It is rare to find a brand pushing for ethical fintech innovation. It is especially odd to find this in an industry that has been long associated with negative (and in many cases, predatory) practices. You guessed it, we are talking about the infamous payday loans market.

South Africa is no stranger to this credit option and perhaps the name most synonymous with the payday loan in South Africa is Wonga, the brand we are discussing in detail today, specifically their remarkable evolution over the last few years.

When I think back to the height of Wonga’s somewhat infamous popularity in the UK (the market where the brand was originally birthed despite having a South African founder) it’ is honestly hard to imagine the brand’s current position as a responsible lender and leader in financial literacy campaigns.

In reality the brand you know (or I should say, knew) as Wonga in the UK has altogether nothing to do with the South African company of the same name, save for sharing the odd ‘slang’ brand name. To understand how this company transitioned into its new, locally owned purpose we need to travel back just over ten years.

A rough first day…

Brett van Aswegen began his first day as Wonga South Africa CEO in April 2015 when National Credit Regulator inspectors met him at the boardroom of their Johannesburg offices. The new executive received a typical first-day greeting through the crisis which faced Wonga South Africa during that time.

The company needed rapid action, with a reputation on “the verge of explosion” according to Van Aswegen's account of the initial period. Indeed, this was a period of chaos that the UK brand did not survive, eventually entering administration several years later. Van Aswegen’s team avoided the same fate by proactively introducing major regulatory changes during the first few weeks of his leadership. This cut the short-term lender’s revenue by two-thirds. Such financial pressure would cause most businesses to fail. Wonga used the crisis opportunity to transform its entire operation.

The Great Technology Rebuild

This crisis was the crucible where Wonga reforged its operational procedures and tech stack. The Wonga technology, originally groundbreaking in 2007 for its ability to quickly process customers and issue credit, had been caught up by many competitors and was verging on outdated. The leadership chose to discard all existing systems and create an entirely new platform.

The newly developed system from 2018 presented more than programming updates, it implemented a complete change in operational principles. The previous model concentrated on maximising revenue through a ‘churn and burn’ model but this new system focuses on achieving better, more sustainable, customer results.

The results were immediate and dramatic. The rebuilt Wonga platform processed three times the number of loan applications during its inaugural month of operation. The team had successfully created a modernised, automated lending system that championed new levels of robust customer focused risk evaluation combined with ultra-fast approval and payouts for approved applicants.

Beyond Traditional Credit Barriers

The most ambitious aspect of Wonga's fintech innovation emerged at this point. An inability to access formal credit channels affects about 40% of adults in South Africa. Millions of people are being failed by antiquated credit scoring methods that create obstacles owing to a lack of “acceptable” information. Many residents face the paradox of being refused credit owing to a ”lack of history” whilst being unable to build any reliable credit history because they cannot access these credit channels.

Mobilising alternative data sources together with machine learning algorithms enables Wonga to evaluate creditworthiness for people who traditional banks reject. For example, the digital footprints from mobile transactions and utility payments together with employment information build a more detailed picture of financial responsibility than traditional credit scores can provide. This is a move towards social-focused fintech folding people into banking services instead of taking advantage of their financial needs.

The Human Side of Digital Lending

Wonga's evolution has focused on brining human elements to what otherwise could be a completely automated process. The lender’s Money Academy program offers free digital educational resources to thousands of South Africans. Van Aswegen explains that solving customer problems will always foster customer loyalty and help ensure sustainable customer retention. The company reduces its risk and builds loyal customers through financial education initiatives that help people make better decisions.

The company demonstrates its collection philosophy through its entire approach. While Wonga still markets itself as a provider of payday loans, this is largely an artifact term used by customers looking for quick access to emergency funds. The traditional payday loan is a product that no longer exists (in the regulated world at least, - more on this later).

Significant legal reforms have squashed the remnants of ”classic” payday lending practices and left better products in its place. Having said that, we cannot ignore that short term credit comes with inherit risk. The reality is that South Africans will continue to need access to short term ”payday loans” in some format, so this credit needs to be as regulated and safe-guarded as possible, with processes that seek to protect customers while still delivering tangible benefits to borrowers.

Wonga’s Future Vision

Responsible advancements to the payday loan can deliver life-changing benefits to a nation that features over 40 000 unregulated "mashonisas" who charge monthly interest between approaching 50% in many cases.

Van Aswegen plans to direct Wonga’s future opportunities toward providing safer lending alternatives that enables this 40% of people to receive safer and sustainable credit options. Wonga is positioned to offer an alternative to both traditional banking exclusion and informal lending exploitation through their digital-first strategy and transparent pricing with flexible repayment options.

They are not perfect, but they fill a market gap that will continue to exist, probably forever. Wonga's growth from historical payday loan provider into the broader personal loan and financial education space demonstrates a willingness to change the industry for the better.