Will Wonga Go Bust in 2016? Market Leader in Crisis

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WongaFor most of Wonga’s history, everything they have touched has seemingly turned to gold. The market leader issued 3.7 million loans in the 2013 year (approx 10,137 each day). They had notched up more than 1 million customers and if you didn’t see their logo printed on football shirts then you’d see their ads online or on the TV. Search engine rankings were high and they crafted a 24/7 automated short term lending product that they’d later take to Canada, Poland, South Africa and Spain. The level of success attained within the space of just a few years has been staggering. Questions like “Will Wonga Go Bust?” were at one time inconceivable.

Cracks have however been appearing and they now been taking 1 step forward and 2 steps back every time they appear in the media. Some questioned a potential collapse when it was announced that the web giant had made a loss after tax of £43.6m in 2014 (the original sum quoted was less than this). Their financials were to be fair impacted by compensation payouts (fake law firms) and loan write-offs (due to updated affordability checks). Industry regulations have become increasingly tight. Their customer base has crashed down to 575,000 and several high profile scandals have also severely damaged the brand’s reputation. So much so in fact that a potential rebrand was contemplated by Andy Haste (executive chairman).

There has also been a cull of 325 jobs on the workforce. Public swipes from the Church of England, debt charities, MPs and the media haven’t helped their cause. The real crushing blow came when the FCA rolled out industry capping in early 2015. The maximum that they can charge is now set at £24 per £100 over 30 days. Previous to 2015, they charged £37.15 for the same example that factored interest and their fast transfer fee. This cap, news of their financials and scandals have been widely known for some time. “Crisis” however sprang to mind a few days ago when we spotted the story of Kane Sparham-Price that was making the rounds.

Kane Sparham-Price unfortunately hanged himself after Wonga had cleared out his bank account chasing monies owed. This was a terribly sad story to learn about and as expected the media had a field day attacking the short term lender. There is no doubt that when it rains, it absolutely pours for Wonga! How can they repair their brand reputation when stories like this come out? All of the above points highlight just why a potential collapse would at least be questioned. Advertising of course hasn’t slowed down this year. The Credit for the Real World TV ad is being shown more frequently than any of their rival’s campaigns (no more puppets).

Will Wonga go bust in 2016? Nope, but there are certainly doubts that they can get back into their full stride. They may well need to restructure their loan product. Since capping came into force, most of the big payday lenders have moved towards the instalment sector, hence keeping users on longer agreements for added profits. Mr Lender, MyJar and Swift Sterling are just a few examples. Just to update that they now have added a 3 month product (Flexi Loan). This has been a welcome change although you can’t choose 1 to 90 days. After a month, you can just pick the 3rd month. It would have also been better for them to stretch to 6.

Perhaps they could alternatively launch a new service dedicated to longer terms. Their main rival (QuickQuid) is already doing this with On Stride and Pounds to Pocket. They did of course provide business loans as Everline, but this company has now been sold on. Whichever pathway is taken they have superior tech to many of their rivals. This tech has worked its magic effectively overseas where they are fairing much better than they are here in the now tightly regulated British space. What’s next for the market leader? The rebuild has already started with the new management team who in the words of Andy Haste are busy “Tackling deep-rooted issues”.