As recently as five years ago, Wonga was flying high. A £1bn New York listing was on the cards even on a fairly conservative valuation for a firm mentioned in the same breath as tech unicorns – and which even featured as Newcastle United’s shirt sponsor for four years.
Yet today the payday lender collapsed into administration in a staggering fall from grace, under the weight of regulatory action and repeated reputational blows.
Wonga launched in 2007, just ahead of the global financial crisis. While much of the lending industry flatlined, it surged, enjoying its status as a “countercyclical” business, gaining customers when times are hard and pay-cheques are squeezed.
With its colourful website, national puppet television campaigns and easy application process, Wonga traded on its fintech credentials, and fast growth appeared to be delivering for trendy investors such as Balderton Capital, a backer of Betfair, Citymapper and Revolut, and Greylock Capital, investors in Linkedin. Speculation of a £1bn valuation was based on profits of £62.5m on revenues of £300m in 2012. Wonga had made four million loans during the year, with reports of a “beauty parade” of banks eager for their business.
As in any tale of hubris, Wonga became reckless, with a string of scandals which drew scorn in the press, in parliament, and even from the Archbishop of Canterbury. Infamously, Wonga sent out letters threatening legal action under the name of fictitious law firms, and piled up huge volumes of loans which should never have been made.
Its antics, alongside increasing concerns about affordability, tested the patience of regulators, eventually resulting in 2014’s series of restrictions. The Financial Conduct Authority barred lenders from charging eye-wateringly high initial interest rates, while capping the total cost of interest and fees at 100 per cent of the amount loaned.
A wave of failures by smaller players followed, while Wonga struggled on, and was forced to write off £220m in customer debts after it was found to have lent irresponsibly. New management tried to refocus on slightly larger loans, but were competing in a crowded space. The irony will not be lost that its demise was brought about by complaints from the customers who made it millions.
Wonga’s collapse should serve as a cautionary tale for City executives: neglect your firm’s reputation and your regulatory relationship at your peril.