RateSetter Review: How Safe is Ratesetter?
When investing in peer-to-peer lending (P2P) there is a platform risk that investors should be aware of. Platform risk can be broken down into three categories: 1- P2P platform insolvency; 2- fraud within the P2P platform; 3- a cyber breach which could affect sensitive customer data. It’s wise to not only diversify across multiple P2P platforms to mitigate platform risk but also to understand the P2P platform you’re investing through...not just the quality of loans they are originating. We’ve performed a review of RateSetter as a business, demonstrating the financial strength of RateSetter, the people behind the platform and possible reasons why RateSetter is left as the only large P2P provider without full FCA authorisation.
Hopefully this will help if you are considering RateSetter as an investment opportunity or if you are assessing your current holding.
Who is RateSetter?
|Company Name||Retail Money Marketing Limited|
|[email protected] (retail investors) [email protected] (financial advisers)|
|FCA permission||Authorised and regulated by the FCA, under interim permissions. An application for full permission has been submitted|
|Contact RateSetter||+4420 3142 6226 (retail investors) +4420 3176 4494 (financial advisers)|
|Staff||150 - 200|
|RateSetter Address||6th Floor, 55 Bishopsgate, London, EC2N 3AS|
RateSetter is in a period of growth and investment. The company has raised equity investment totaling £43 million across three investment rounds, the most recent of which closed in May 2017 with a reported valuation of £200 million. Neil Woodford’s Woodford Investment Management company and Artemis are notable investors.
|End of Year||Revenue||Loss/ Profit||Net Assets|
Although the group is not operating in profit, the company experienced a 47% uplift in revenue driven by newly originated loans and ongoing loans under management. The company invested heavily in IT and staff during the period ending 31st March 2016.
RateSetter fees are the spread between the borrower rate and the lender rate, similar to other P2P platforms. Borrowers are charged fees over the lifetime of loans, based on the original loan amount and the risk profile of the borrower. The P2P lending company further charges collector fees of £25 plus 25% plus VAT after a loan has moved into default.
If RateSetter was to enter into administration, the loan contracts between lenders and borrowers would still exist. The P2P platform reports that they have a fully funded plan in place to continue the facilitation of payments from borrowers to lenders. This is funded mainly through the income generated from the loans.
FCA Authorisation and Wholesale Lending
RateSetter is still awaiting full FCA authorisation, currently operating on interim permissions. With Zopa and Funding Circle now fully authorised it’s fair for investors to ask why RateSetter is still in waiting.
One reason may be the P2P platform's wholesale lending activities (lending to other lending businesses). Although new loans written by RateSetter to wholesale lenders were discontinued in December 2016, legacy loan contracts still exist and have caused RateSetter problems. This type of lending is not acceptable under FCA regulation of ‘P2P agreements’ and all P2P platforms were told to stop this type of activity.
A bad loan of £12 million made by a RateSetter wholesale lending partner emerged in summer 2017. Instead of letting this bad debt engulf the RateSetter Provision Fund, the company itself took the hit by making repayments on the behalf of the defaulted company. RateSetter is also the new owner of this company.
Although no investor lost money, this intervention strays from the true concept of peer-to-peer lending. It’s maybe no coincidence that the company raised a further £13 million from venture capital investors just prior to announcing the loan of £12 million.
Is this good or bad for investors?
In this instance lending to other lending business was a bad decision. RateSetter subsequently stopped this form of lending and when a bad debt occurred the management took the brunt of this bad decision.
While the P2P sector is still in its infancy, it is potentially understandable that what could be perceived as market innovations are now met with stricter guidelines from the regulator. What’s important is that if mistakes occur that these are corrected quickly and retail investors do not suffer.
Please note it is unclear if this is the true reason why RateSetter has not received full authorisation.
RateSetter was founded in 2010 by ex-investment banker Rhydian Lewis and former lawyer turned banker Peter Behrens. The RateSetter team is well supported by a number of ex-bankers and entrepreneurs in non-executive roles.
|Rhydian Lewis||CEO||Rhydian is the CEO of RateSetter and graduated from Bristol University with a double first in Modern Languages. Prior to founding RateSetter he spent six years at investment management firm Lazard.|
|Peter Behrens||COO||Peter is the Chief Operating Officer and co-founder of RateSetter. Peter practiced as a lawyer at City firm Ashurst, before leaving to become a banker at RBS.|
|Henry Russel||CFO||Henry, commonly known as Harry, is the Chief Finance Officer at RateSetter. He joined RateSetter from KPMG where he spent seven years in their financial and operational restructuring team.|
|Ian Boyce Mark Davies Hugh Garmoyle James Gunner||Non-Executive Directors||The RateSetter non-executive board is comprised of high profile entrepreneurs and ex-bankers.|
The P2P platform is a well-funded business that is growing rapidly. RateSetter has been at the forefront of innovation in the P2P market. This entrepreneurial approach, however, has meant the company has at times stretched the true concept of P2P lending. The wholesale lending activities of RateSetter may have caused concerns, but the company did take steps to stop this form of lending and did take the brunt of this bad decision. Although the company is not operating in profit, continued growth in lending and the ability to raise investment from equity investors should comfort investors.