Archbishop of Canterbury Justin Welby
Poor Justin Welby. The Archbishop of Canterbury's remarks last week on the evils of high-interest personal loans were spoiled by the revelation that the Church of England was itself an investor in online lender Wonga, through a venture fund.
He is not the only one to feel conflicted. The UK government faces its own dilemma. On the one hand, payday lending feels shabby and exploitative. On the other hand, Wonga is the great white hope of UK venture capital: a host of top-tier funds invested in it expecting a lucrative exit (including, as it happens, Dawn Capital, which runs the most successful government-backed VC fund). This is awkward, since the government is relying on venture capitalists to back the high-tech businesses that it hopes will help drive the recovery.
But, despite his gaffe, the Archbishop did get one thing right: more competition, including that from ethical lenders such as credit unions, would be excellent news for borrowers. And it is a better bet than simply trying to ban payday lending. His proposal to invest more of the Church's money into ethical lenders to help them compete with Wonga is a worthy goal. But to make it succeed, he should give some thought to what makes Wonga so successful in the first place – and help Wonga's godly competitors learn from it.
Wonga may not be popular with Labour MPs and Anglican bishops, but it seems to be wildly popular with at least one group: people who want to borrow money. Its last financial statements, for 2011, reported revenue growth of 225 per cent. The secret of Wonga's success is not its ubiquitous cheesy advertisements: it is how easy its service is for customers to use.
In a world of doorstep lenders and cash conversion shops, Wonga is remarkably fast and straightforward. It approves or rejects loan requests close to instantaneously, and gives borrowers their money within 15 minutes, at any time of the day.
This is all made possible by excellent technology. When Wonga started out, banks scoffed at the idea that anyone could process payments so quickly, reliably and cheaply. But Wonga made it happen, applying the logic of the technology sector to the more sluggish world of consumer credit. What's more, it lacked the overheads with which many other lenders were burdened.
Free from a legacy of credit officers, ancient computer systems and high-street branches, Wonga had the freedom to use algorithms to assess borrowers' creditworthiness, and to interact with its customers entirely online. This story will be familiar from a dozen industries from travel agents to music retailers, but in Wonga's case it is too often lost in the ethical haze created by the words "payday lending".
This has implications for the Archbishop's plan to invest in credit unions to compete with Wonga. If ethical lenders are to be a viable alternative to borrowers who need money fast, and who cannot rely on banks or credit cards, they need to match Wonga's responsiveness, clarity and speed. They also need to take advantage of digital infrastructure to keep their costs down: at present most credit unions make a loss on small loans, according to research from Civitas, the think-tank.
A few credit unions have taken moves in this direction. DotComUnity Credit Union offers its members online loans through a clean, attractive website. But learning from Wonga will not come naturally for the UK's ethical lenders. So perhaps the Church of England can do most good not by investing its endowment in existing lenders, as Archbishop Welby has implied he will do, but by encouraging new ethical providers into the market. Perhaps the answer to Wonga will be found in one of the new so-called "social accelerators" popping up around the UK, like Bethnal Green Ventures, which help socially conscious start-ups grow.
Initiatives like these offer a way for the Church of England to bring new entrants into the lending field. Let us hope it works: an influx of socially conscious competitors would do more to fight usury than any ban or fine words on the news. They would challenge Wonga in the same way that Wonga challenged the sleepy payday loans industry. And the Church of England should have no problem being an angel investor.
The writer is executive director of policy and research at Nesta, the UK's national foundation for innovation
