Wonga are blinding critics with science

The payday loan company shows off about its algorithm, but lends to the same vulnerable people.

I read Michael Brooks' article, Doing Science the Wonga Way, with great interest.

I have had the algorithm Wonga uses to distinguish between applicants explained to me, and it is fascinating. It makes the most of the fact that the internet is replete with thousands of pieces of information about us that, in aggregate, paint a reasonable picture of who we are. More importantly for Wonga, they also paint a picture of how creditworthy we might be. It doesn't take this lightly: I've been told it uses 6-8000 data points about the each of the people it checks.

The problem was that I only had the algorithm explained to me after its accuracy was seriously put in to question.

Wonga has a weekly survey of people who they consider to be good customers, and they brag about them to journalists. When the Guardian's Amelia Gentleman interviewed Errol Damelin, the chief executive of Wonga, he and his team had a chance to show that their model worked. When they put names of potential customers through their high-tech filters, the system ought to tell them whether they would be good customers. They would then only lend if it would be responsible to. After all, Wonga says that it turns away two-thirds of applicants.

Rather than the "web-savvy young professionals" that the company says that it lends to, one of the "good customers" on their weekly survey was Susan, an unemployed former nurse dependent on disability benefits. She uses the loans she receives from Wonga to buy food when she is short of cash. In fact, at the time of the Guardian interview, she had taken out 6 loans with Wonga, nearly double the amount of payday loans the average customer takes out (3.5).

We have two options here. Either we can assume Wonga purposefully targets people who are not median income, employed and web-savvy, unlike what they say, or their algorithm doesn't work as well as they say.

In the same interview with the Guardian, John Morwood, Wonga's communications director, said:

Sometimes we will make loans to people on significant benefits, but it is not something we do very frequently. It is very infrequent. I’m not going to say it doesn’t happen.

Dr Brooks is correct to say that the company has enjoyed some fantastic and enviable funding from several organisations. Last time I looked, Wonga were the beneficiaries of £3.7m from Balderton Capital in 2007, £14m from Accel Partners (also investors in Facebook) in 2009, then £73m from Oak Investment Partners, Meritech Partners and the Wellcome Trust.

I can't be certain, but my assumption is that at least some of these backers are interested in Wonga as an example of good science put into action by business, and aren't particularly interested in funding legal loansharking.

But Wonga's algorithm clearly doesn't alter the fundamentals of their business as much as they claim. Even with their flashy, investor-attracting scientific background, they still lend to people whose custom they admit they ought not to take.

Wonga itself is either misusing its own system to justify lending to people who should be served by less expensive lenders such as credit unions (which I think payday lenders should be obliged to advertise to low-income customers), or its algorithm needs a lot more work than it says.

As it stands, if the system confuses repeat borrowers who are unemployed and on benefits to buy food for people who are middle class, have bank accounts, are in full time employment and need the cash for minor financial shocks here and there, then there is a major issue.

Photograph: Getty Images

Carl Packman is a writer, researcher and blogger. He is the author of the forthcoming book Loan Sharks to be released by Searching Finance. He has previously published in the Guardian, Tribune Magazine, The Philosopher's Magazine and the International Journal for Žižek Studies.
 

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PMQs review: Theresa May shows how her confidence has grown

After her Brexit speech, the PM declared of Jeremy Corbyn: "I've got a plan - he doesn't have a clue". 

The woman derided as “Theresa Maybe” believes she has neutralised that charge. Following her Brexit speech, Theresa May cut a far more confident figure at today's PMQs. Jeremy Corbyn inevitably devoted all six of his questions to Europe but failed to land a definitive blow.

He began by denouncing May for “sidelining parliament” at the very moment the UK was supposedly reclaiming sovereignty (though he yesterday praised her for guaranteeing MPs would get a vote). “It’s not so much the Iron Lady as the irony lady,” he quipped. But May, who has sometimes faltered against Corbyn, had a ready retort. The Labour leader, she noted, had denounced the government for planning to leave the single market while simultaneously seeking “access” to it. Yet “access”, she went on, was precisely what Corbyn had demanded (seemingly having confused it with full membership). "I've got a plan - he doesn't have a clue,” she declared.

When Corbyn recalled May’s economic warnings during the referendum (“Does she now disagree with herself?”), the PM was able to reply: “I said if we voted to leave the EU the sky would not fall in and look at what has happened to our economic situation since we voted to leave the EU”.

Corbyn’s subsequent question on whether May would pay for single market access was less wounding than it might have been because she has consistently refused to rule out budget contributions (though yesterday emphasised that the days of “vast” payments were over).

When the Labour leader ended by rightly hailing the contribution immigrants made to public services (“The real pressure on public services comes from a government that slashed billions”), May took full opportunity of the chance to have the last word, launching a full-frontal attack on his leadership and a defence of hers. “There is indeed a difference - when I look at the issue of Brexit or any other issues like the NHS or social care, I consider the issue, I set out my plan and I stick to it. It's called leadership, he should try it some time.”

For May, life will soon get harder. Once Article 50 is triggered, it is the EU 27, not the UK, that will take back control (the withdrawal agreement must be approved by at least 72 per cent of member states). With MPs now guaranteed a vote on the final outcome, parliament will also reassert itself. But for now, May can reflect with satisfaction on her strengthened position.

George Eaton is political editor of the New Statesman.