Payday Lender Wonga Gets £10M Lifeline

Payday loans company Wonga has received a much-needed £10 million cash infusion from Accel Partners and Balderton Capital, among others.

The funding will help cover compensation claims related to its past censured practices, according to TechCrunch.

Founded in the UK in 2006, Wonga had raised a total of around £145.5 million from investors including Accel, Oak Investment, Meritech Capital and 83North, while a 2009 Series B included Accel, Balderton, Dawn Capital, HV Holtzbrinck Ventures and 83North.

But after admitting its algorithmic technology had been lending money to people who couldn’t pay it back, Wonga agreed to write off the loans of 330,000 customers, as well as waive the interest and fees for an additional 45,000.

The company was also censured by the Financial Conduct Authority (FCA) for sending fake lawyers’ letters to customers in arrears, which led to the company being forced to pay out a further £2.6 million in compensation.

“Look, I think Wonga should have been quite clear they’ve made lots of mistakes about where the business is at,” Daniel Waterhouse of Balderton Capital said at the time. “They have a big loan book, they’ve said they’re working closely with the FCA to offer a great product to market. They’ve been pretty clear about what’s happened in the past and what they’re doing now and moving forward.”

Wonga is still paying for its past conduct as increasing numbers of individual compensation claims have been filed against the company.

“Wonga continues to make progress against the transformation plan set out for the business. In recent months, however, the short-term credit industry has seen a marked increase in claims related to legacy loans, driven principally by claims management company activity,” a company spokesman said.

“In line with this changing market environment, Wonga has seen a significant increase in claims related to loans taken out before the current management team joined the business in 2014. As a result, the team has raised £10M of new capital from existing shareholders, who remain fully supportive of management’s plans for the business.‎”

Before this emergency cash infusion, Wonga CEO Tara Kneafsey‎ warned its institutional shareholders in late May that the company risked becoming insolvent.