Justin Welby Archbishop of Canterbury
Justin Welby, Archbishop of Canterbury, wants to out-compete payday lenders like Wonga with his church's credit union (Reuters)

Wonga boss Errol Damelin has welcomed Archbishop of Canterbury Justin Welby's assertion that the Church of England would try to put the controversial payday lender out of business but insisted there was "mutual respect" between the pair.

In Total Politics, Welby said he had told Damelin to his face that he wanted "to compete you out of existence" by building on the success of his church's credit union to offer an alternative to payday lenders.

"The archbishop is clearly an exceptional individual and someone who understands the power of innovation," said Damelin.

"We discussed the future of banking and financial services, as well as our emerging digital society. There is mutual respect, some differing opinions and a meeting of minds on many big issues.

"On the competition point, we always welcome fresh approaches that give people a fuller set of alternatives to solve their financial challenges. I'm all for better consumer choice."

Payday lenders such as Wonga, which is one of the largest, have faced criticism for offering people credit with annual interest rates that run into the thousands of percent in an economy where many in financial hardship feel they have no choice but to borrow money to keep afloat.

"I've met the head of Wonga and I've had a very good conversation and I said to him quite bluntly we're not in the business of trying to legislate you out of existence, we're trying to compete you out of existence," Welby said.

"He's a businessman; he took that well."

The Competition Commission is probing the payday lending industry, which is worth around £2bn a year, after the Office for Fair Trading (OFT) declared there were "deep rooted" problms.

OFT officials had already warned 90% of the lenders in the industry to change their practices or risk having their licenses taken away, after it uncovered evidence of irresponsible lending amid 50 firms.

In 2014, the Financial Conduct Authority (FCA) will take regulatory responsibility for payday lenders. It has indicated that it may band the firms from advertising and clamp down on how quickly they hand over cash to borrowers. Transactions can take as little as ten minutes.

The FCA and politicians said at a conference in London that there was a broad recognition of the need for better practice in the payday loan market and that new rules would have to be installed to prevent consumers falling into a debt spiral.

"An interesting question is that if payday lenders genuinely targeting particular income bracket, people with jobs, why do they advertise on daytime television?" said the FCA's chief executive Martin Wheatley.

Economic Secretary to the Treasury Sajid Javid said that "what the industry understood today from the summit is they now have to deal with a regulator [the FCA] with some real teeth. They're going to feel the hand of the regulator on their shoulder."