Soaring profits have prompted a swathe of criticism, but Wonga is just a showcase company for Britain’s reliance on debt.

The London Economic

By Nathan Lee, Financial Analyst

Public outrage over pay-day lenders has been sparked once again by the (shocking) revelation that Wonga is making lucrative amounts of money from debt.

But above the widely misconstrued APR rates and easy credit conditions, one must ask whether people are pissed off with short-term loan providers or just venting their frustration over Britain’s reliance on debt?

Long-term bank lending is not the lesser evil of short-term lending, in fact, they’re comparatively the same thing. A £100 loan over ten days from Wonga costs £26.60 in interest and fees compared to a £10,000 loan over ten years, which costs £2,887.

Although the APR charge on the short-term loan is 2,452% higher than the long-term loan, the relative profit margins are almost identical (26.6% compared to 28.9%). To clear things from the start, charging hundreds of percent APR on loans less than 60 days long is perfectly understandable.

Providing easy access to credit is a dangerous thing indeed, but following a financial crisis of epic proportions which was built on easy credit access, Wonga can hardly be called a ‘founding father’ of the debt market. Chief executive Errol Damelin has defended the company on release of their annual report, saying they turn down two-thirds of those who apply for loans and are “disincentivised” from taking decisions to lend to those in financial trouble. Whether there is truth in that or not, the point is that offering credit to the vulnerable predates money itself.

Showcasing debt

In my judgement, people are pissed off at Wonga because they showcase Britain’s reliance on debt. In the “must have it now” generation, their apps and interactive online tools put easy credit on a pedestal, which is exacerbated by soft-touch marketing campaigns which project innocence when dealing debt in a cut-throat market.

Turnover should be a side-issue in their 2012 annual report. What’s most disconcerting is that Wonga’s customer numbers are up 61 per cent to more than one million and the total number of loans provided is up 54 per cent to four million.

Their results collide with a survay from which found a quarter of borrowers in Britain, some seven million consumers, will not be able to pay off their non-mortgage debts for at least three years and seven per cent – some four million consumers – believe that they will never be debt-free.

Wonga may be showcasing the dangers of credit more transparently than your average high street bank, but they don’t operate under a different paradigm and are no more culpable than their high street counterparts for the country’s debt spiral.

As Archbishop Justin Welby looks to rival pay-day lending, one get’s the sense that Wonga is merely the tip of the iceberg, waiting for the Titanic to hit.

2 Responses

  1. MonetaryReformNow

    Sadly, Wonga and its ilk are just the tiny tip of a very deep iceberg. There is a fundamental problem with our monetary system. The reason for so much debt in this country is that 97% of the entire UK money supply comes into existence through bank “lending”. Our money supply is “borrowed” into existence from the banking system: no debts = no money supply (apart from the 3% in notes/coins). Now, you do not need to believe me, you can attempt to cite (1) utterly debunked textbook theories of deposit money multipliers or (2) that banks need deposits before they can loan. Both (1) and (2) are utter and complete tosh. Banks DO NOT “lend” money, they create it through the “loan” mechanism. Simple double-entry bookkeeping.

    If you want to truly understand, please visit


    On the Positive Money site you will find a wealth of impeccable sources (videos, quotes, reports, books, academic papers etc) to explain the above in very great detail — sources that include the Bank of England, International Monetary Fund research and a wealth of additional sources.

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