RateSetter was founded in 2010 and is headquartered in London in the United Kingdom (UK). It was the first P2P platform to establish a risk provision fund to protect investors' interests and it is also a founding member of the UK P2P Financial Association (P2PFA). At the time of writing, the total transaction volume of the platform has exceeded 1.9 billion British pounds, with a cumulative trading volume of 410,000 deals and average loan duration of 26 months. RateSetter has provided services for more than 400,000 investors and borrowers.
RateSetter’s Business Model
1) Investment Accounts and Investable Products
At present, investors in loans via RateSetter can choose three types of accounts to invest, which are the Everyday Account, Innovative Finance ISA (IFISA) and Self-Invested Personal Pension (SIPP). The current average investment for users is 22,039 pounds.
In terms of products, the current products that investors can invest on the platform include revolving investment projects (Rolling Market, annual interest rate: 2.8%), one-year projects (annual interest rate: 1.8%) and five-year projects (annual interest rate: 4.0%). In Rolling Market, the platform makes revolving investment of investors' funds in projects that continue for 6 months to 5 years until the user's own redemption. Users can make a free redemption as long as the platform has enough recycling funds. If there're not enough recycling funds on the platform, users can only recoup the investment after the projects meet the deadline and the borrowers complete the repayment. In one-year projects, the users should repay with interest rates when due and pay 1.84% of the procedure fee if redemption in advance. In five-year projects, the users should repay with interest rates monthly and pay 1.84% of the establishment fee if redemption is in advance.
2) Lenders on the Platform
Lenders of RateSetter mainly include four types: individuals, enterprises, real estate developers and third-party lending platforms. At present, the balance of personal loans is 497 million pounds (about 70% of total account value), while enterprise lenders who mainly provide commercial loans for small and medium enterprises have a total loan balance of 57 million pounds (about 8% of total account value). The platform also provides real estate mortgage loans for real estate developers with a total loan balance of 72 million pounds, and provides funds for third-party lending platforms with a current loan balance of 85 million pounds (about 12% of total account value). RateSetter has now terminated the last category of products mentioned above and will end it in one year due to regulatory reasons.
3) Risk Control System
In terms of risk control, RateSetter mainly uses professional credit agencies, such as CallCredit and Equifax, to conduct credit investigation on the borrowers. The individual borrowers don't need to submit additional materials. For institutional borrowers, RateSetter will make real investigation to judge its credit and repayment ability. RateSetter requires borrowers (including individuals, enterprises and real estate developers) with high risk factors to provide collateral.
The loan approval time of RateSetter is one working day for individuals and about a week or so for enterprises. After the borrower agrees to the loan amount given by the platform, the platform will match the investor with the borrower and lend to the borrower in the next working day.
Innovation
1) Setting Mechanism of Interest Rates
Unlike other P2P platforms, investors on RateSetter's platform have more options for interest rates. Investors can choose to accept the market rates given by the platform or set their own interest rates. If investors choose the interest rate that meets the market demand, they can get revenue more quickly. If investors choose their expected interest rate that is higher than the market rate, they need to wait for the borrowers who're willing to accept the interest rate, and the waiting time may be several hours, weeks or even longer. The specific mechanism depends on the investors themselves.
2) Risk Provision
RateSetter launched its risk provision fund in 2010, and it is the first P2P company around the world that established the risk provision fund mechanism. At present, the platform has a risk provision fund of more than 22 million pounds, including 13.5 million pounds of cash and nearly 8.7 million pounds of Expected Future Provision Fund Inflows.
The risk provision is mainly derived from the interest paid by the borrowers and is deposited at RateSetter Trustee Services. The platform is subject to supervision and not allowed to dominate any such amount. At present, the Interest Coverage Ratio is 123% and the Capital Coverage Ratio is 300%. No investors have ever suffered losses.
Profit Model of RateSetter
Up to now, the loan rate of individual borrowers on the platform is about 7-8%, of which 1-2% is the retained earnings of the platform, 1-2% will be added to the risk provision, and the rest is the investors' income. The company became profitable in 2014 and 2015. Since 2016, for more stable long-term cash flow, the company has adjusted the toll collection fee and charged 30% of the cost during the early stage, and then gradually charged until the borrower is fully repaid to get the total revenue. In this model, the platform is expected to resume profit this year.
