After weeks of turmoil Wonga, the payday lender that came to symbolise Britain’s household debt crisis, collapsed into administration recently. Many people in or supportive of the responsible finance industry have welcomed its demise (with much sympathy expressed for folk who are losing jobs).
However, it is important to remember why Wonga became successful in the first place; people on low incomes are increasingly reliant on credit to make ends meet. There is now a danger that these individuals will be pushed into the hands of even worse lenders.
Over 3 million adults have at least one high-cost loan now or have had one in the last month, and 15.9% of people in the UK are living with a debt problem – an increase from 15.4% in 2016. According to figures from debt charity StepChange, when Wonga was at its peak in 2013 nearly a quarter (23.5%) of its clients had been tipped into financial disaster through high-cost, short term credit debts.
With the risks of Wonga and its payday pals on full show for the general public, many of these consumers in need of financial assistance will be looking to seek alternative finance. A major issue which remains is that, while many consumers now know the dangers of unethical lenders like Wonga, they are still unaware of the responsible finance providers out there such as Fair Finance, Scotcash and Moneyline.
Responsible finance providers offer a real alternative by offering credit at a more affordable rate, delivered in a fair, respectful and responsible way.
Big lenders like Wonga have the resources to outspend responsible finance providers in their marketing and branding. Responsible Finance member Five Lamps spent £41,000 on marketing in 2017; in 2012 the five largest payday lenders collectively spent £36.3 million. With such imbalances in marketing resources, it seems likely that it will continue to be a challenge for responsible finance providers to make their voices heard over those payday lenders with deep pockets and shallow ethics.
The Government and the Financial Conduct Authority have identified the key role of responsible alternatives to high cost credit in tackling financial exclusion, and Michael Sheen’s End High Cost Credit Alliance is making exciting inroads in order to improve the market for fair alternatives to high cost credit. However, much more will be needed. It is important to remember that the demise of Wonga should not be confused with the end of exploitative, high-cost credit lending. As Labour and Cooperative MP Stella Creasy, who has been leading a campaign against payday lenders noted, at least 150 lenders like Wonga continue to operate in the UK. The responsible finance industry needs resources to help it scale and harness technology to meet consumers’ needs.
In sum, the collapse of Wonga has been welcomed by many. Nevertheless, much more needs to happen to ensure consumers around the UK have access to, and importantly, are aware of – fairer finance and responsible finance providers. A multitude of challenges remain, but a future where responsible lending exists as mainstream seems one step closer. At the very least, there is a silver lining – “Wonga is no longer.”