Payday lender Wonga rakes in over £1m in profits a week

Controversial company says profits after tax rose 36 per cent to £62.5 million

Controversial payday lender Wonga earned profits of more than a million pounds a week last year as surging numbers of cash-strapped Britons turned to its high-interest loans.

The company, which charges households annual interest rates of more than 5,800%, said profits after tax rose by 36% to £62.5 million in 2012.

Lending was up 68% in the year to £1.2 billion, while customer numbers ballooned 61% to more than a million amid the ongoing squeeze on household finances and banks' retreat from riskier lending.

The online lender was engulfed in a storm of controversy recently when the Archbishop of Canterbury said he wanted the Church of England to "compete" it out of existence by backing credit unions.

Wonga typically lends sums of about £200 to £400 to consumers, repaid over a few weeks. It has also started offering loans of up to £30,000 to credit-starved small businesses, repayable over a year.

The company, which is owned by private equity and management, came under fire for boosting profits at the expense of struggling consumers.

Gillian Guy, chief executive of charity Citizens Advice, said: "Payday lenders' profits come directly from the pockets of consumers, many of whom turn to them out of desperation rather than choice.

"The payday loans industry must focus on boosting customer welfare, rather than boosting profits at the expense of hard-pressed householders who struggle to pay back unaffordable loans."

Trade union Unite branded it "vulture capitalism", saying the sector "preys on the financially vulnerable".

But founder and chief executive Errol Damelin insisted the online lender operates in an "upfront and transparent" way, adding it rejects two-thirds of applications.

Wonga said it earns an average profit of £15 per loan, or 5p of profit on every £1 it lends. It did not pay a dividend but reinvested profits back into its development.

He said: "This is not about people on breadlines being desperate and us being a lender of last resort."

He said Wonga's customers tend to be digital-savvy, young, single and employed, rather than those on benefits, and insisted the company's profit margins are "not outrageous in any way to us".

Mr Damelin added: "Our customers are telling us that we provide very good value for money."

Wonga wrote off £126 million in impairments including soured loans during the year, almost double 2011 impairments, but said it is comfortable with its default rate of 7.4%.

The entire payday lending industry, worth £2 billion, was referred in June for a full-blown investigation by the Competition Commission after the trading watchdog uncovered "deep-rooted" problems.

The Office of Fair Trading made the referral because it continues to suspect that features of the market "prevent, restrict or distort competition".

Stella Creasy, the Labour MP who has criticised Wonga in the past, said: "The fact that Wonga is able to make more than £1 million a week in an industry which has widespread malpractices should be of great concern to all of us in Britain.

"What that says about families who are struggling financially, what it says about the kind of regulation we currently have in the UK and the things we need to do to make sure people in Britain can borrow affordably, Wonga might be celebrating today, I'm very, very concerned about what this might mean for people in my community and across the country who are paying the price for their profits."

The company claims the annual percentage rate (APR) measure does not represent its true cost to consumers as loans are repaid much sooner, adding it freezes interest when customers are 60 days in arrears.

Mr Damelin said: "It's very unlikely that a £400 loan is what gets somebody into a financial mess. We are doing it with total integrity."

Instead he said the payday lending industry has been tarred by the behaviour of other high-interest lenders. "There's a lot wrong in how other parts of the industry operates," he said.

Wonga said it paid £22 million in corporation tax during the year and now employs more than 500 staff, adding it expects to grow its workforce by 50% this year.

Mr Damelin also cast doubt on the Church of England's plans to rival it, after the Most Reverend Justin Welby said recently that he hoped the Church's support for credit unions would drive Wonga out of business.

It later transpired that the Church had invested indirectly in Wonga, triggering an investigation by the Church.

Mr Damelin said: "Credit unions in the UK have so far not been successful at getting to scale.

"It's difficult to imagine a sub-scale organisation bring able to deliver these services."

Revenues surged 67% to £309.3 million during the year and the company also laid out plans to tackle banks' stranglehold on lending to small businesses, which it said is "broken".

Mr Damelin said: "Job growth needs to come from small businesses. They are critical for the UK economy."

Wonga has also expanded abroad into South Africa, Canada, Poland and Spain.


Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
The Ridiculous Six has been produced by Adam Sandler, who also stars in it
filmNew controversy after nine Native American actors walked off set
Life and Style
The original ZX Spectrum was simple to plug into your TV and get playing on
techThirty years on, the ZX Spectrum is back, after a fashion
Have you tried new the Independent Digital Edition apps?
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Senior Digital Marketing Consultant

£28000 - £45000 per annum: Recruitment Genius: A Senior Digital Marketing Cons...

Recruitment Genius: Assistant Stores Keeper

£16640 - £18500 per annum: Recruitment Genius: An Assistant Stores Keeper is r...

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Software Developer - C# / ASP.NET / SQL

£17000 - £30000 per annum: Recruitment Genius: Developer required to join a bu...

Day In a Page

'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before
'Queer saint' Peter Watson left his mark on British culture by bankrolling artworld giants

'Queer saint' who bankrolled artworld giants

British culture owes a huge debt to Peter Watson, says Michael Prodger
Pushkin Prizes: Unusual exchange programme aims to bring countries together through culture

Pushkin Prizes brings countries together

Ten Scottish schoolchildren and their Russian peers attended a creative writing workshop in the Highlands this week
14 best kids' hoodies

14 best kids' hoodies

Don't get caught out by that wind on the beach. Zip them up in a lightweight top to see them through summer to autumn
Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

The acceptable face of the Emirates

Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk