The Archbishop of Canterbury said Wonga that the Church of England wants to “do away with” it as part of its plans to expand credit unions as an alternative to payday lenders.

Most Rev Justin welby said he passed the message on to Errol Damelin, the managing director of Britain’s best-known payday lender, during a “very good conversation”.

“I told him bluntly ‘we are not trying to make you disappear with a law, we are trying to make you lose your existence'”, he told Total Politics magazine.

The payday loan industry has been one of the fastest growing sectors during the recession as overburdened consumers turned to short-term loans to push them into the next wage package.

However, critics of the £ 2bn a year industry have accused lenders of targeting vulnerable borrowers with small loans that quickly turn into large debt due to high interest rates and fees.

Lenders are currently the subject of an in-depth investigation by the Competition Commission after the Office of Fair Trading discovered “deep-rooted” problems.

The regulator said it decided to make the referral because it continues to suspect that the characteristics of the market “prevent, restrict or distort competition”.

In June, Wonga raised the standard interest rate he quotes on his website to 5.853% APR, leading to renewed calls from anti-poverty activists for a cap on the cost of short-term credit.

Someone who borrows £ 200 for a month from Wonga will usually pay back £ 270.

Welby, who served on the Parliamentary Banking Standards Committee, said he wanted to create “credit unions that are both engaged in their communities and much more professional – and people need to know about them.”

He acknowledged it would be a “decade-long process,” but he already started a new credit union for clergy and church staff earlier this month at the General Synod. in York.

There are also plans to encourage church members with the necessary skills to volunteer with credit unions. Small local lenders might also be encouraged to use church buildings and other community places with the help of church members.

However, credit unions, which have an old-fashioned image and somewhat turbulent financial past, will have their work cut out for them if they are serious about challenging Wonga. The lender spent £ 16million on advertising in 2011 and has invested heavily in its website. Thanks to smooth back-office systems, borrowers can get their money back in less than 15 minutes.

By contrast, membership in credit unions is limited to interest groups, and several have gone bankrupt in recent months, with many citing bad debt as a factor.

Wonga said in March that he welcomed any attempts to encourage responsible lending and had been “instrumental” in helping to raise industry standards.

Damelin said: “The Archbishop is clearly an exceptional person and someone who understands the power of innovation.

“We discussed the future of banking and financial services, as well as our emerging digital society.

“There is mutual respect, differing opinions and a meeting of minds on many big issues.

“On the competitive side, we always welcome new approaches that give people a more complete set of alternatives to solve their financial problems. I am all for better consumer choice.”

The government announced a £ 38million investment in credit unions in April to help them provide an alternative option to payday lenders.