Wonga is betting that computers are better at lending than banks | Hacker News Reader

Wonga is betting that computers are better at lending than banks

blogs.forbes.com

53 pointspbj35 comments

They're a deeply sleazy company, along with lenders like PayDayUK.

They mass-cold-call people asking to "discuss their application for a loan", when those people haven't made an application.

They send threatening emails to folks saying that loan installments haven't been paid, when those people haven't taken out a loan.

Their tactics are basically bullying and fear.

(No, I haven't ever taken out a loan with either of these companies. Yes I have had to experience both of these annoyances. Yes, so have various other people I know).

I've only had good experiences with them. I use them to boost my credit rating (which is going well, it's now above average!) and I've never experienced any of that. I was at one point late with a loan repayment (they took the payment a day early because of a bank holiday, caused me problems) and they didn't harass me or phone at all, they simply increased the amount that I owed.

Have you checked your credit record? - it doesn't seem to make sense to pressure someone who doesn't have a loan, it seems more likely that someones commited identity fraud and used your details to get a loan.

I don't think so, because it never goes any further than those initial harrassments. If someone had got a loan in my name, I think I would have received escalating demands, culminating in a court summons. That never happens - they just keep calling wanting to discuss a loan application, or sending emails saying that a payment is overdue.

I suspect they hope that they can just get people to talk to them, and then convince them to take a loan.

If it is "honest" identity fraud, then they obviously don't have the checks in place to deal with it - either way, they're not good companies to deal with (IMO).

I saw an advert for Wonga the other night and noticed the fine print >4000% APR and almost fell out of my chair. The article explains it though, and I'm less concerned for clueless borrowers running up 40k in a year :)

If I needed $750 more than I had in the bank, and knew I could pay it all back in a month, I would put some of my expenses on plastic. Back when I was fresh out of school in a not-very-well-paying job, and had recently completed a debt management plan to pay off the bills I had run up as an undergrad, I got plenty of unsolicited offers for credit cards; eventually I had something like a total credit line over $10K with interest in the 20–25% range.

So who are these people out there who “need” short-term credit so badly, and yet can’t find anyone to loan to them at anything short of quadruple-interest rates? Is it really good for society to have a company fill this “need”?

(Just to forestall flag-waving about contracts between consenting adults being sacred: The banking system, without which easy credit would be impossible, is even more dependent on the state than other kinds of private industry. As the de facto lender of last resort, the state has a legitimate interest in what kinds of lending it permits among its citizens.)

they prey on the people like a single mother of five trying to make to the payday and who isn't in the state of mind to do the math or other people in the similar "impaired" [for the lack of a better word as i don't mean narrow drug/alcohol impairness] state of mind.

The APR is a ridiculous amount, but you're not supposed to borrow over a year.

It's a bit like saying that "Based on weekly rental rates, it would cost me £50,000 to rent a [insert basic model of car here] for a year! What a rip-off! I could buy one cheaper than that!"

Credit card “convenience checks” charge a 2–5% fee on top of the regular cash advance interest rates. Annualized, that’s still under 200%.

Dude. This is nothing. Barclays charged me £22 for going £10 into my "reserve" overdraft for just 24 hours. Which is some completely absurd annual rate, 10^184 % if my quick calc is correct (220% daily rate compounded for 365 days).

Loans are less dangerous when they're small, short-term and have to be repaid, yes; but the rate is still high (you'd have to repay GBP 461 for a GBP 400 two-week loan, to grab some numbers from the article.)

They also have a 10% default rate. So just to break even, they need to charge 440 GDP.

I have a friend that is a research analyst in a bank that covers "Other Financials" (i.e. companies like Wonga that aren't traditional banks).

He mentioned a company (similar-ish to Wonga) that does Home Credit - i.e. people going round door to door in poor areas lending money and collecting on a weekly basis. These companies typically charge 183% APR.

The Joseph Rowntree Foundation (a UK charity) did some research to see if they could provide the same service on a non-profit basis. They found that with a government subsidy of £18m, they would still only be able to get the interest rate down to 123%. This is due to the large number of defaults and other costs.

http://www.jrf.org.uk/blog/2011/02/will-capping-cost-credit-...

I thought this was interesting - what seems like an outrageous rate really doesn't always translate into outrageous profits.

They don't lose the full amount on all defaults. Many will pay back eventually, even paying some penalties, providing higher profits. As the article mentions, it's the defaults where traditional providers make most of their money.

Defaulted loans are almost always worth something. They can be sold to collection agencies, who typically buy them at around 10 cents to the dollar.

Well, they certainly aren't making money by lending $100, waiting for a default and then selling the loan for $10.

But you are right, the article does make the claim that defaults are profitable. I missed that on the first read. So I guess maybe most defaults are just late payments or something? Do you have any more info on this?

If someone defaults, you keep charging 4000% interest, and three months later "cut a deal" to have them only repay half of what they now owe, you've still received 125% of the amount they borrowed. I'm not sure about the exact numbers, but you can see how even defaults could be profitable.

My friend's sole trading business has an 0845 number which goes straight to voicemail.

On day, he started to receive truly heartbreaking messages of financial hardship, people unable to pay medical bills for their parents, that kind of thing. People were literally crying on his voicemail.

It turned out that his number was just a few digits different from the new Wonga customer service line, and he had to change the number.

... not only because they’re accurate but because taking humans out of the equation nixes the risk of manipulation by borrowers

Computers are objective, obviously. But that doesn't mean the input cannot be manipulated to achieve a better output. In a way, computers are much more naive than humans.

In my opinion it is irresponsible to remove the humans from the loop, in this case. A human would have an easier time rejecting applications that simply are sob stories waiting to happen, not by looking at the numbers but by listening.

Then again, the reason for this set up in the first place could be to avoid responsibility. If there is no human that took the decision, there is no accountability, no recourse. Which means that they can exploit the cases that are normally ethically off-limits to even the most sociopathic loan sharks.

people unable to pay medical bills for their parents

Are you sure about that? I don't want to move the conversation anywhere near healthcare controversy, but the joy of the NHS is that "I can't pay medical bills!" problems never exist :)

Sort of, but there is a grey area between what people think they need and what the NHS thinks is necessary.

My mum is a head nurse and has to fill out a 10+ page assessment of the patient's needs which determines what level of at-home care the NHS will provide.

Often, the family will fight this ardently because it might mean they have to pay for a care home or a private carer. These things aren't always provided by the NHS if certain conditions aren't met, and with the recent cuts, or threat of cuts, the bar for care is being set higher.

In this instance, perhaps someone foolishly took out a Wonga loan to pay for their parent's care, or perhaps it was just a sob story all along.

Maybe I'm not the right customer but I don't really see the value.

From the frontpage, they give me £265 today and expect me to pay £294.51 9 days later. With my credit card I get £265 and pay £265 anywhere between 1-30 days later.

Still confused? Is it only for people who can't get a £1000 line of credit?

Not everyone has access to a credit card and some don't like the responsibility/risk associated with them, also some people may have reached their limit if they do have one.

> Is it only for people who can't get a £1000 line of credit?

Basically, yes, but what credit card do you have that doesn't charge you for a cash advance?

I'm glad these guys didn't base their business idea on not primarily concentrating on customers who won't even have a chance to pay their loans from the beginning.

Here in Estonia, some entrepreneurs thought it was nice to mix up text-ing from cells and lending as far back as 2006 already (I think). Basically, you'll only need to provide your personal info with their site (name, Estonian version of SSN, bank account, telephone number), and then you'll be able to get a loan for as much as €1000 by just sending a sms. Most people lose their judgement after few shots of vodka, now imagine if you ran out of money after those two shots and the only thing needed to fix that was to send a SMS. Something that the provider won't be telling you, however, is that those loans come with high interests, sometimes as high as 1000% / year. As a result of that, quite a bunch of uneducated people have lost their homes due to this scheme that still is going on today in our unregulated economy. Seems as if they've now began tapping Swedish market, I wonder when is this going to happen in the U.S.

All in all, I was a text-book liberal before seeing some of the people dealing with results caused by this scheme, now I'm beginning to change my mind.

Also, there's a Wiki page about it: http://translate.google.com/translate?js=n&prev=_t&h...

typical pay day loan shark would charge "outrageous" 300%-1000%, yet they would loan pretty much to anybody, including very high-risk borrowers.

Wonga wants 4000% for loans to the top 30% applicants. Nice try.

This company is evil, but something I've always wanted to do is start a deposit bank where all the account decisions are made by algorithms. When a customer emails with a problem, an algorithm analayzes the message and makes the appropriate decision (refunding fees, chargeback, etc.) The amount of money saved by not having any customer service people would allow the outcomes to be more customer-favorable (sure, we'll refund that) without affecting profits.

(The prerequisite I'd need to get started with this is an archive of emails-to-the-bank with their outcome.)

Would you be at all worried that smart and dishonest customers could manipulate the system? i.e., make up a story and automatically receive money back.

basically you want to start a typical bad bank where one would spend half-a-day trying to get through the menus to solve a simple account mistake/issue

No, there are no menus. "Click here to email customer service." The software handles the rest.

How right do you have to be when running a payday loan scam?

Since when have payday loans been a scam? That's a very silly view and in my opinion doesn't fit the entrepreneurial spirit. Payday loans are valuable to a large number of people and a large number can and do handle them successfully. It's not a scam, it's just easy to screw up with.

is gambling a scam? are mortgages a scam? are "normal" loans a scam? are vc investments a scam? etc etc

If you're responsible but low on funds, payday loans can be a godsend. The interest is often lower than your checking account's overdraft charge, for example. If I was short between paychecks, I'd get charged $20 for each bill I have set on autopay.

Or you could just not pay the bills.

Only for the UK, at this stage. No way to enter a US work phone number.

"Wonga"

I never would have learned that word without Damon Hill.

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