My hunch is that it isn’t particularly fashionable to defend Wonga, the loans company, at the moment.
But a few things have been bugging me, so I wanted to share them.
“We’re not in the business of trying to legislate you out of existence; we’re trying to compete you out of existence”.
He is not the first to take a dim view, although to be fair, he says that he was taking aim at the wider array of ‘pay-day lenders’ and believes Wonga to be a “professionally managed company”.
More widely, it seems that the easy thing to do, is to damn the company.
Before doing so, a few questions have been playing on my mind.
I should say that I think that Justin Welby comes across as an incredibly likeable, articulate and thoughtful man. Also, that I know Errol, CEO of Wonga. He is a formidably ambitious entrepreneur and is also likeable, fun and engaging.
Before I rush to conclusions, here are a few thoughts.
Firstly, this is a serious subject. Debt ruins lives.
So does junk food, if consumed to extremes.
And alcohol. I don’t wish to see either banned, although I’m happy that they each come with certain warnings.
If we’re going to sort this out, we’ll need to trace the problem back to its roots. The lack of financial education in our schools is startling. Although this is starting to change, the idea that generations of children learned about Pythagoras and not about interest rates, is staggering. I’m not suggesting that all young people are leaving school without knowing how many beans make five. I’m just not convinced that they have a wide enough understanding about simple concepts connected with money. That’s a big problem.
A deeper problem perhaps is that, for too long, we’ve been spending beyond our means. Buying things we don’t need and can’t afford. A credit card looks remarkably like a debit card after all.
These two things, financial education and buying what we don’t need may have to wait for another day’s reflection.
For now, let’s stick to Wonga.
The first question I would ask, is whether you’re against the idea of borrowing money.
On this, you may side with Polonius (“neither a borrower nor a lender be”), however most people seem comfortable with it. In principle.
If we’re not against lending, then are we against the concept of interest? I suspect that the answer from most will be that it depends, how much.
This is one of the main things which winds people up about Wonga; Its interest rate.
Calculated over the course of a whole year, which they have to for legal reasons, it seems astronomical. Except that they are not in the business of lending money for a year. They are all about short-term loans. You can’t borrow more than £400 and you can’t borrow for longer than 45 days. The average customers borrows for 17 days. The average loan is for £257 and the average first-time loan is £180. And broadly speaking, the customers seem happy, because 90% of them would recommend Wonga to a friend.
Here’s an example of how Wonga works. It’s Friday today. Imagine I get paid on the last day of the month. That’s next Wednesday. I have run out of money. I would like to go out this weekend. Or perhaps, more importantly, I absolutely have to pay a bill today. I’m after £100, which, I calculate, I’ll be able to repay in a week, after I get paid.
According to the handy calculator on their website, Wonga will (if I am approved) lend me £100 for the princely sum of £12.89. And for a very large number of people, that is a deal which they are prepared to do. The other major benefit is that it’s quick. As quick as five minutes after my application is approved, the money can be in my bank account.
I don’t condemn the customer for accepting the deal, and I don’t (at this point) condemn Wonga for offering it. I am, however, aware that these are choppy waters because despite the clean, easy-to-use interface, people are using these sites and running into financial difficulties.
Seen over the course of a year, the interest rate is several thousand percent, which is the source of a great deal of anger and concern.
Personally, I’m less angered, and here’s why;
An analogy; Imagine I was looking to get a new car. And imagine I chose, as my preferred method of transport, a London cab, complete with my own driver. You might well call me an idiot. Or inspired, depending on whether you were under the impression that I was a millionaire.
Money and cars are not the same, but there is a connection here isn’t there? Cabs are for short-term journeys, Wonga is for short-term loans. Extended, they would both ‘cost a fortune’. I’m happy to pay a tenner for a ten minute cab ride from time to time, but I would get pretty wound up if I used one for an entire day, with the meter running. And a year? Forget it. It would be extortionate. I’d be better off going to Avis. And Wonga will argue, that if you want more money, for longer, you will be better off going to a bank.
For some people, that £13 to borrow £100 for a week may seem like sheer idiocy. For others, it’s a price they are willing to pay. In the same way, some will say that ten pounds for a ten minute taxi ride is lunacy. Couldn’t you set off earlier and walk? Or take the bus for less than half the price?
I’m quite surprised that in the media coverage of companies like Wonga, we rarely hear from the people who use actually them. Is that because there is a stigma attached to borrowing money? Or because they think that they will be portrayed in a bad light? Or are the media simply too lazy to seek them out and have a normal conversation?
I ask because a loan is a transaction involving two parties, isn’t it? When we condemn Wonga, do we condemn their customers too? Or do we feel sorry for them. And isn’t that a bit patronising if we do?
Or are we suggesting that the customers are being tricked? Well, last year the company surveyed over 30,000 people, asking them if they felt “well informed” when using Wonga. 96% said yes.
One final thought on the ‘extortionate’ interest rate. Given that the company is explicitly clear about how much any given loan costs, are we, generally, against things being very expensive? Mulberry sells handbags for over a thousand pounds. Primark sells them for under a tenner. Are both in the wrong? Or are we just uncomfortable with high margins?
The most basic point seems to be that Wonga’s customers choose to use its services. They are not forced to do so.
And this leads to the second main objection, because that depends, some will say, on how you define “forced”. It’s difficult.
I’m more comfortable, rightly or wrongly, with the idea that someone pays ‘over the odds’ to borrow £100 for a few nights out, than to borrow £100 because they cannot afford to eat.
Somehow my sense is that if the money is going on things you don’t really ‘need’, then the high interest is a tax on your impatience.
The idea that someone is forced to get further into debt at a time of considerable personal stress is extremely upsetting. But where does the logical conclusion lead, if we head in the opposite direction. That we only lend to people to buy things they don’t need?
We need to talk about needs, and about when offering something means exploiting someone. Not easy questions.
None of us likes the idea of the weak being exploited. I don’t like the idea of the addicted smoker being advertised to by Benson and Hedges. I don’t like the thought of someone being confronted by yet another WHSmith’s counter filled with chocolate bars, just when they are trying to lose weight.
Unsurprisingly, I don’t have the answers either.
I just worry that, in jumping to condemn Wonga, we haven’t stopped to think about what it is that we really dislike.
Is it lending money? Is it the concept of interest? Is it the point at which interest becomes ‘usury’ and is thought to be exorbitant?
Perhaps it’s the idea of preying on some of the most vulnerable people in society. In which case, do we condemn all of those who offer people things which, in excess, may be extremely bad for them? And if so, do we call for them to be banned, or do we crack down on how they promote themselves and who they decide who to engage with?
Could you argue that, other than an age check, there is no sensible barrier in place to decide whether that bottle of Jack Daniels is likely to kill you? By contrast, could digital lenders emerge to be some of the more responsible companies of our time?
This is a sensitive subject and almost certainly easier to steer clear of. That’s why I admire Justin Welby for having a view, and sharing it publicly.
Wouldn’t it be great if more people from more walks of life sat down and had proper conversations about money, about business and about politics. Rather than trading insults or one-liners.
I’m hopeful. We have an Archbishop who used to be an oil executive at a time when our Minister of State for Trade and Investment (Stephen Green) is an ordained priest. For good measure, he also happens to be a former banker.
Slamming individual companies is easy. Especially if their name has two syllables and seems a little too ‘brash’ for our liking.
Having complicated conversations which will inevitably involve disagreements is difficult.
Seeing those conversations through to genuine breakthroughs is exciting.
I am confident that the results will generate a high level of interest – of the kind which everyone can support.