Just 11 months after launching, short-term cash provider Wonga.com has raised a whopping US $22.25m in its most recent round of funding. (Funding was led by Accel Partners and Greylock Partners, and was supported by existing investor Balderton Capital.)
So what’s attracted such massive investment to such a new business? Well, Wonga’s not just a bright idea – it has some seriously impressive and unique technology underpinning it. It's created algorithms and software that allow financial lending to be fully automated. While banks may use lending criteria and bespoke software to initially assess a loan applicant’s suitability and credit history, there is always a human factor involved at some stage of the lending process. Wonga removes the human factor entirely.
Lenders are not only assessed entirely online, they also, uniquely, can apply for the exact amount of finance they need – up to £750. Plus, the money arrives in their account, guaranteed, within one hour.
Pretty amazing, isn’t it? But there is a catch – interest rates are high. Very high. Nearing on 2000%, actually. As an example, for a £100 loan, you can expect to pay £1 a day.
But Wonga makes it clear these are only short term loans – you must repay within 30 days. It makes its money not from users defaulting on credit repayments, as banks do, co-founder and CEO Errol Damelin told Smarta, but from the interest rates.
Find out more by watching our interview with Wonga’s co-founder Errol Damelin.