RateSetter chief Rhydian Lewis talks to Peer2Peer Finance News about liquidity, investment performance and the platform’s “absolute focus” on existing customers during the pandemic
The pandemic and subsequent lockdown had a swift impact on the economy, resulting in huge redemptions across most asset classes as investors fled to cash in the short term.
‘Big three’ peer-to-peer lender RateSetter saw a spike in investment release requests in March. The requests have calmed since then but the storm has left a backlog, meaning its usually very liquid secondary market access is taking longer, as previously seen on other platforms.
In early May, the firm also announced that it was halving its interest rates for the rest of the year, in response to the economic uncertainty caused by the public health crisis.
“Our absolute focus since the pandemic struck has been existing customers,” founder and chief executive Rhydian Lewis (pictured) tells Peer2Peer Finance News.
“P2P lenders have historically focused on both new customers and existing customers, as they have been growing their businesses.
“The pandemic is the P2P lending industry’s first major crisis and the focus is entirely on existing customers, so you actually improve their experience and learn something.”
Since it became clear that the UK was going into lockdown, around 15 per cent of RateSetter’s investors requested early access to their money. While requests were usually delivered within a day, RateSetter is delivering requests from between 12 and 19 March, meaning that investors have been waiting for around two-and-a-half months to liquidate their investments.
“The response of our retail investor base has been very resilient, with the vast majority continuing to invest,” Lewis says. “For those wanting to liquidate some or all of their investments, it’s obviously very frustrating, and we are sorry that it is taking longer than normal. In spite of the wait, we are confident we will deliver in full.”
While some other P2P platforms chose to suspend their secondary market entirely, RateSetter made the decision to keep it open. Despite longer waiting times, RateSetter’s secondary market has been delivering up to £5m a week since the pandemic started, so it is still active.
“I think investors understand we’re in a challenging economic environment. We have focussed on communicating our response clearly and I think people appreciate that,” Lewis adds.
“And the bottom line is that they’re still earning a positive return. This is in a world of near zero interest rates and equity losses,and the relative performance is holding up.”
Around half of customers requesting access only want to sell a proportion of their portfolio and keep the remainder invested.
“That’s obviously encouraging as it shows that, overall, the vast majority of customers are still investing with RateSetter,” Lewis says.
A recent survey by the firm found that the main thing respondents wanted was information about where they were in the secondary market queue, which Lewis said RateSetter would take on board.
Asked how likely they would be to invest with RateSetter again, nine per cent said extremely unlikely and 14 per cent said extremely likely, “so more customers are extremely likely to invest again than not,” Lewis affirms.
RateSetter has two segments of customers to support during the pandemic – investors and borrowers. On the borrower side, RateSetter’s customers tend to be consumers or residential property developers. The firm has focused on existing borrowers since March and has given forbearance where needed.
Only seven per cent of its consumer borrowers have asked for ‘breathing space’, with the number of requests having slowed right down recently. Lewis attributes the relatively small proportion to solid underwriting, combined with the fact that consumers have seen their income supported by government economic initiatives, while their spending has often reduced during lockdown.
The property market has obviously suffered from the lockdown, but construction is up and running again. RateSetter focuses on residential housebuilding with loan-to-value ratios of around 65 per cent, which Lewis sees as “quite a resilient market” due to underlying demand for houses.
“It’s about supporting borrowers,” he adds. “Developers need that reassurance that funding will come.”
Lewis emphasised that RateSetter’s top priority is supporting its existing customers – both investors and borrowers – in these unprecedented times.
Later in the year, RateSetter will again focus on its growth plans, which will include the reintroduction of institutional lenders on the platform next year.
Currently, RateSetter is almost completely funded by retail money with a few historical institutional investments.
“RateSetter will return to a diversified investor model,” Lewis says. “Institutional money also redeems in a crisis, but diversification is a strength.
“We have had institutional investment before – the British Business Bank and P2P Global Investments – and it was the plan, before the pandemic, to return to that for the next leg of growth, alongside retail.
“The reason for focussing on retail over the last couple of years was to streamline and become the leading Innovative Finance ISA provider, which we have achieved.”
Looking at the broader P2P sector, Lewis sees opportunities amid the crisis.
“This economic shock is the biggest threat the industry has faced but it could be the biggest opportunity for platforms to show that they can manage credit,” he says.
“RateSetter is very clear about how we manage credit, with transparent performance data published on our website.
“The crisis will change the shape of the industry. It will lead to consolidation. Only those that manage credit performance through this downturn will thrive.”