We're pretty unhappy with the Metro today. The London free-sheet's front page screeches: "Use your iPhone for 3,000% loan." Which is not quite the publicity we imagine short-term cash lender and hot startup Wonga aimed for when they sent out a press release on their new iPhone app.
The thing is, Wonga has been making big waves in the startup world. In a nutshell, it lends small amounts of cash for very short periods of time to people able to pay it back, and gets the money in their bank account within an hour of their request. The business model is incredibly innovative. Wonga's developed technology able to assess customers' financial risk that's far more efficient than anything the major banks have got.
The Metro uses quotes from Citizens Advice and the Money Advice Trust spokespeople warning of the awful perils of borrowing beyond your means and spiralling interest rates. But Wonga frankly positions itself as for those occasions when you suddenly have a plumbing emergency or need to book a flight before the price shoots up, rather than offering the much bigger and longer-term loans that encourage debt-dependency. It will only lend up to £1,000, and only then once you've used the service reliably first. You can find out more about Wonga's business model in our interview with Errol Damelin, who founded it.
When we spoke to Errol, we of course gave him a grilling about the 2,689% APR these short-term loans incur. But we discovered that Wonga doesn't make money from people defaulting on repayments. Chasing debtors costs it too much. It makes money from this interest rate, which works out at a pound or two a day for most amounts - pretty reasonable as you're expected to pay back the loan within 30 days, which apparently almost all its users do. Also, it caps any accumulated interest if you do start incrementing lots for paying back late.
Wonga is not out there to try to force people into serious debt and make money out of it. It's offering a niche service to those who can afford it. It compares itself to getting a taxi rather than a tube, to save time. You pay more for the luxury of speed and convenience. And it's completely transparent abuot all this on its website - take a look at this, for example.
Which is why we were so dismayed and, frankly, pretty annoyed to see the Metro's front page laying into the business. This is a seriously ingenious startup that's being highly feted by the entrepreneurial community. It's exactly the kind of business that showcases what the UK startup scene can do at its best: outcompete bigger, more slow-moving competitors by exploiting the nimbleness only small businesses are really able to achieve. It uses incredibly complex technology to offer a service that's blissfully simple for the customer. And it fills a real market gap, excelling expectation (getting a loan within an hour is astonishingly great!).
This country's newspapers should be celebrating startups like this, not spinning and skewing one fact about them to puke up a cheap and misleading headline.
The nation's newspapers often criticise the government for not doing enough for small businesses. But examples like this (and this) leave them just as culpable as those they criticise for not doing more to support small business hopefuls in the way that's needed if we're going to have any chance of driving ourselves out of the recession.