assessment has long been in need of a reliable and consistent system to help simplify the decision making process. In recent years fuzzy logic technique has been in its wide-ranging use in modeling of uncertainties, vagueness, impreciseness and the human thought process. This paper attempts to develop a credit risk analysis system based on the fuzzy logic using two structures: traditional fuzzy reasoning of all inputs that map to one single output and stage-wise fuzzy reasoning of input parameters in accordance with their importance. The analysis of case studies shows the consistency and effectiveness of the second approach in making correct decision.

    Loan risk analyzer based on fuzzy logic

    The authors of the paper cited above are from School of Informatics at Bradford University, so it would very convenient to ask them a question since they’re in the UK.

    I have used both Mamdani & Sugeno inference algorithms in my FIS for various previous projects and I think that Mamdani is the one that best suits your application rather than Sugeno. There are other inference algorithms for FIS that have appeared in the literatures over recent years which are more advanced (ie, more accurate), but their application domain mainly for control systems, however I am sure that they can be used in other areas such as decision support system for online loan such as yours.

    • COP

      dude. its not about the model/algo. Few blocks down the road, wall-street had world-class researchers and bankers doing this day in and day out. Look where the greed took them? add little bit of 0.83 for one variable and multiply by 0.9 and you end up fucking up poor consumers.

      this company is encouraging bad financial practices. not cool. Accel, Greylock I’m looking at you

  • Steven

    Strange that so many would feel so strongly against a service which thousands of people benefit from. How do we know this? Not by imagination, nor by assumption. Demonstrated preferences tell us that such transactions benefit both the seller and the buyer. I thought the world of web2.0 was all progressive and all that jazz..?

    • http://twitter.com/jonesxxx Jonesxxx

      “Demonstrated preferences”, “progressive”……….presumably you work for Wonga?

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