The name Wonga rarely appears in the media (Finextra included) these days without the accompanying adjective 'controversial'. Contrast the perception of the company with that of another innovative, technology-reliant online alternative to traditional lenders;
Zopa. Far from 'controversial', the latter is often held up as a model for the future of responsible, big-societyesque lending. But are the reputations fair?
The terms:
A couple of months ago Zopa's founder Giles Andrews spoke at Finextra's
Social Media Day. During his presentation, Andrews was at pains to stress how carefully borrowers are vetted, how modest the APR is (7.5%ish) and rare defaults are (0.8%).
In contrast, Wonga actually relies, to some extent, on customers not being able to pay off their loans and rolling over debts, which is when the compound interest does its work (4214% APR, although of course the loans are designed to be short term).
The tech:
In a
Guardian article earlier this year, Darryl Bowman, Wonga's head of marketing is quoted as saying: "We see ourselves as an internet technology business first, and a finance business second."
This is surely a dangerous attitude: Does anyone really think that how the loan is arranged and delivered is more important than the money itself? For Wonga, convenience is everything but should it be? It certainly shouldn't be for the borrower, lured into
debt they may well not need to take on or have the resources to pay off.
Wonga has been accused of 'legal loansharking' but loan sharks have always been a last resort. Wonga, so easy and quick to use, given the sheen of respectability by TV ads, might not be seen as the desperate measure it should be.
For Zopa, convenience is virtually irrelevant. Its borrowers have good credit scores and could get loans elsewhere while its lenders have easier ways to make a modest return on their spare cash. What the technology offers many of them is the feeling of being
a part of something worthwhile. Andrews told the delegates at Social Media Day that he finds the activity on Zopa's discussion boards, and their tone, astonishing.
The online community even bleeds into the real world he told us: 500 members attend annual drinks events, people visit the office to say hi. Can you see 500 users turning up to an event hosted by Wonga? It would probably offer them loans to pay for their
booze.
The PR:
The virtual community that Zopa has created has proved a remarkably effective recruiting tool, with evangelists spreading the social lending word. Andrews says that half of all borrowers arrive through word of mouth. For lenders its 98%. The firm has carried
out very little traditional advertising.
Wonga, meanwhile spent £16 million on advertising in 2011, according to analysts AC Nielson MMS, quoted in the Guardian article. Yet despite all the TV and radio ads, the posters plastered on buses and football kit deals, Wonga has a terrible image; the
poster boy for irresponsible lending and broke Britain. Meanwhile, shy Zopa secures fawning coverage in the broadsheets.
Easy then: Wonga bad, Zopa good?
I'm not sure that it's that simple. I really like the concept of Zopa and was impressed by Andrews at our event but can't help shake the feeling that the service is harmless but little more than a hobby, a novelty, for the comfortably off middle classes
– a fun alternative to their bank. It's not really about the money.
In contrast, Wonga fills a very real gap in the market, providing something that its customers desperately need and often can't get anywhere else. For a mother who needs £50 to keep the heating on until payday, Wonga can be a vital resource. Of course it
can be dangerous and of course there are horror stories but according to a Populus survey cited in a
Wired article last year, 95% of 1500 customers polled said that they were "satisfied" or "very satisfied" with their experience – a result banks would kill for.
Wonga is an easy whipping boy but it addresses a need in society – if it didn't, it wouldn't be raising over £70 million in funding rounds and mulling a £1 billion float. Rather than kick Wonga, it would be far more productive, if difficult, to deal with
the myriad problems that result in so many people needing to turn to payday lenders in the first place.
Until then, there's space for both Zopa and Wonga.