A high-tech British start-up? One making enormous profits, hiring staff, and expanding around the world? With all the talk of industrial strategies, you’d think this was a business that everyone was praising to the rooftops. But everyone hates it and wants to see it hounded out of business. Why? Because it’s Wonga.
And yet many successful companies are not entirely pleasant. Britain needs to make its way in the world – and Wonga is the kind of thing we are good at. We should be getting behind it – not trying to close it down.
Last week, the controversial payday lender unveiled the latest step in its expansion. It is buying Germany’s second-biggest online payment firm BillPay as part of a big push into foreign markets.
Wonga has already launched short-term loans in Poland, South Africa and Canada, as well as buying Spanish payday lender Credito Pocket and a stake in the Indian firm Nahar Credits Private.
There is little chance of the Germans taking up Wonga’s instant loans – this is a country where 17% of transactions are paid for by credit cards, compared with 56% in this country – but there is huge potential to expand online finance there and elsewhere.
For all the brickbats that fly its way, Wonga has been brilliantly successful. It was only founded in 2006, but last year made profits of £84.5m. If it floats, it would be worth at least £1.5bn and could easily be worth more than £2bn, given the sky-high valuations put on many other technology companies.
That is an impressive achievement. Only the online fashion retailer ASOS comes close, and it does not yet make as much money as Wonga. It is no exaggeration to describe it as the greatest commercial success to emerge from the UK in the past decade.
The trouble is, everyone dislikes it. Last week the Labour Party announced plans for a special tax on payday lenders, which would be used to fund the creation of credit unions to offer loans at lower interest rates, as well as a cap on the interest rates that could be charged.
The Archbishop of Canterbury, Justin Welby, has campaigned ferociously against the lender, vowing to use the Church of England to put it out of business by creating local credit unions offering loans at cheaper rates. Just about every British regulator has pursued the payday lenders, looking to tie them down with new rules and regulations.
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Wonga’s business is, to put it mildy, hardly for saints. It charges sky-high rates of interest to people either too poor to pay for everyday essentials or else so hopeless at managing their money that they can’t save for the things they want.
Money lenders have never been popular, and the higher their interest rates, the more unpopular they are. And yet Wonga is also incredibly innovative.
The key to its success is applying web technology to financial services, using algorithms to study people’s credit records and make instant loan decisions. It has taken one of Britain’s biggest industries – financial services – and started turning it upside down.
And it has started providing a welcome blast of competition to the big banks and credit-card companies.
While Wonga’s trade is not for the squeamish, successful new companies often have business models that won’t meet the Archbishop of Canterbury’s ethical standards.
Apple uses cheap labour working in terrible conditions in Chinese factories to make its overpriced gadgets, on which the profit margins are even higher than Wonga’s. Facebook collects vast amounts of data about people’s lives and uses it to provide a platform for advertisements.
Ryanair became Europe’s biggest airline by being as rude to its customers as possible, and using the small print to increase the costs of flights that appeared much cheaper than they were.
There is nothing unusual about that. The railway barons cut corners and so did those in the oil industry. Gradually, firms go through a process of normalisation. Apple will shift slowly to more civilised factories and start to compete more on price. Ryanair has said it will start being nicer to its customers – although it remains to be seen whether it can actually manage it.
Wonga may well make the transition from providing sharkish payday loans to combining technology and finance in new and interesting ways. And that should prove to be a huge niche.
After all, if we can send emails, books and music around the world in seconds, it seems odd that it can take several days to send £10 to someone – but finance has scarcely begun to innovate.
The champions of Britain’s industrial strategy no doubt envisage lots of research-intensive firms in green energy or pharmaceuticals, creating high-paying manufacturing jobs in the North of England or Wales and exporting most of what they make to the booming economies of Brazil, Russia, India and China. And sure, a few more firms like that would be great, but there are very few out there.
The British are good at running companies like Wonga. Fast, innovative, aggressive and rooted in industries such as finance where we have a long tradition of creating world-beating businesses. Either we want to be successful or not. A real industrial strategy would champion the likes of Wonga – not punish it.