Wonga: credit where its due. do banks do this?

This one made me uneasy when I saw it. It’s a get out of jail card, sure. But just look at that interest rate.

But while at first glance these guys seem to be advertising interest charges that would make even a loan shark blush, just ask yourself. Why hasn’t a bank done this?

If you need money fast, Wonga promises you’ll have it in your bank account usually within an hour. You don’t need an account with them, just be a good risk. A very good risk...

2689% APR - are your eyes watering yet?

Wonga’s APR looks unreal, but that’s not what its about. its about approaching consumer lending from a fresh perspective and an open mind. About the smart use of risk and financial decision management technology that gives it the edge over everybody else. About beating the banks at their own game by playing it better.

But speed doesn’t equate to risk. Wonga’s tentacle-like connections to a wide range of credit reference sources and highly selective decision processes have seen it provide over 100,000 short term advances of up to 30 days. The amounts available are up to £200.

Wonga’s credit checks are particularly stringent. Wonga only offers the facility to around 1 in 10 applicants, so its risk profile is excellent.

A £200 advance for 17 days would cost you less than £40.00. In that context, that APR looks far more manageable.

Internet pawn?

Absolutely not. This isn’t some high-net worth online pawnbroker. You don’t put your Rolex in hock, or had over the keys to your Porsche. It’s just very clever use of technology to make rapid decisions.

You choose the amount, you choose how long you hold the money. Its all about customer choice, customer control.

Whether you’d choose to use it or not, it has to be accepted that Wonga fulfils a need a lot of us would have seen at some stage in our financial lives. And it seems to work.

In fact, the more you think about this simple bridging concept, the cleverer it is. It’s no-fuss, well executed and everyone wins by it being there. It’s just a great idea.

Wonga was created by South African Errol Damelin, a 39 year old ex-investment banker who learnt his trade in Israel. Backed by Balderton Capital, Greylock Partners, Accel Partners and Dawn Capital, Wonga secured $22.25 million worth of financing - so it got off the ground for less than the average cost of a high street bank’s TV advertising budget.

Once again, why didn’t our banks think of this?

Clearly, Damelin is a clever and talented guy. Sure, he’s had banking experience. And it doesn’t take a genius to see the potential in growing the relationship Wonga is rapidly forging with its clients.

This isn’t some esoteric Internet start-up without a meaningful revenue projection for years to come. This is an instant return, highly efficient engine to move money from A to B and back to A again. it’s true, disruptive innovation - but perhaps without competitors in the financial market, it could be argued Wonga has nothing to disrupt!

Wonga’s credit-worthy, high potential clients will remember what Wonga did for them and when it comes to offer a wider range of services, they’ll trust it to provide them. It will literally be building a reputation with every transaction.

And while Wonga’s been handing out cash and getting a great return from doing so, our banks are just sitting on their hands. Will our banks ever see the writing on the wall?

They’d better hurry, though. There’s not a lot of their wall left to write on…