When Errol Damelin and Jonty Hurwitz founded the British loan site Wonga.com, both had startup experience, but were new to banking. The site wanted to get past the red tape and credit measures of traditional high street banks, and decided who would make the best people to lend to based on an algorithm based on 8, 000 pieces of information.
Wonga wanted to get past the staid approach of looking at a credit record and try to predict, based on certain online habits, who would be better recipients of loans than others. However, Wonga’s model is going to be replaced by a more traditional form of looking at credit history, as the Daily Telegraph reports, because Wonga’s metrics and methods won’t pass the scrutiny of British regulators. The new Wonga chairman, Andy Haste, who came on board to revamp the company and to keep it more in line with FCA regulations.
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James Quinn of the Telegraph writes, “I am not defending Wonga’s lending practices, but it seems clear, reading into the situation, that the company has become the enfant terrible of the financial services sector not because it necessarily did anything overly wrong, but because the goal posts had changed. When Damelin began the business, he could do what he wanted and quite literally, lend to whom he liked. Eight years on the business has become constricted and constrained by the very tentacles of an industry it was trying to disrupt.”