I think RS will have to get rid of 'access' if they are to attract new investors after the recent debacle..
Who wants to lend at pi55 poor rates with no guarantee of 'instant access' anymore??
No. The future for RS is to stop the deceitful nonsense they've been doing for years and offer just a set rate for lending. Don't worry about where your money is being lent and for how long.
One market is all they should offer from now on in.
Sorry, it just doesn't make any sense to "not worry about where you money is being lent and for how long".
All banking is fundamentally term-transformation: borrow short and lend long. You just cannot ignore the duration. It is an inherently risky business model. In May 2020 (also 2008 and 2001), every single high-street bank relies on government funding guarantees via FSCS to switch the lights on every single morning. Same as RS, banks will expect to lose 5-10%+ capital over the next year, when the total value of a high-street bank is 8-12% of capital. Depending on your political perspective, all banks are currently either "leaching off the UK taxpayer", "drawing down on the insurance premiums paid to the FSCS scheme in the past years, which government was stupid enough to write below true value", or "delivering a necessary service, which UK government has agreed to subsidise long-term".
RateSetter have the following options:
1) Get FSCS guaranteed.
There would still be a bank run, but likely the FSCS would have stepped in by now. That would then take between 3-6 months to receive your money through the process, but you would be guaranteed it. Those FSCS guarantees have a price, banks pay an FSCS insurance premium, which is taken from the depositor rate. RS would then be identical to high-street banks: same incomes, same outgoings, same interest rate (0.3%). They'd just be a small, loss-making challenger bank, one amongst many.
Note A: Given what you seem to want, why not put your money into NS&I at 1%, instant access & direct government guarantee. That's what I'm doing in the short-term anyway.
Note B: Any other banks offering 1%+ today are running loss-leaders. If and when they crash, you’re faced with waiting 3-6 months for FSCS refund.
2) "Simplify the options", no FSCS guarantee, true instant access.
This Is A Unicorn. It can’t exist by definition. RS lent out money for years, where is it going to get it when you want it back in days? This is the reality of a bank run, it is a *feature* not a bug of the whole banking system. And it has nothing to do with whether the bank is solvent or not.
3) "Simplify the options", no FSCS guarantee, 1yr and 5yr term accounts, high interest rate (8%'ish)
You still need to consider the risk on the loans, but it does mean that you can be compensated for the default rate. If calculated fairly, you should make a profit! Unfortunately, three things:
a) It's really difficult to calculate fairly. Fortunately, nature has provided Adam Smith's Invisible Helping Hand. Float the interest rate, and allow it to reach equilibrium between borrowers and lenders. Bingo! I've just re-invented RateSetter's original offering, the one I signed up to, the one they stopped offering. That's what I want, personally.
b) At the high equilibrium interest-rate, there will be fewer borrowers prepared to pay, given the creditworthiness requirements. That's absolutely correct, so it should be. RateSetter's book will shrink until it reaches equilibrium again. Good investor rates available, for the few.
c) Re-enabling the secondary market at a floating rate: everyone who wants out, can do so immediately, at a cost of paying the Market Rate adjustment. If you want to exit, you accept the implied expected capital loss. You don't have to accept that, you can just stay in for 3-5 years, and then you get actual outcome capital loss of defaults. And *new* investors receive the high advertised rate minus the higher default capital loss, which hopefully comes out to a decent profit.
Existing investors aren't *happy*. But everyone gets to make a *decision* that reflects their belief about the value of the underlying *investment*. It's a *market*.