Wonga, the online payday lender, has accelerated its international expansion with the acquisition of BillPay, a German company that processes €300m of payments each year for e-commerce merchants.
The deal will help Wonga – which has faced criticism from UK politicians and the Archbishop of Canterbury over its lending practices – move beyond its core loans business to the fast-growing online retail payments market.
Errol Damelin, Wonga’s founder and chief executive, said the acquisition of BillPay was “really strategic” and represented “the next stage of the evolution of a digital finance group”.
The deal comes at a time when payday lenders are under heightened scrutiny, with politicians considering tougher regulation for the sector. Ed Miliband, the Labour party leader, this week promised to introduce a levy on payday lenders.
Wonga took its first step into retail payments this year, when it launched PayLater, a service that allows online shoppers to defer the full payment for goods by paying a one-off, upfront fee.
BillPay, which has around 2m end-users and works with 3,500 online stores, offers several different credit products to help consumers finance online purchases. In Germany, where credit card penetration is lower than in the UK, people frequently pay for online purchases after they are delivered rather than straightaway.
Mr Damelin predicted that retail payments would grow into a significant business for Wonga within five years and, over the longer term, become a bigger business than its core lending product.
At present, the majority of Wonga’s business is providing short-term loans to cash-strapped individuals. Borrowing £400 for 30 days – the maximum allowed for a first-time borrower – results in interest and fees of £127.
Wonga charges as much as a 5,853 per cent interest rate on an annualised basis, though the company says this figure is misleading as its average loan duration is less than 20 days.
Last year, Wonga’s annual pre-tax profit rose by a more than a third to £84.5m, as more than 1m people applied for credit. The privately owned company said it increased the sum it lent out by 68 per cent year on year, to £1.2bn. Net profit rose 36 per cent to £62.5m.
In July, Wonga’s interest rates prompted the Archbishop of Canterbury to say he wanted to compete the payday lender “out of existence”, by establishing community credit unions in every parish.
Wonga argues that it helps consumers overcome cash flow problems and that its products are more transparent than those offered by other payday lenders or big banks.
It issues loans to applicants within 15 minutes, through an automated process that relies on 8,000 pieces of information, including an applicant’s Facebook profile. The company rejects about two-thirds of all applicants.
Wonga’s acquisition of BillPay follows the launch of its consumer loans service in Poland and the purchase of consumer credit businesses in Spain and India over the past year.
Based in Berlin, BillPay was founded in 2009 and operates in Germany, Austria, Switzerland and the Netherlands. It typically charges retailers about 3 per cent of the value of a customer’s order for the risk it takes in processing and financing transactions.