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Wonga's annual report: 2012
Today we published our first annual report, showing expansion and growth across the Wonga Group last year. You can read the full report here and below are the main highlights, followed by the introductory letter from Errol, our CEO.
Welcome to the first Wonga Group Annual Review – where, alongside our 2012 financial results, we will tell you in our own words what we have been doing. Our company is built on transparency, so this report sets out how we performed in 2012, touches on some of our activity in 2013 and offers a few thoughts on what’s coming up.
Our mission is to build an international digital finance group, solving customer needs in a transparent, controllable and responsible way. Last year was another step towards that goal. Group revenue was up 67% at £309.3m (2011: £184.7m) with net profit after tax of £62.5m (2011: £45.8m), an increase of 36%. This is because our business provides something that a great many consumers and small businesses want - unsecured loans for short periods of time, available online, within minutes and at a completely clear price.
In addition to the growth in our consumer loans business, 2012 saw us launch Wonga for Business, providing longer-term loans, with typical Wonga flexibility and transparency, to the entrepreneurs and SMEs that are key to the UK’s economic recovery. We also entered the online retail payments market with PayLater, which offers shoppers a way to defer and phase payments for large items, for one low fee, and represents a more manageable and shorter-term alternative to credit or store cards.
Wonga also expanded internationally and we have evolved from being a single product company in one country, to now supplying a range of services and operating in five countries.
It wasn’t just our numbers that grew in 2012. Our TV adverts, football sponsorships and the representative Annual Percentage Rate (APR) - which we have to display by law on our home page in the UK - meant the public discussions around Wonga also grew exponentially, both last year and during 2013. The most recent example was the high profile media coverage sparked by comments made by the Archbishop of Canterbury, following a constructive meeting we had earlier this year.
His points covered the mainstream nature of the demand for short-term credit and how competition was the best way to address it. The ensuing and welcome debate about how, as a society, we meet this ever-present demand, is just one example of how our high visibility and relevance can help foster greater understanding of what we are trying to do.
Another example is the debate around APR and its suitability – or lack thereof – for short-term products such as Wonga’s. Ongoing discussions have seen bodies such as the House of Commons Public Accounts Committee (PAC) describe APR as an “outdated and misleading” way of costing short-term credit. Just like us, they concluded that the ‘Total Cost of Credit’ should be used instead. Our participation in the PAC hearing allowed us to once again explain how we charge 1% simple interest a day, with an average loan of just 17 days, rather than customers ever incurring anything like thousands of per cent.
Other commentators coming to similar conclusions over the past couple of years have included Jo Swinson, the Consumer Affairs Minister who, in December 2012, said “Just as when someone hires a car for three days they do not look at the annual cost of doing so, with short-term credit the APR is not necessarily the most relevant statistic.” Or Friends Provident Foundation, the independent research body, whose Financial Inclusion paper in January 2012 noted that “The cost of credit associated with products with a low APR can approach, or even exceed, that of products with a high APR.”
The Archbishop of Canterbury’s comments also encouraged a discussion around who our customers are and why they use us. Access to practical and affordable sources of credit is a big issue for our society and Wonga is playing a part by lending responsibly, and at scale, to people who can generally afford to pay us back quickly.
The majority of our customers are young, single, employed, digitally-savvy and can pay us back on time. In fact, nearly a quarter of loans are repaid early each month, which customers are able to do without any catches, saving on the original cost quoted. Where customers do get into difficulties, we deal with them sensitively – freezing interest as soon as they start an affordable repayment plan or after a maximum of 60 days in arrears.
In 2012, Wonga made £62.5m net profit on 4m loans, which works out at a net profit of around £15 for every loan and a net profit of around 5p for every £1 lent. Of course not all loans are profitable and this rough metric combines loans and results across all our markets. However, this does provide an interesting sense of the scale of return.
Looking to the future, one of the most important issues for us, in the UK and elsewhere, is regulation. We’ve always been a strong advocate of better regulation and measures that seek to protect consumers and eradicate unscrupulous practices used by some operators. It’s on this basis that we look forward to working with the Financial Conduct Authority (FCA) as our new regulator in the UK from next year.
As well as a new regulator, we’re also working with the Competition Commission industry review in the UK. We are a digital finance company providing flexible, short-term credit - in a new way and as one of a range of services. Therefore, while we believe a wider review of short-term credit - including bank overdrafts and credit and store cards - would be better for the consumer, we welcome the chance to work with the Competition Commission, alongside the FCA, to build a short-term credit sector based on our values of responsible lending and putting customers first.
As well as providing credit, Wonga is one of Britain’s most successful technology businesses. From a start-up just six years ago, we now employ over 500 people on a number of continents and we paid around £22m in corporation tax in 2012. We expect to grow headcount by around 50% during 2013.
We are continuing to disrupt the financial services industry with our flexible, digital and data-driven approach. When we decided we wanted to provide short-term loans within 30 minutes, the incumbents told us it couldn’t be done, but we found a way to do it responsibly, effectively and at scale. We will keep on challenging conventional practices, to provide customers with the service they want and deserve in the 21st century.
We are still a young company but, as we continue to develop, we also want to share our success and skills with others in the countries where we operate. As a technology sector employer, we are all too aware of the lack of talented computer programmers and the equal shortage of young people currently learning to code at school. Our pilot Wonga Codemakers camp, held at Newcastle United Football Club this summer with 40 teenagers, was the start of our plans to find and train the top coders of the future, with an inspiring and free technology education programme.
Finally, I would like to thank our hard-working and talented staff for their dedication, energy and drive, plus our investors for their support as we continue to build and invest in our business.
Founder and CEO
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- Chairman (1)
- Competition Commission (3)
- Continuous payment authority (CPA) (1)
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- Total Cost of Credit (TCC) (2)
- UK MD (1)
- Unauthorised overdraft (2)
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