Video: What We Learned From RateSetter’s CEO
|LendingCrowd has improved its highly attractive cashback deal to up to 5% or £500. Read more.|
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 4thWay's RateSetter Quick Expert Review.
The opinions expressed are those of the author and not held by 4thWay. 4thWay is not regulated by the FSMA and does not provide personalised advice. The material is for general information and education purposes only and not intended to incite you to lend.
Experts, journalists and bloggers who conduct research and write articles for 4thWay are subject to 4thWay's Editorial Code of Practice. For more, please see 4thWay's terms and conditions.
*Commission and impartial research: our service is free to you. We already show dozens of P2P lending companies in our accurate comparison tables and we keep adding more as soon as they provide us with enough details. We receive compensation from RateSetter and other P2P lending companies not mentioned above when you click through from our website and open accounts with them. We vigorously ensure that this doesn't affect our editorial independence. Read How we earn money fairly with your help.