Wonga has fallen into the red. What future is there for this payday lender and indeed the sector as a whole. Anna Milne writes
At last- Wonga falls into the red. Who would have thought those funny puppets were the face of such antics as threatening customers with fictitious legal summons for repayments.
It is currently dealing with a double whammy hit in the form of fallen revenues, as a result of the narrower customer base it can go after since the FCA’s imposed restrictions on this lending sector in 2014. And a drop in profit as a result of provisions put aside for fines.
Lost revenues from decreased advertising have probably also had an impact. Gone are the amusing fuddy-duddy puppets. Even its own advertising agency, Albion, drew the line and retracted its business. Although, in Wonga’s defence, boss Andy Haste may have prompted Albion’s exit by taking the decision that the puppets could attract children.
"There have been certain practices that we now know went on before we worked with the business and then during the tenure of our relationship that we were unaware of and that we categorically do not agree with," said an Albion spokesperson.
In a year, Wonga’s customer base has fallen by around a third and it has announced a pre-tax loss of just over £37m ($55m) for 2014. This is quite a turnaround from the pre-tax profit of £39.7m it made in 2013.
Having to write off thousands of debts after issuing a raft of loans to customers without much discrimination in terms of affordability has been a definite reality check for the lender.
Some industry spokespeople have gone so far as to knock the FCA’s imposed restrictions, saying that cash-strapped customers will succumb to traditional loan sharks and end up in worse circumstances. It has also been said that credit unions are not big enough to accommodate the fallout from now-restricted payday lenders and that other options simply aren’t known about among the very communities in need.
However, with current press coverage and a brighter industry spotlight on unfair and illicit lending, as well as increased opportunities for unbanked or ill of credit individuals, it could be time for some creativity among financial lenders- there is a potential new stomping ground here for (responsible) lending.
Perhaps also time for government-backed initiatives such as those by Experian, to extend credit-scoring to include social tenant rent payments, private tenant rent payments and other household bills such as broadband.
All is not necessarily lost for Wonga either. Gone are the puppets, maybe it’s time to invest in some serious re-branding before the next slick advertising campaign. Boss Andy Haste should make like his namesake and get to re-building the business- sooner or later he may be calling in for a debt fund himself.