How Opera’s loan apps violate Google rules, while deceiving and misleading customers

A friend who I’ve known for over a decade once needed quick cash to take care of an emergency. On making enquiries with colleagues, he’s informed about the many mobile loan apps that had entered the market, offering much-needed cash reprieve to stranded individuals with little to no paperwork involved. That was less than 2 years ago.

When he failed to settle the loan amount (it’s Kshs 2,000 or just about $20) on the agreed date, his tribulations began with the lender. Apart from constant reminders to settle his loan, the provider decided to embarrass him further, reaching into his phone contacts and notifying everyone on the contacts’ list (via text and voice calls) that my friend had taken a loan with them and has failed to repay.

(TOP: The Okash app, one of the short term lending apps offered by Opera in Kenya. The other is OPesa). 

The embarrassment and shame from this turn of events left my friend with no option other than to get money (by all means available to him) and settle the loan as soon as possible to avoid any further embarrassment. Then delete the app from his phone and never think about installing it back ever again.

The mobile app being referred to here is OKash, a mobile loan app launched in March 2018 in Kenya by Opera Group, the Swedish-founded company behind the once-popular web browser.

And now, it appears that OKash’s indiscretion and total lack of concern when it comes to client privacy are not the only ills bedeviling the platform.

A new report published by Hindenburg Research titled “Opera: Phantom of the Turnaround – 70% Downside” published in mid-January this year contains damning accusations about Opera and its mobile lending platforms in Nigeria (Opay), Kenya (OKash and OPesa) and India (CashBean).

“Furthermore, Opera’s short-term loan business appears to be in open, flagrant violation of the Google Play Store’s policies on short-term and misleading lending apps. Given that the vast majority of Opera’s loans are disbursed through Android apps, we think this entire line of business is at risk of disappearing or being severely curtailed when Google notices and ultimately takes corrective action,” notes Hindenburg Research in the report.

The Opera mobile loan apps come with a repayment period of between 7 to 60 days, which in itself violates Google’s policies on short-term personal loans.

In August 2019, Google updated its policies in response to a proliferation of predatory lending taking place on its app ecosystem. The updated policies were much more specific, prohibiting “short-term personal loans”, defined as loans with a repayment period of less than 60 days.

The updated policy reads: “We do not allow apps that promote personal loans which require repayment in full in 60 days or less from the date the loan is issued (we refer to these as “short-term personal loans”). This policy applies to apps which offer loans directly, lead generators, and those who connect consumers with third-party lenders.”

As part of the research, Hindenburg had its consultants test Opera’s lending apps in December 2019 and January 2020 and found that “all four of its apps were in black and white in violation of Google’s rule, adding that none of the loan products offered across Opera’s apps appear to be in compliance with this policy, despite these rules going into effect over 4 months ago.

Opera, through CFO, did not dispute this and admitted as much during a conference call in November 2019, about 2 months after Google instituted its personal loan policy change.

During the call, Frode Jacobsen, Opera’s CFO, was asked about the company’s loan profile to which he responded that he firm’s loan duration was still about 2 weeks: “So our loans in India tends to be a bit bigger, in the $50; whereas in Kenya, it’s in the $30. So while duration of loans, it’s about the same with an average of about 2 weeks, as you mentioned.”

This is corroborated by Opera’s most recent prospectus, dated September 2019 (after the rule change). Disclosures show that Opera’s entire microlending business provides loans between 7 to 30 days, which all fall outside of Google’s policies: “The Group currently provides loans to consumers with a duration of between 7 to 30 days.” The same prospectus fails to mention Google’s policy change regarding short-term loans.

Opera’s entry into the mobile lending space, via its fintech unit, was meant to act as a new revenue stream and help cushion the group from the adverse effects and impact of declining market share (and user numbers) in regions where it previously enjoyed a market lead.

In late 2016, Opera’s browser and apps unit was bought by a China-based consortium comprised of Kunlun Tech (an online game development firm led by Opera’s chairman and CEO Yahui Zhou) and Qihoo 360, a popular browser company in China led by Opera Director Hongyi Zhou.

“When taking Opera public in July 2018, the browser and apps business was growing gross profit at 30 – 40%… Within months of transitioning to new management, Opera’s growth and profitability in the browser and mobile ad business began to decline rapidly. The decline has continued post-IPO. Opera’s global browser market share has dropped from 5%+ pre-acquisition to just over 2% most recently,” notes the report. .

Opera’s browser market share in Africa, for instance, hit highs of over 40% prior to its acquisition by new management before plunging below 12% as of the most recent period. The group’s browser share has been eaten by rivals – Google on one hand and Safari on the other.

In the face of falling market share in its browser division, Opera launched its mobile app-based short-term lending business, under its “fintech” unit. From no revenue in 2018, the segment was accounting for 42.5% of Opera’s revenue in third quarter of 2019.

However, the report’s authors note that even though these loans (most of the time) provide temporary reprieve to clients in financial crisis, they come with “sky-high interest rates ranging from about 365% to 876% per annum.”

The report quotes a former employee of an Opera lending app who stated that, in many cases “these (loans) are for people (who) could not even afford their basic needs.” Another employee described a desperate Kenyan borrowing market, stating: “Most Kenyans, they are low income earners. And apparently, most of them they don’t have enough even for their families.”

Even as it grapples with the dynamics and realities of providing short-term loans in Africa and India, Opera is also facing the challenge of mounting defaults from customers of its loan apps. In its latest quarter, Opera reported that its credit losses reached $20 million, which is more than 50% of its $39.9 million fintech segment revenue for the quarter.

The Hindenburg report notes that Opera’s short-term lending business was initially launched in Kenya and showed immediate growth from $6.5 million in the first quarter of 2019 to $11.6 million during the second quarter of the same year before rising to  $39.9 million in the third quarter of 2019.

Overall, the Hindenburg report has an ominous prediction for Opera’s lending apps, concluding that: “We think Opera’s lending business will fail purely on economics: default rates, competition across dozens of similar apps and user turnover will continue to take its toll on cash flow and profitability despite any top line revenue growth.”


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