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.


peopleFrankie Boyle responds to referendum result in characteristically offensive style
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Have you tried new the Independent Digital Edition apps?
ebooksAn unforgettable anthology of contemporary reportage
Fans hold up a scarf at West Ham vs Liverpool
footballAfter Arsenal's clear victory, focus turns to West Ham vs Liverpool
New Articles
i100... she's just started school
New Articles
Life and Style
Couples have been having sex less in 2014, according to a new survey
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
New Articles
i100... despite rising prices
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

Qualified Primary Teaching Assistant

£64 - £73 per day + Competitive rates based on experience : Randstad Education...

Primary KS2 NQTs required in Lambeth

£117 - £157 per day + Competitive London rates: Randstad Education Group: * Pr...

Primary NQTs required in Lambeth

£117 - £157 per day + Competitive London rates: Randstad Education Group: * Pr...

Primary NQTs required in Lambeth

£117 - £157 per day + Competitive London rates: Randstad Education Group: * Pr...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam