Essay on Debt and Short-term Credit Industry

Submitted By hogan253
Words: 529
Pages: 3

WONGA 1) Wonga was founded by Errol Damelin and Jonty Hurwitz in October 2006.[3] Both founders had previous start-up experience; neither had any experience of retail banking.[7] When they first started looking for funding, potential investors saw the short-term, small-loans business as an unprofitable, risky backwater.[8] After being denied funding by UK banks, they secured venture capital through Balderton Capital.[9] The first place of business was in a shared office space in St. John's Wood, London.[10] After a year of development a beta website was launched in 2007.[11] In interviews, Damelin has said that the goal was to disrupt the short-term credit industry by providing transparency, exact control of amount and payment date, immediate access to funds, and no faxing or emailing documents.[8] The business model of lending only to those who could pay back reliably, as opposed to the much wider catchment practice of payday loans required an algorithm that could fully determine risk in an automated manner - something they had difficulty developing in the early stages. In order to get funds directly to customer's bank accounts as quickly as possible, cooperation from leading banks was required. Banks were reportedly dismissive of Wonga's plan saying they would not be totally satisfied with customer identity without physical documentation.[8]
Within five minutes of launch, the first loan application was processed, and within a week the first loan default occurred.[8] The subsequent months of operation showed increased demand, but traditional methods of credit risk assessment proved inadequate[citation needed] and the company experienced default rates of around 50%.[2] The company used this period to gather data on customer behaviour and began developing their own proprietary risk technology.[citation needed] The full market launch of Wonga.com was July 2008 and 100,000 loans were reached by June 2009.[12] Through the experience of processing these loans, the company developed technologies which began to…