Online payday loan company Wonga, which touted itself as a tech startup and has attracted investment from several high-profile tech investors, yesterday agreed to cancel loans from 330,000 clients and waive interest and at the expense of 45,000 others, admitting its automated controls. did not adequately assess affordability. The write-off cost Wonga some £ 220million.
Wonga declined to detail how its lending platform works and how its algorithm was authorized to lend unsustainable loans to hundreds of thousands of clients, many of whom lacked availability to repay the loans or were already in debt to them. other payday loan companies.
A spokesperson for Wonga told TechCrunch it has put in place a new interim decision-making process, as part of a deal with the industry’s new regulator, the Financial Conduct Authority (FCA). “There is a series of in-depth changes – at the heart of it is a much more in-depth look at loan-to-income ratios,” they said.
Wonga was founded in 2006 and has attracted a total of $ 145.4 million in three rounds of funding, according to CrunchBase – with listed investors like Accel Partners, Balderton Capital, Greylock Partners, Dawn Capital, Meritech Capital Partners, Oak Investment Partners and the charitable Wellcome Trust (the latter sold its stake in August 2013, considering that it “no longer meets our investment criteria”).
TechCrunch asked Wonga investors to say whether they believe Wonga – given the scale of the shortcomings identified by the FCA and the obvious inadequacy of the tech platform – had acted responsibly.
We also asked them to tell us if Wonga’s platform was being used to “hack the growth” of the business by lending money unsustainably. Moreover, if the sheer amount of income that Wonga has accumulated during its meteoric growth has led the company to malpractice.
No Wonga investor responded with public statements. (The motto of Wonga is “the money that speaks the truth”).
Balderton and Accel declined to comment directly.
Greylock and Dawn Capital had not responded to requests for comment at the time of writing.
Index Ventures partner Robin Klein served as Chairman of the Board of QuickBridge (Wonga) until November 2013, when he stepped down. Klein also did not answer questions about his oversight of the company, during his tenure as chairman of Wonga. He is still on the board of directors of Wonga.
UK law requires all boards of directors of companies that lend money to know if the company has systems and staff in place to take an interest in the lives of their customers, which is legally known as the name of “loan due diligence”.
The full list of Wonga board members is:
- Andy Haste (CEO)
- Adrian Dillon (Non-Executive Director)
- Bernard Liautaud (Balderton)
- Iftikar Ahmed (Oak Investment)
- Laurel Bowden (Greylock)
- Robin Klein (Index)
- Sonali De Rycker (Accel)
- Timothy Weller (CFO)
In the past, Wonga was clearly confident about the effectiveness of its technology platform.
It has grown its money lending business by touting the speed and accuracy of its automated decision making platform, claiming this technology as a differentiator from other online money lenders. In marketing material, he said, “Wonga’s fully automated, real-time loan processing systems mean more speed, convenience and flexibility than a typical online lender, or even any traditional form of credit. . “
TechCrunch understands that Wonga used Experian datasets, however, it’s unclear what data enrichment they did on top of that to lower credit score thresholds, and thus protect the business from the risk of lending loans. not durable.
Drafting of the president’s introduction to the Wonga Annual Report 2012, Klein attributed Wonga’s profitability that year to the “efficiency” of its technology platform, which he noted as handling “thousands of data points” per application:
Wonga’s profitability in 2012 was the result of the large scale of our operations and an unwavering commitment to provide a flexible and convenient service built around customers.
We have been able to do this at scale thanks to the efficiency of our real-time identity and risk verification engine (processing up to thousands of data points for each application). This is because we have also provided our service at a price often lower than, for example, unauthorized overdrafts.
But the FCA, which has only been regulating the payday lending industry since April this year, found the platform to perform inadequate accessibility checks and lead to hundreds of thousands of unsustainable loans being granted. of people.
In short: the company had loaned money to people who should never have obtained a loan because they had no hope of repaying it. People who did not have the disposable income to do so. Or who might already have other loans.
Wonga was also censored by the FCA earlier this year for sending bogus letters from attorneys to late-paying clients. As a result, the company was forced to pay more than £ 2.6million in compensation to around 45,000 customers.
The FCA is tightening the screws on the payday lending industry in general, including offering price caps on loans earlier this summer – a proposal it is currently consulting on. The Era of Short-Term Loans Charging Vulnerable Borrowers over 5,000% interest, as Wonga did, seem well and truly over.
In a statement released yesterday, FCA Supervisory Director Clive Adamson said: “We are committed to raising standards in the consumer credit market and it is disappointing that some companies still have a way to go. to meet our expectations. This should alert the rest of the industry – they need to lend affordably and responsibly. “
An internal operation is obviously underway at Wonga to address these issues, led by the appointment of a new president, Andy Haste, in July, as the FCA reviewed its business processes. At the time, he said, “Wonga has naturally come under criticism and we know we need to repair our reputation and regain our right to be an accepted part of the financial services industry. “