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Video: What We Learned From RateSetter’s CEO
What we learned about RateSetter's experiments
Rhydian Lewis, RateSetter's* CEO, got the chance to present his business recently.
I've set the above video to start from the point where I think it might be particularly interesting to individual lenders as regards to RateSetter's own business, especially in the light of its recent misfortunes, which RateSetter large took steps to ensure wouldn't happen again.
Starting at 10:51 in the vid, you get to learn just a little bit more about the different types of loans that RateSetter does. There are nine broad categories of loans, down from what Lewis said was previously 12-15 kinds of loans. His point is that they do try different kinds of lending, but bin the ideas that don't work out.
What we learned about RateSetter's profits
Immediately after that segment, at 13:05, you get Lewis explaining that RateSetter will return to profitability in 2018.
For two years in a row, up to 2015, RateSetter was making more money than it spent, while most P2P lending sites still are not. Over the past two years though, RateSetter returned to making losses.
It is normal for businesses at an early stage to make losses, because shareholders burn through a lot of their own money in order to grow the company rapidly. But it is reassuring for lenders when P2P sites are profitable.
RateSetter has spent the past two years investing very heavily for growth, has succeeded, and can now allow itself to make money again.
What we learned about supply and demand at RateSetter
At around 16:00, you get Lewis explaining his goal to have RateSetter interest rates become widely recognised as the benchmark rate in P2P lending.
Crucially, Lewis said RateSetter was going to continue to base its interest rates on supply and demand. This means that interest rates get pushed down when there are a lot more people who want to lend than borrow, but rise when borrowers are competing for lenders' money.
Lewis means that RateSetter is not setting caps or floors to the lending interest rates. But without a floor – a minimum lending interest rate – lenders could end up being paid less interest than they deserve for the risks involved. Low lending interest rates might happen if too many lenders become too relaxed about the risks and compete the rates too far downwards.
RateSetter has confirmed to 4thWay that it won't be increasing contributions to its provision fund (its pot of money aimed at covering expected bad debts) if interest rates were to fall very low.
And another thing…
During the video, Lewis also says that he doesn't see the P2P lending industry (or at least RateSetter) to be about offering full protection against 1-in-100-year events, such as a very deep recession.
Conversely, at 4thWay, we aim for precisely that level of protection.
Despite Lewis's comment, RateSetter's five-year lending account has a 4/5 4thWay PLUS Rating, which indicates, based on strict international banking tests of its loans, that lenders might still expect to come out with positive returns even during a 1-in-100-year event. On this point, I'm glad to see that the smart Mr Lewis might actually be wrong.
Read the 4thWay RateSetter Review, written by one of the UK's foremost authorities on peer-to-peer lending.
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