'Wonga targets wrong market'
- Published on 22 May 2012
Short-term loan service Wonga.com could be targeting the wrong market in South Africa, say experts.
The UK website Wonga, which has launched its online services in South Africa, offers small cash loans for individuals, with the application process for credit taking no longer than 6 minutes to complete. An applicant could then receive the loan in their bank account in under an hour.
Kevin Hurwitz, chief executive of Wonga.com in SA, says the website is targeting young professionals with an existing credit history. He says these consumers could prefer to take out a short-term loan instead of being tied down to a credit card.
But experts have questioned as to whether Wonga is targeting the wrong market in South Africa.
“Generally people who have access to computers and internet have historical relationships with their banks, I’m not sure how successful it’s going to be,” says Kevin Lings, an analyst at Stanlib.
A local bank consultant, who did not want to be named, also said it works out cheaper to take out a credit card than a loan, as the interest rate on a personal loan is much higher than interest paid on your credit card.
For example, a customer would pay a standard interest rate of 17.5% on a R6000 loan on Standard Bank’s credit revolving plan.
Wonga has a lower interest rate of approximately 5%, but the offering has high additional costs.
A loan for R1000 from Wonga to be paid back in 30 days would amount to R1282.50. Hurwitz said the interest would be R54.50 on a R1000 loan but that would include a service fee of R57 and a R171 initiation fee.
Lings adds that Wonga should perhpas rather focus on those who are at higher risk, and who do not traditionally have credit history.
“A potential way that this system could work is to allow people with higher risk, who are struggling to get additional finances from traditional banks to apply for these loans,” he said.
“People with high risk, would choose a facility where they feel that finances are being offered even if it’s at a higher rate,” Lings added.
Wonga.com has had great success in the UK earning a reputation, for disrupting the traditional financial sector.
The company said it decided to extend its reach to South Africa not only for sentimental reasons but also because the country was an exciting developing market to start the its international expansion.