Britain's Wonga: Payday Lender and Proud of It

London tabloids have characterized Errol Damelin, founder of online lender Wonga.com, as a high-tech loan shark “laughing all the way to the bank.” Incoming Archbishop of Canterbury Justin Welby says Wonga and firms like it violate the biblical ban on usury. Despite the jabs, Wonga has attracted financial backing from established Silicon Valley venture capital firms such as Accel Partners and Greylock Partners, and the site has plans to expand into the U.S. “We’re in the middle of one of the biggest shake-ups of any industry, which is what happens when digital collides with financial services,” says Damelin. Wonga’s lending is “controlled, and it’s short term. It’s all the things that traditional credit isn’t.”

Wonga makes loans of as much as $1,500 ($23,000 for businesses) at rates it says work out to just under 1 percent a day. On a $600, month-long personal loan, a borrower would pay about $190 in interest and fees—equal to a 31 percent monthly rate. Wonga’s typical customers are middle-income earners with cash-flow troubles. They apply for loans online and are approved or turned down in seconds, Damelin says. The company, which has 450 employees, claims to have made more than 7 million loans since 2007. Britain’s consumer protection law requires Wonga to publish its annual interest rate, which is more than 4,000 percent. The company says that rate is misleading, because it doesn’t loan money for more than a month and doesn’t compound interest.