Wonga: The pain starts here

Wonga logo Image copyright PA

Costs up, revenues flat, profits collapsing.

In most firms that would be a recipe for disaster with calls for the chief executive to go and serious questions being asked about the business.

But for Wonga, the numbers released today actually contain within them the first glimmers of hope.

The new chairman, Andy Haste, has been in place since July. He has already said that in the future Wonga will be a smaller business with lower profits and slower, sustainable growth.

He wants to make Wonga a respectable financial services firm, properly regulated and with tighter lending criteria. Its role? A competitor to banks which impose high charges for unauthorised overdrafts.

In effect, Mr Haste has admitted that the company had been growing too fast and had been successful in part by resorting to unsustainable business practices.

One of those - sending out fake legal letters to people who had not repaid loans on time - led to a finding from the Financial Conduct Authority of "serious misconduct" in the summer.

Wonga was ordered to compensate 45,000 customers, costing £2.6m.

The regulator also revealed that Wonga had miscalculated customer balances, a pretty serious matter for a finance business.

Some 200,000 had overpaid on their loans. Even more had underpaid, meaning that Wonga was left out of pocket as a result of its own mistakes.

Today Wonga has announced that clearing up the various messes will cost £18m, with more staff and better control systems.

As a private business, the detail on Wonga is limited. It will be a question of digging through the accounts once they are laid at Companies House to see the underlying figures.

I have been told that the business has attempted to contact all 45,000 victims of the fake letters and that some compensation payments have been made.

But, it will be very difficult to track down customers whose loans were taken out as long ago as 2008. As yet, Wonga is not saying how many of the 45,000 people have responded.

Or how much is it has actually paid out.

Those are figures it will need to publish if it is to build confidence that it is fixing past mistakes.

When Wonga published its results last autumn, Errol Damelin, the then chief executive, said: "When we decided we wanted to provide short-term loans within 30 minutes, the financial industry incumbents told us it couldn't be done, but we found a way to do it responsibly, effectively and at scale."

He has since resigned, an entrepreneur caught out by the growing pains of the business.

It will be Mr Haste's job to take Wonga from being an unruly teenager to a rather more sober adult.

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