Errol DamelinWonga is an online service which has found a gap in the financial services market, providing short-term loans of up to £1,000 to users, and processing applications quickly.

The company was launched in 2007, backed up by £3m in funding, and came out of beta last year. I’ve been talking to founder and CEO Errol Damelin about Wonga.

What was your background before launching Wonga?

I started out as an investment banker but soon realised I was more interested in building new businesses myself than supporting other people’s ideas! Wonga is my third major project and I’ve lived and worked in several countries along the way. There’s not much in common between consumer credit, hosted supply chain software and advanced steel wire production, other than my passion for solving big problems.

What was the biggest challenge in getting the business off the ground?

We faced two big challenges right at the beginning. The first was the technical aspect of delivering a unique solution in a huge and well established UK credit market. We wanted to provide something truly game changing and the 24/7 speed and convenience that Wonga offers was only made possible by developing our own systems. There simply weren’t any off-the-shelf solutions or indeed precedents for what we wanted to do.

The second major hurdle was how to provide our service in a responsible manner, which was as much a philosophical question as it was technical. The end result is our obsession with transparency, but we also offer a completely flexible cash advance service whereby applicants can control the exact size, length and cost of a loan. That way no-one’s ever forced to take on more than they need for longer than they need it. Once an online application is complete we use sophisticated decision technology to provide an instant answer, while also ensuring we only lend to credit-worthy individuals.

How did Wonga come about?

I’d sold a business software company and wanted to tackle a really significant consumer market. Almost everyone experiences occasional cash flow problems and yet the existing solutions were associated with manual paperwork and long-term commitment, or huge penalty charges in the case of emergency overdrafts. It was a slow moving and very traditional market that was ripe for a really consumer-friendly service.

How do you decide who to lend to?

Instant yet responsible decision making is at the heart of what we do.
We were the first company to remove manual processing and fallible
human decisions from the lending process. Our risk and decision making
technology crunches data in milliseconds and means the entire customer
experience is real-time from start to finish. It also means we lend
responsibly and have low default rates as a result.

How much have you lent out so far?

We receive and process tens of thousands of applications a month, although we decline many people because we’re only interested in helping those who can afford the service. We provide small, very short-term cash advances for between five days and a month.

We have extremely loyal and evangelical customers who like the speed, convenience and control we offer. Unlike a credit card, for example, they know they are committing to settling the debt quickly on a specific date that suits them. We tell them exactly how much it will cost and if they’re happy with everything they can proceed with an online application.

Financial applications can require some relatively complex form filling, how did you approach the issue of making forms user friendly?

The user experience is obviously critical for any web business, so we invested a lot of time in optimising the balance between collecting the data we need and ensuring the process is as simple and transparent as possible. As a result, the entire application is online and can be completed in minutes. 

Are many people put off by the 2000+% APR? Is listing it a legal requirement?

Despite our views, and the views of many in the industry that APR isn’t a good measure for very short-term credit, it is a technical requirement to show it. We don’t receive specific queries about our APR, but we do explain on the site why the equation generates such mind-boggling numbers for anyone who’s interested.

We offer cash advances for as little as five days and although the cost of our service falls as the term gets shorter, the APR actually increases because you’re multiplying and compounding interest many times over. So there’s real potential for confusion amongst consumers and it’s a shame there’s not a more appropriate measure approved as yet. Whatever the APR, we always calculate the full cost of repayment up front and this is the simple and transparent information that our customers tell us they really value.

How big is the team behind Wonga?

We now have around 45 staff. Despite our focus on automation we’ve still needed to grow the team quickly to accommodate the amazing growth of the business, but we’ve never compromised on quality and always aim to hire exceptional people.

Is Wonga profitable yet?

Yes we are.

How has the recession affected your business?

We came out of beta mode in July last year, so we’ve been trading in this kind of environment from the off. You can’t always pick and choose your timing in life so, rather than over-analysing the situation, we just get on with delivering the best service we can. 

What does the future hold for Wonga?

We’ve got lots of exciting projects in the pipeline, all of which focus on solving people’s short-term cash problems in the fastest and most convenient way possible.

What advice would you give to other entrepreneurs?

If you’ve got an idea, first ask yourself if you’ve got the genuine passion and commitment to make it happen. Then ask yourself if you’re also prepared to work very hard and stay focused for as long as it takes. If you can answer those two questions positively you’re halfway there. Then ensure your idea will solve a real problem for customers, ideally in an innovative and scalable way.