Our focus on protecting lenders
At RateSetter, we are focused on offering our lenders attractive returns, whilst also ensuring we maintain a sensible approach to credit risk such that lenders do not suffer any financial loss due to borrower late payment or default.
Our focus on sensible credit risk management is best illustrated via the twin pillars of creditworthy borrowers and the Provision Fund.
First, RateSetter lends only to creditworthy borrowers who we believe have the propensity and financial capacity to fulfil their obligations under a personal loan contract. These are Australians who might have historically turned to their bank for a loan but have now chosen RateSetter due to our competitive rates and smarter processes.
Since we launched in Australia at the end of 2014, our loan acceptance rates might be considered reflective of our focus on creditworthy borrowers. To date, we have had over 2,600 loan enquiries with a cumulative value of over $42 million, but have only funded loans amounting to $875,000*.
Second, RateSetter globally was the first peer-to-peer lender to introduce the concept of the Provision Fund. The Provision Fund has been established specifically for the purpose of protecting investors in the event of borrower late payment or default. It is funded by charges paid by borrowers at the time their loan is established, which we call a Risk Assurance Charge.
A borrower’s Risk Assurance Charge depends on a number of things but is ultimately reflective of what we consider to be the risk associated with that borrower’s loan. In other words, the Risk Assurance Charge introduces risk-adjusted pricing to our loans. RateSetter is a true pioneer in introducing risk-adjusted pricing to the Australian loan market.
Risk across the economic cycle
Our local credit and risk team is tasked with ensuring that the Provision Fund is sufficiently capitalised to meet future borrower late payments and defaults. Getting this right and protecting our lenders from default is our number one priority – whether Australia is experiencing good economic times or bad.
This week we are privileged to have Kevin Allen, Head of Retail Lending for RateSetter in the United Kingdom, visiting our Sydney office. Kevin is a world leader in risk-adjusted credit pricing and having worked with the RateSetter group in London since 2013 is somewhat of an expert on Provision Fund capitalisation as well.
Kevin holds over 20 years of wide-ranging experience in consumer lending risk management, as well as experience in audit and compliance. He was with Lloyds Banking Group for seven years, FICO – a global leader in risk analytics – for four years, MasterCard Advisors for five years, where he advised on risk and fraud management across Europe, and then the RateSetter group in London since 2013.
Kevin is now busy working with our Australian credit team and local credit consultants to help refine credit pricing and processes, with the objective of helping us to maintain the RateSetter group’s record of protecting its lenders.
*Important notice: Statistics are since commencement of operations on 28/10/2014 until 26/01/2015, are historical and may not be reflective of future statistics. The Provision Fund is not a guarantee or an insurance product. Lending on RateSetter is not without risk. See the risks section of the RateSetter website and our Product Disclosure Statement for further details.
This information does not constitute financial advice and you should consider whether it is appropriate to your circumstances before you act in reliance on it. Any opinions, forecasts or recommendations reflect the judgement and assumptions of RateSetter as at the date of publication and may later change without notice.