Wonga raises £73 million

The British site issues small, short-term loans, and gets backing from big names

Wonga.com, a UK-based service that issues small, short-term loans online, announced Wednesday that it has raised £73 million, or $117 million, in an equity round led by Oak Investment Partners, with participation from Meritech Capital Partners and Wellcome Trust.

Founded in 2007, the concept behind Wonga (which is apparently British slang for “cash”) sounds pretty familiar: a person is tight on cash and needs a little bit of emergency money to get through the rest of the month until payday.  In the U.S., we call them payday loan-sharks. But Wonga throws a couple of twists into the traditional payday loan scheme to differentiate itself from the less savory lenders.  For one thing, first time borrowers are capped at £400 (about $644), while loans for returning borrowers max out at £1,000.

 But more importantly, the maximum repayment period for an individual loan is 30 days.  At the end of the loan period, Wonga automatically deducts the borrowed amount back from the borrower’s bank account, which means the borrower isn’t sucked into a high-interest credit card repayment plan that stretches on indefinitely to keep the money flowing in.

If Wonga didn’t cap the loan repayment period at 30 days, it would be issuing loans at an annual interest rate of approximately 3,000%, but most of the company’s borrowers are young professionals who are earning an average wage and generally take out less than £200 at a time, so Wonga isn’t preying on the working poor.  A loan of £200, if repaid within seven days, comes with an APR of 4,214% (stings a little), but if repaid within seven days, it totals £19.

One vote of confidence came from the Wellcome Trust, the UK’s biggest charity, which also invests in health and medical research.  Clearly, the foundation saw something promising and ultimately beneficial in Wonga.

The company recently issued its one-millionth loan through its wholly automated process.  An application for a loan is approved or denied within 15 minutes, and money can be transferred into an account or used to pay bills within minutes.

The funds from this round will be used to secure Wonga’s foothold in the UK with the potential for the service to expand overseas, but not anytime soon.  Both Oak Investment Partners and Meritech Capital Partners are U.S.-based VC firms, so it doesn’t seem completely crazy to forecast the company’s expansion to the states.