Ratesetter Q&A event

Well done to RS for hosting this and a big thank you to those who attended and have taken the time to do a write up.

In just under 8 years I have now earned over 6 figs worth of interest with RS while the banks have 'screwed' those foolish enough to have left their savings earning a pittance, in order to shore up their balance sheets after their reckless lending spree of 10 years ago. Sometimes RS have annoyed me with their 'tweaks' but on the whole it is still a fairly pleasurable platform to do business with. I can see why they have chosen the re-investment ban to stop those 'gaming the system' though I agree with many, 14 days is a tad harsh. Onwards and upwards RS 

We have posted a short summary of last week's Q&A session on our blog page and the full text of the blog is below.

Thank you.



We held a Q&A session with a group of investors earlier this month. The discussion was wide-ranging and we wanted to capture the main points in this blog so that everyone has access to the same information.


Q. How does the borrower queue work?

A. When a borrower is approved for a loan it is then up to them when they wish to return to the market over the following two weeks to take up the loan, and so there is a continual stream of approved borrowers seeking to take up their loanthroughout a day. What a borrower pays consists of three elements:

    a) the investor rate that is set in our market;

    b) the contribution that is required for the Provision Fund; and

    c) the fee that is charged by RateSetter

which cumulatively are represented to the borrower as a monthly payment and an APR. When a loan is approved a loan order is initially put onto the market at 0.1% below the latest market rate, this allows any investor looking to match their money quickly to take that rate. If the loan order is not matched at this price it is then put into the borrower queue and matched with investors on the market. This variance in the eventual cost is borne by RateSetter and impacts RateSetter’s margin on each loan.


Q. What time do payments arrive from borrowers?

A. Direct Debits from borrowers are processed every morning, with the time the payments land into the system varying depending on the volume of payments received that day. Many borrowers prefer to pay their monthly Direct Debits at the start of the month and so the volume of payments then can mean the system takes a bit longer to process them all. As each payment settles the money that is settled is then reinvested as per the investor’s reinvestment settings.


Q. Does RateSetter have lending targets?

A. No. We have internal forecasts for future lending so we can plan ahead, but we do not set lending targets because doing so could have a detrimental impact on underwriting behaviour and the quality of loans being made. RateSetter investors are currently funding between £60m and £70m of loans each month via channels that we are confident in, and we are seeking to grow these numbers as the number of people investing on RateSetter grows.


Q. Does RateSetter re-pay investors early in order to re-finance a loan at a lower interest rate?

A. No, we never do this. However, borrowers can and do repay some or all of their loan early without penalty – this helps us attract good quality borrowers.


Q. Why did RateSetter introduce the 14-day investment pause after a withdrawal from the Rolling market?

A. We cannot change a borrower’s APR so when investors sell out of existing loans and quickly reinvest at a higher rate, the market moves higher and RateSetter has to fill the difference in rates on the existing loan contracts. We introduced the Fair Usage policy and deliberately set the ‘time-out’ at 14 days to stop this behaviour. We would like to keep the access to the Rolling market free of fees and the Fair Usage Policy helps us to achieve that.

We wanted to set the ‘time-out’ at 14 days, rather than set it lower and have to bring it up. We would like to be able to bring this down in future if we have evidence that supports doing so.

Of course, the Rolling market is not a current account and it shouldn’t be seen as such. It is an investment, so there are different arrangements to access money. There is a fee for early access to money in each of the markets. The fee is set to zero in the Rolling market where the Fair Usage policy in place, the fee is 0.3% in the 1 Year market and it is 1.5% in the 5 year market.


Q. Why is the minimum investment and reinvestment £10 in the Rolling market?

A. This has always been the case as we wanted to make lending very accessible so people can try it out.


Q. Would RateSetter consider launching an app?

A. Over the last 2 years we have invested in improving the online experience for borrowers, making it smoother and faster along with all the underpinning processes. We are considering a progressive web app for investors, which would automatically tailor the display to the type of device being used. We’ll have more information on this in due course.


Q. When will RateSetter become profitable as a business?

RateSetter is currently loss-making, but the gap is closing in line with our forecasts and we expect to break even, excluding spending on investor advertising, in the first half of 2019. Reaching profitability is important but this is balanced with the importance of longer-term investment (i.e. we may choose to invest more in the short-term which will repay over the longer-term).

The sustainability of our business is very important to us, so we spread around half our fees over the lifetime of loans, rather than taking all our fees when a loan is written. This means we receive less revenue initially when a loan is written, but it gives RateSetter a revenue stream into the future which reduces pressure to write new loans solely for business revenue, and also aligns our interests with those of investors, so that we are incentivised to write loans that repay.

On August 22nd when the Q&A was announced I asked if the following could be asked of RS at the Q&A.

From what I can see from this thread it was not covered. Which is fine, I was not able to attend.

Since the RS representative has today provided some notes on the meeting perhaps they could provide a formal answer. Or perhaps it can appear on the Blog...

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If someone who attends could ask for the Provision Fund to be independently audited every year (or half yearly) that would be useful.

i.e. Is the funding position published a true and fair reflection of the likely future liabilities, as signed off by an independent audit firm as opposed to a RS Director.

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Thanks W35


Edit:  I have (now) also asked a similar question on the BLOG comments section.

“1. What measures are RS taking to deal with the bankrupt companies they absorbed when their collapse threatened to completely eliminate the provision fund (and more) is there emergency funding in place to cover these companies being declared bankrupt as the current situation suggests that would bankrupt RS if the loan performance worsened?”

I too would very much like to know what RS are going to do with VC and VS. The accounts for both companies are incredibly worrying.

Some of the commentary in VC’s latest accounts re breaches of the Consumer Credit Act and the losses being potentially far larger than quoted due to unknown factors beggars belief.

A regulated business that has a subsidiary regulated business that breaches the rules.

As a general comment / suggestion, now RS has placed the Q&A notes on the Blog anyone interested can raise additional questions below that article, within the comments section of the blog.

Link attached.

www.ratesetter.com/blog/article/investor-qa-session

I also wondered all those changes at that time seemed a bit iffy.. 3yr market was removed, 1mth became Rolling, and rates getting squeezed. I was completely invested in the 3yr.


Yes, I agree. I have shares that return dividends in that range along with capital growth.