The Downfall of Wonga? ñ Profits for 2013 expected to plummet by 40%
Informally recognised as the face of payday lending, Wonga is expected to announce a 40% slide in profits next Tuesday to £50m for the 2013, down from £84.5m on the previous 12 months.
Wonga has endured a torrid year, characterised by trading complications across its global business undertakings as a result of the terrible press it has received. Wonga, along with many other payday lenders, were criticised for their pseudo-loanshark practices charging clients interest rates of over 5000% in certain cases.
Wonga, and its venture capital backers, were enjoying an immensely lucrative business having fashioned a niche within an ailing economy for clients seeking a swift payday. Indeed, last year it styled itself as a short-term lender demarcating it from the seedier connotations associated with the payday lending sector. Its entrepreneurial prowess indubitable, Wonga manifested itself in overseas markets and began backing start-up businesses as its monetary muscles grew ñ monetary muscles forged without the backing of potentially unreliable creditors, rather comprised of equity capital which involves no external investors being reimbursed or threatening to withdraw their cash.
Moreover, it functioned on the back of efficient, high-powered technology which allowed it to gauge the suitability of candidates immediately ñ a system thatís effectiveness was mirrored in its default rate of 7.5% on personal loans in 2013.
But now, despite retaining the same system and practice, Wongaís revenues are on a downward spiral as the payday sector it has come to be intrinsically linked with is increasingly maligned. Wonga, to be fair, has not done itself any favours through its frequent brushings with scandal and ignominy. Reports of individuals taking their lives as a result of being swamped with various payday-related debts have been released in the past year, and itís role in the recent fake letter scandal has been widely condemned.
In the month of June just passed, Wonga was charged a penalty of £2.6m for distributing fake letters to borrowers from bogus law firms threatening legal action if borrowers did not pay off their exorbitant debts. The FCA, by means of justifying their verdict, claimed Wonga were guilty of ëunfair debt collection practicesí; naturally, public outcry was vociferous in the wake of this staggering scandal, with Wonga being nationally denounced for its flagrant corruption.
The aforementioned time frame pertaining to Wongaís decline in profits does not include Juneís fake letter scandal, however the payday lenders is thought to have incurred costs in excess of £10m due to the incident.
Due to the poor regard payday lenders are now held, regulatory action to curtail its stupendously high interest rates (The FCA will soon enforce a cap on the price of a payday loan) and the fake letter scandal, Wonga have instated venerated financial heavyweight, Andy Haste, who has stated his intent for Wonga to ëregain our right to be an accepted part of the financial sectorí.
It would appear Haste has his work cut out for him, with founder and former chief executive, Errol Damelin and Niall Wass, jumping ship. His first task is to fill the relevant positions with a wealth of financial experience and professionals who donít shy away from tough press. Such is the depth of bad feeling toward Wonga, that even the Archbishop of Canterbury, Justin Welby, has publically denigrated the swollen interest rates certain borrowers are subjected to, stating his desire for Wonga to be outcompeted by placing greater impetus in the hands of credit unions.
Wonga declined to comment on the matter, dismissing notions of plummeting profits as ërumour and speculationí. The payday lender seemingly wants to release its own profits, which are widely anticipated to continue falling this year, in its own time. Greater reliability and transparency are pre-requisites of any future undertakings the lender seeks to profitably engage in.
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