Wonga Enters P2P Lending Market

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The payday loan giant Wonga has made a leap into the world of P2P lending with the launch of its answer to Zopa – Investandborrow. Its offering to savers is certainly attractive, but is this doing anything more than simply bringing the spirit of payday lending into the world of crowd funding.

Alternative finance ideas such as crowdfunding and P2P lending have grown substantially from those early days pioneering days when Zopa simply matched borrowers with lenders. And as it has grown the sophistication of the services on offer has developed as have the regulatory protections in place for savers. It is now possible to choose whether or not to invest directly or spread your investment over a range of different borrowers, of varying risks, to provide as reliable an income as possible.

However, as the number of providers has grown so has concern that not all of them are being upfront about their offering. With some claiming to provide interest rates as high as 15%, critics claim they have downplayed the risks, unfairly compared their offering with banks and over-estimated the returns.

For those critics, the entrance of a toxic brand name such as Wonga into this market will hardly be reassuring, not that Wonga has been too keen to step from behind the curtain with its new platform. Investandborrow carries no branding on its page, and it's only when you stray into their About Us Page that you find a cryptic reference to WDFC, the trading arm of Wonga.

It's a similar story with Wonga's other new venture, Everline which appears to do something similar. This is a rebrand of Wonga for Business and provides short term loans of between three and six months to businesses. But while access to cash is faster than with a traditional bank and the lending requirements less strict, the interest rate of over 100% in many cases could land your firm quickly in trouble.

Even so, the line behind Investandborrow.com is that it offers an attractive option for both savers and borrowers. Certainly its advertised return of 7% is attractive and unlike some P2P lenders it does guarantee to pay back your initial investment if things do not work out.

However, when you find out how much they're charging the borrowers you might quickly become distinctly less enamoured. According to its literature, they lend out at an APR of 75%. True this looks good when compared with the interest rates on offer from most pay day lenders which routinely climb beyond 1,000% but it's more or less a case of choosing a rate which is very bad over one which is simply horrific. What's more, you'll have to undergo a credit check, so it's not the fast cash to anyone proposition you're getting with Wonga. If you can pass the credit check at Investandborrow, the chances are you can pass it at somewhere which offers a much improved deal.

If you compare this offering against their immediate competitors such as Zopa, it's even less attractive. Zopa offers its most credit worthy borrowers interest rates as low as four percent enabling it to simultaneously beat the offerings from bank saving and also to set new lows in the realm of personal lending.

So it's no surprise that Wonga have been less than upfront about what they're doing and while P2P lending can represent an attractive solution both for businesses and individuals, there are many better alternative finance options than this. We are therefore not optimistic for the future of this enterprise and think the market will see past the bluster here and realise this business is not targeting a market that retail investors want to be in. Time will tell though.