Fintech has always been considered as smart, profitable, and lucrative but if certain measures have not been taken seriously, it can always turn into a catastrophe. Only creating a warm buzz around the finance firm with brash and high-end advertising commercials won’t put a financial firm up in the growth ladder. To become the best alternative to any bank, the firm needs to take care of the financial services it provides as well as the technology part. Solely depending on the technology part will result in something like Wonga.com.
Founded in 2006, Wonga Group Limited operates in Poland, South Africa, Spain, and the UK. Wonga.com is a popular household name as it is a British payday loan provider. This loan provider has always been in the headlines for its sky-high interest rates. Back in the year 2014, Wonga had admitted that it gives a loan to people who actually couldn’t afford any loan. And to this, the financial watchdog of the UK, the Financial Conduct Authority (FCA) brought in stricter affordability checks. The company went into administration on 30 August 2018 after a £10 million emergency cash injection. Many News and Media Houses reported that Wonga has stopped taking any new application but is still collecting the repayments. The UK’s largest payday lender had raised £145.5 million from the investors as well.
How was Wonga operating in the loan market?
Wonga has been lending loan to people who couldn’t afford to repay the loan amount. And the firm used to levy a default charge with no rollovers which were causing the customers to keep borrowing loans even when the loan has higher interest rates. As per a report, wonga.com has agreed and accepted that the rate of interest was always on the higher side. The young and smart generation used the benefits of a short-term unsecured loan just with the slide of a thumb. All this ease and flexibility attracted borrowers to wonga and that’s how they created a huge customer base.
What was wrong with Wonga?
Wonga has agreed that its algorithmic technology had been allowing the loan to people who do not hold affordability to repay. It has already agreed to write off the loans of 330,000 customers. Irresponsible lending, sky-high interest rates pushed Wonga.com into a spiral of debt. This payday lending farm has faced a barrage of criticism over the high-interest rates and for availing loans to the vulnerable section of the society who are likely to miss payments. The Financial Conduct Authority (FCA) had ordered the firm to pay £2.6 million in compensation to 45,000 customers post scrutinizing the fact that Wonga’s debt collection process was unfair and its improper sales practice. The privately owned company has hardly any return to profitability to reflect. The rapid rise and fall of the firm from more than £770 Million to a mere £30 Million are going to play the role of a statutory warning to all loan lending firms. The exorbitant interest rates, brash advertising commercials, letters from fake legal firms to chase collection of repayments, and proceeding a host of inappropriate loans are few of the major factors which took wonga down.
How is it going to impact the loan market in the UK?
Wonga.com has been claimed as the UK’s largest payday lender and on 30 August 2018, the loan market witnessed a dramatic shutdown of the loan giant due to its never-ending controversies which involved unfair practices of loan collection. Many anti-poverty campaigners accused the firm and publicly campaigned against high-cost lenders which played the pivotal role in the collapsing of Wonga.com. This setback may force the firm to change their brand name to repair the extreme damage that has happened.
People would take unsecured loans more seriously after the shutting down of wonga.com. FCA Registered and regulated firms may top the list for unsecured loans in the UK. It’s high time for firms which are still operating with old and traditional methods of loan borrowing process to give their business a second thought. The whole market of loan borrowing and lending has changed drastically overnight. But the demand for payday lending will not fade away with this tune. The digital world has impacted our lives and we all want some flexibility in everything we do.
Considering the British lifestyle and data from various reports, there are around 5.5 million people who are self-employed and there are millions of others who are struggling with their low pay. These people have actually become a vital part of this dynamic economic structure and this has always reduced the productivity. Payday lending is never going out of fashion due to various factors. People need to survive and that’s when they find loans for their support and survival. But the major turning point this time would be, the firms will have to face more vigilant and strict clientele. And the biggest challenge for the financial firms would be reading the client mood. Because the inability to read a client’s mood has resulted in the demise of wonga.com. Borrowers tend to forget and understand that getting cash will cost them more in the future and what will happen if due to certain circumstances they fail to pay. The loan amount grows and becomes a giant amount at the end of the term which becomes difficult for any borrower to repay. A person is opting for a loan because he or she is not doing well financially, then what is the purpose of increasing the debt?
Any loan broker or lender sees the UK loan market as an exciting new frontier to serve people who have a bad or poor credit history. But the real question is still staring at our face, that is, which is a major problem for the UK now, is it the payday loan industry? Or is it a warning to the trouble in the labor market? Shutting down wonga will not help the payday loan industry to sink. Wonga.com has gone into administration but there are numerous other financial firms who are ready to deliver speedy and quick cash/loans to people who opt for it and this will continue. Chances are there that these processes of loan borrowing and lending will not adopt any unethical means to promote their business or they will not adopt any unfair sales practices.
Wonga has learned the hard way but other firms can take extreme measures to save themselves. Indulging in unethical practices is never the right thing to do when there are a lot of risks already involved in the business. Payday lending remains an option but not the best one always. There are other alternatives to payday loans available in the market and it’s time for borrowers to consider them as an option. And still, if you need a payday loan, make sure you pay back the financial services firm regularly.
Use of technology in any business has definitely taken it to heights but using technology in an unethical dimension is generally not considered as a safe and healthy business model. Payday borrowers are likely to continue opting for the high-cost short-term loans intended to tide people over until the payday check comes in. The loan market will face a downtime of a few months and then borrowers will start borrowing money but from FCA Regulated and Registered firms who are involved in responsible and sensible loan borrowing and lending process.
Disclaimer – Please note that We are not an affiliate site for Wonga. This is purely our financial expert’s view.