Payday loan provider Wonga, which started out in 2007, has reported revenues of £184.7m in its financial year ending 31 December 2011, an increase of 225%. Net income grew by 269% to £45.8m, generated from over 2.4 million loans advanced in that period.
Such success underlines the dearth of alternatives available to ordinary consumers when seeking short term financial support – it is generally quicker, and sometimes cheaper, to take a payday loan than to obtain an overdraft from an established bank account in current economic circumstances. On the other hand, the payday loan sector attracts much criticism, built upon fears that credit may be too easy to access and should not be allowed to grow out of control. Wonga rejects two in every three applications, which gives an indication of both the level of demand and of the quality of the applicant pool.
Errol Damelin, Wonga’s chief executive, has recently told of the company’s expansion plans to other financial products, saying, 'You will absolutely see Wonga in areas where the traditional financial services players don’t deliver good value. We’ll do other stuff like payments and savings. We’ll probably do mortgages at some point.' Wonga has already expanded into business loans via Wonga for Business, which provides loans to companies of up to £10,000 for terms of between one week and one year.
He says that the growth of payday loans is down to the array of distribution vehicles that are now available. “78% of our customers own a smartphone and over a third have an iPhone, plus we understand that unexpected needs for short-term cash don’t always happen while you’re sat by a laptop,” he says.
Barry is a Chartered Banker and a Fellow of the Institute of Credit Management. He has a degree in Statistics and Business Economics from the Open University. Barry writes mostly on news from the worlds of banking and mortgages.
Barry Stamp is a co-founder of checkmyfile.