Wonga readies $1.5bn float, but stigma won’t go away
Payday loans business Wonga has become hot property in the U.K. over the last few years -- but with the prospect of a Nasdaq IPO on the cards, the company is still struggling to overcome the public's distrust of money lenders.
Payday loans business Wonga has become hot property over the last few years, offering an almost-instant online lending service that has attracted lots of attention and nearly $150 million in venture money. But as the company eyes a stock market flotation, it’s still struggling to overcome its biggest hurdle: the stigma associated with lending money.
The Telegraph understands Wonga, led by co-founder Errol Damelin, is beginning a “beauty parade” to choose two banks to lead the likely process […] A decision on a float has not yet been taken, but it is understood that a float on the London Stock Exchange has been internally rejected by the company’s board.
A source indicated that Wonga is looking at its strategic options, and pointed to early 2013 as the likely time if market conditions allow.
However, there can be no guarantee of a float or a sale, with it remaining a possibility Wonga chooses to simply add to its raft of existing venture capital investors. It is known that Wonga has rejected London as a venue for a market listing as it is felt British investors are more sceptical about growth value and there is a lack of sizeable IPOs in the UK market.
Just look at recent headlines about the company and it’s clear that money lending carries a stigma that just won’t go away. While crowdfunding services and disintermediating lending sites like Zopa are generally welcomed, Wonga’s approach has been called every name under the sun.
Of course, the business tries to shake it off. Co-founder Errol Damelin is on the record saying “We don’t walk around feeling hard done by”. But it’s a constant accusation that could cause damage.
There’s an argument that this is just bad press. Payday loans are widely derided, but they are also widely used, and — for many people — a necessary evil. I certainly know that I used payday loan companies pretty regularly when I was trying to make ends meet when I was just starting out my adult life. In tough economic circumstances they fill a gap, even if it’s not a particularly nice one.
And then there’s the scale issue. While it’s a venture-funded startup, it isn’t really a technology company as such — it’s a finance and marketing business. You can argue, as they do, that the money-matching algorithms and credit scores are tech, but by that logic almost any financial services company — or any modern business, in fact — is a technology company. Scaling up looks a lot more like Groupon than Google. And that’s something that could make investors wary.
Looking to cash out with a public flotation doesn’t necessarily solve any of these issues, and it certainly doesn’t solve the PR problem. And going to the Nasdaq does nothing to alter the popular image that Wonga is running away from a market that loves money but can’t bring itself to deal with the dirty business of lending it.