Is RateSetter a bank?

January 30th, 2014

We recently received a question from one of our readers about peer-to-peer lending:

I have lent money on a variety of P2P platforms but mainly on Zopa and Ratesetter.  It never occured to me to look at the borrowing side of these sites until today.  I was interested to see what rates the borrowers were paying on the other side of the Ratesetter 1mth loans.  When I applied for a loan the shortest tenor available was 6 months.  So I am confused when someone lends 1month money who are they lending it to?  The whole point of P2P is to match borrowers and lenders, but it seems in this case this is not happening.  Are Ratesetter really a bank in disguise?  Is there another explanation?

We'll try and answer this, but we'll invite RateSetter to make a comment.

RateSetter are the only peer-to-peer provider that allows different terms for lenders and borrowers.  This is demonstarted through RateSetter's bond for lenders which make up some of the longer term loans for borrowers.  The monthly lending is used to fill in the rest of the loan.  Lenders can add and withdraw funds to the monthly market at short notice.  A borrower may therefore find that their lenders change through the term of a loan.

Here is RateSetter's response:

RateSetter is not a bank.  RateSetter does not lend money itself.  We help ordinary people lend and borrow money. Borrowers say how much money they need, then they set the interest rate they’re happy to pay.  Savers say how much money they want to invest, then they set the interest they’re happy to receive.  We simply match them up. You decide the rates.  We do the rest.  P2P Money is correct in stating that our Monthly Access money is used to help make up part of longer borrower loans.

Hopefully peer-to-peer lending will always be different from banking.

Madiston LendLoanInvest launch

January 29th, 2014
Madiston Lend Loan Invest

Some lenders may be aware of the peer-to-peer provider LendLoanInvest, as this company has been developing its lending planform for the last five years years.  The company has finally launched with a new name "Madiston LendLoanInvest" and logo to avoid confusion with LendInvest.  They are also members of the growing P2P Finance Association.

The company offers loans to indivdiuals, so is competing with established companies Zopa and RateSetter, along with new entrants eMoneyUnion, QuidCycle, Lending Works and Landbay, which we will be covering in detail at a later date.  There are now a large number of companies operating in this space in anticipation of the forthcoming regulation in April.

Madiston LendLoanInvest are currently offering free membership to new lenders who sign up for a limited time.

Here is their full press release:

UK borrowers waste thousands by choosing inflexible loan providers who force them in to lengthy terms and higher rates. Lenders may also miss a trick if they don’t have the flexibility to set and secure their own acceptable rates for loans they participate in. With traditional bank lending now in its fifth year of decline¹, Madiston LendLoanInvest is launching a new P2P (peer to peer) Lending site that will offer investors and borrowers an unprecedented level of flexibility and control, allowing them to customise loans to suit their personal needs.

As a P2P lender, the Madiston LendLoanInvest site offers a fair alternative to traditional funding methods by matching responsible lenders with stable, credit worthy borrowers. It operates on Madiston P2P Lending Software, a highly sophisticated automated platform that provides considerable flexibility and convenience to the user. It means that Madiston LendLoanInvest can offer a true alternative to existing P2P providers offering fixed terms and values.

Madiston lenders can set their own parameters and spread their risk across different borrowers, either through a self-selected bidding approach or an automated lender-borrower matching process. Borrowers can choose a specific loan amount in £10 increments and select their loan period to the nearest quarter, meaning they won’t be restricted to 3 or 5 year loans.

Investors can control and monitor their loans through an individual lending dashboard displaying active loans and returns, with drill-down detail. Borrowers can market their loan requests, explaining why they need the finances and submit photos or videos to support their case.

Participants can remain anonymous and everyone benefits from a transparent charging model, with no hidden costs. Each borrower‘s ID is verified using information from credit reference agencies, address/residency and bank account checks.  Loans will only be approved for people who have sound financial credit ratings and pass affordability tests.

Tim Simon, CEO at Madiston LendLoanInvest, comments: “It would be an ideal world if we never needed a loan, but modern society functions on a system of borrowing and lending that is now inextricably tied in to our economic wellbeing. Our goal is to provide our members with the opportunity to control their money, their way. We offer a safe and secure site where borrowers can arrange a loan that they’re comfortable with and investors can grow their money with a fair balance of risk and reward2.”

“We aim to improve the lending experience by offering the greatest amount of choice to lenders and borrowers, and ultimately keep our users informed at every step of the lending process as they look to grow their finances,” concludes Simon.

Christine Farnish, chair of the Peer to Peer Finance Association says, “2014 is a significant year for the industry as we look ahead to regulation by the Financial Conduct Authority in April and hope to surpass the £1 billion lending mark. Today’s launch of Madiston LendLoanInvest demonstrates the forward momentum we are taking as an industry as UK consumers see the innovation and reward that peer to peer lending provides. I wish them well in the years to come.”

With market forces determining interest rates as lenders compete to participate in loans, Madiston LendLoanInvest aims to provide people with fair loan options, which will be regulated by the FCA (Financial Conduct Authority) from 1 April 2014.  Madiston LendLoanInvest welcomes this regulation and, with five other leading P2P Lenders, is a member of the Peer-To-Peer Finance Association which is helping to shape the regulation and uphold high standards for this nascent industry.

¹Reference from article in Financial Times, October 21, 2013, entitled Non-bank lending to small businesses at highest level since 2008.

²Risks associated with lending or borrowing on a P2P platform are outlined fully on the Madiston LendLoanInvest site to ensure compliance with regulation and to provide a balanced view for its members.

Full story »

Estimated return after bad debt

January 23rd, 2014
P2P Money

There are several "reputable" websites now trying to publicise peer-to-peer lending.  These sites are showing a figure for "estimated return after bad debt".  Unfortunately it is not possible to calculate this figure unless you know the tax rate for the lender.  This is because due to the current - and we believe unfair - tax situation, income tax is applied before bad debt.  There is a campaign to change this, but as yet there has been no movement from the treasury.

If for example, a higher rate tax payer lends money at 10% AER.  Most sites charge a 1% fee, so this will bring their return down to 9%.  As a higher rate tax payer (without a consumer credit license) they have to pay a further 3.6% in income tax.  This reduces the return to 5.4%.  Now lets assume that there is an estimated 3% per annum bad debt.  The lenders net return - assuming bad debt comes it on estimate - is now down to only 2.4%.  The effective tax rate they have paid isn't 40%, it is actually 60%!

The current peer to peer lending rates are visible on the P2P money website.

Zombies attack London

January 16th, 2014

Zombies have attacked London!  Unlike the typical zombie, these type of zombies can seriously affect your wealth.

We are - of course - talking about zombie accounts.  These are accounts which are dead to new funds, and where the interest rates have typically fallen to next to nothing.  Over time inflation is goring it way into the purchasing power of your funds.

RateSetter, one of the UK's leading peer-to-peer providers, have been publicising - with graphic effects - zombie accounts and how RateSetter can be the solution.  With 5 year interest rates today at 5.6%, after deductions but before tax, these products can keep the effects of inflation at bay.

As we highlighted previously, with inflation still significantly greater than the Bank of England base rate, savers are effectively loosing money in zombie accounts.  If inflation is 2% higher than your savings rate, then after 5 years your money will have lost just under a tenth of its value, and after a decade it will have lost just under a fifth of its value.

RateSetter is the only established peer-to-peer provider where every lender has received every penny of expected capital and interest.

RateSetter take on zombies

January 13th, 2014

RateSetter have declared war on zombies.  Not the undead, you may be pleased to read, but the type that are all too common these days.  The type that you may well have yourself.  It started life as something decent, something you were glad to have, but over time it has turned ... into a zombie.

These are savings account that are now shut to new business, and typically the interest rate has fallen to next to nothing.  With inflation still significantly greater than the Bank of England base rate, savers are effectively loosing money in these accounts as the fund's purchasing power continues to erode.  If inflation is 2.5% higher than your savings rate, then after 5 years your money will have lost a tenth of its value, and after a decade it will have lost just under a quarter of its value.  Savers have never had it so bad for so long.

RateSetter is suggesting that savers should become "lenders", and with rates up to around 5.5% AER on 5 year loans (rates before tax, but after other deductions), lenders will keep ahead of inflation, even after higher rate tax.  RateSetter is also the only established peer-to-peer provider where every lender have received every penny of capital back.

Here is the press release from RateSetter:

Britons are in the dark when it comes to their savings accounts, and are at the risk of falling victim to so-called “zombie” accounts, new research released today reveals.

Peer-to-peer lender RateSetter commissioned the independent study, which found that 79% of Britons admit to not checking their savings returns against inflation, whilst over half - 52% - don’t know what return their savings account is currently giving them.  

Shockingly, a terrifying 80% of all savings products in Britain are reported as zombie accounts, so-called because of their lifeless returns and that they are shut to new customers. Their rates can fall as low as 0.05% - earning a pitiful 50p a year on savings of £1,000, highlighting the potentially negative impact that not keeping on top of savings can have.

As 63% of Brits revealed that they are prioritising sorting out their finances as a New Year’s resolution, RateSetter set zombies loose in the City of London in an effort to both wake people up to the effects of zombie accounts and shock them into saving their savings.

The zombies caused quite a stir as they terrorised commuters at financial institutions including the Bank of England and the Royal Exchange, and transport hub Liverpool Street Station.

Rhydian Lewis, RateSetter Founder and CEO, said: “Zombie accounts are doing hard-working savers a real injustice. We want to help the public realise this problem and show them that there is a positive alternative to savings accounts, which will give them a fantastic return on investment. Given the economic climate, it’s never been more important to make the most out of our hard-earned money, so we hope our zombies will shock people with ‘infected’ accounts into action!”

RateSetter is a modern finance company, which offers 3.2% on its 1 year bond product. To find out more visit