Ten years ago the global financial order crumbled, triggered by the collapse of Lehman Brothers, one of America’s biggest investment banks, which sensationally filed for bankruptcy on 15 September 2008.
As austerity began to bite, the UK market opened up to payday lenders offering instantaneous decisions on loans with often astronomical interest repayments. A decade on and the poster child of short-term lending – Wonga – has fallen into administration.
At one point Wonga was the UK’s biggest payday lender and tipped for a $1bn listing on the New York Stock Exchange, but it collapsed under the weight of compensation claims from customers who had been mis-sold loans and has not done enough to repair the damage.
Some 200,000 customers who owe an estimated £400m in short-term loans are still being asked to make repayments to the company, despite the fact compensation claimants are unlikely to ever receive a full pay-out.
No amount of ‘cheeky’ TV campaigns or football shirt sponsorships could clear Wonga of its toxic brand reputation.
The current reality is a world away from 2008, the year Wonga launched. The company positioned itself as a flexible digital alternative to banks and as an option for people looking online for a financial fix in 15 minutes.
Taking a cheeky and brash tone, the loans firm invested heavily in marketing to raise its brand awareness. Wonga’s advertising spend rocketed from £22,000 in 2009 to £16m by 2011, according to estimates by analysts AC Nielson MMS.
In 2010, Wonga made its first high profile move into sponsorship, teaming up with Transport for London to sponsor five hours of free late-night travel on New Year’s Eve. That same year the company made its first foray into the world of sports through a shirt sponsorship deal with Blackpool FC, which it would continue until 2015.
The tone of Wonga’s high-profile TV ad campaigns evolved from a brash Cockney geezer to friendly elderly puppets organising loans in minutes, under the ‘Straight Talking Money’ tagline.
Designed to take the edge off Wonga’s emerging ‘legal loan shark’ image, the puppet trio were also used in 2011 for the sponsorship for ITV’s Red or Black gameshow, hosted by Ant and Dec.
By 2012, Wonga’s pre-tax profits had peaked at £84.5m, with sales reaching £309.3m. Some 2.5 million loans were taken out from the company that year alone.
Sponsorship activity was also ramping up as the loan company signed a four-year sponsorship of Newcastle United, reportedly worth £24m, ditching its much-criticised sponsorship of Football League club websites.
The wheels come off
Despite the primetime TV campaigns and high-profile sponsorship deals, Wonga’s brand reputation was rapidly becoming toxic. In 2012, the company faced fierce backlash for claiming its loans were a flexible alternative to student loans.
The negative headlines, which should have been a wake-up call, did nothing to halt Wonga’s ambition. The company branched out with new brand Wonga for Businesses, offering loans of up to £10,000 to small businesses, but the brand failed to take off and was repackaged a year later as Everline before eventually being sold off in 2015 alongside Wonga’s German payments company BillPay.
By 2013, the name Wonga had become synonymous with toxic debt. Archbishop of Canterbury Justin Welby specifically name-checked Wonga in a speech condemning payday lenders, saying he wanted the company to be “competed” out of existence by ethical credit unions.
As tougher restrictions came into force cracking down on lenders in 2014, Wonga was exposed as having sent letters from fake law firms to customers who had fallen behind with repayments and was slapped with a £2.6m compensation bill it never recovered from.
The puppets were axed the same year, as Wonga switched the focus of its advertising to portrayals of ‘real people’, like hardworking mums and dinner ladies, even though its typical demographic were men aged 20 to 35.
Speaking in 2014, incoming chairman Andy Haste claimed that while Wonga had “understandably faced criticism”, the company realised it needed to “repair” its reputation. The puppet adverts were singled out as a major part of the problem.
“The puppets are going and I think that is right,” said Haste, speaking to the Guardian in July 2014. “I am very aware of the criticism there has been of our advertising and marketing, which is one of my priorities to review.”
But any change came far too late. By 2015 Wonga had cut a third of its workforce and the following year posted a hefty loss of £65m.
No amount of ‘cheeky’ TV campaigns or football shirt sponsorships could clear Wonga of its toxic brand reputation. If anything, the high profile nature of Wonga’s marketing strategy only amplified the problem, becoming a clear sign of how out of touch the business was with public opinion and the much needed shift towards ethical lending.
The demise of Wonga comes at a time when brands in the finance sector are positioning themselves as transparent and value generating businesses.
Take Funding Circle, which on Monday announced plans to go public with £300m listing on the London Stock Exchange. While the rumoured flotation of Wonga never materialised, Funding Circle will become the first lender of its type to float on the London Stock Exchange and has the potential to reach a £2bn valuation.
Since it was established in 2010, the peer-to-peer lender, which matches small business with funding from retail investors, has lent £5bn in loans to 51,000 SMEs from 80,000 investors.
Talking up the job creation element of its proposition, Funding Circle claims to have unlocked 75,000 roles in 2017 alone. Through its blog, the company focuses on using content to tell the positive stories of the small businesses prospering through funding generated via its website.
Where Wonga for Business faltered, Funding Circle has built up a global footprint by offering loans to SMEs in the US, Germany and the Netherlands. Any funding raised by the flotation will be used to help the lender expand further globally.
The strength of the Funding Circle business model has been proven, with revenue rising to £63m in the first half of 2018, compared to £41m during the same period last year. Speaking to the BBC, chief executive and co-founder Samir Desai described Funding Circle as a “very simple business”, cutting out the banks by democratising funding for small businesses.
Yes, Funding Circle is a different beast to Wonga, cast more in the mould of fintech disruptors like Monzo or Starling Bank, but its success shows the appetite for a different kind of lending, focused on being transparent and value added, rather than exploitative, brash and relentlessly in your face.