Meet the team: credit and underwriting

Our credit team are a core part of our operations, ensuring that we only lend to creditworthy borrowers and that we mitigate against risk, by ensuring we have sufficient funds in the Provision Fund.

At RateSetter, we are focused on offering our lenders attractive returns, whilst also maintaining a sensible approach to credit risk, so that lenders do not suffer any financial loss due to borrower late payment or default. Our credit team are a core part of our operations, ensuring that we only lend to creditworthy borrowers and that we mitigate against risk, by ensuring we have sufficient funds in the Provision Fund.

Today we’re speaking with Simon Cordell, Head of Credit Risk. Simon is responsible for RateSetter’s credit risk management, with primary responsibility for ensuring that the Provision Fund is sufficiently capitalised to be able to protect investors from borrower late payment and default on an ongoing basis.

What exactly is credit risk?

Over the past 4 years, RateSetter has lent over $500M to creditworthy borrowers via the RateSetter Lending Platform. Inevitably a small percentage of our borrowers don’t meet their contractual repayments. We, therefore, need to have effective provisioning, collections and recoveries strategies to help mitigate credit risks.

As Head of Credit Risk, my responsibility spans the life cycle of our borrower experience, from the design of the product to the start of the application through to the repaying of their loan. In other words, I am responsible for who we approve, how much we lend, what price we charge and how we maintain engagement with them during the life of their loan.

Our overall objective in credit risk management is to ensure we strike the right balance so we grow the RateSetter business responsibly whilst avoiding surprises.

OK, so how do you do this?

We currently have 11 members in our credit team. The team have divided responsibilities with nine underwriters focusing on decisions and originating loans, and two collection specialists focusing on collecting arrears balances, supporting customers experiencing financial hardship and recovering debts on outstanding loans.

Key to our success is identifying and deploying technology wherever we can so our team members can focus on more complicated cases. This year we have launched our new underwriting decision engine which allows us to decision applications quickly using various sources of data, without compromising the quality of our assessment.

From a collections perspective, we have also deployed new capabilities and new tools to improve our borrower experience and reduce credit risks. For example, customers in arrears are now able to complete make-up payments online, over the phone and even create their own recovery payment plan through our online portal.

What do underwriters do exactly?

Members of our underwriting team have a varied experience, some from other banks and finance companies and some direct from university entering their first finance services job! Depending on their experience level they all have a DLA (Delegated lending authority) ranging from $7.5k – $45k.

All personal loan, car loan and green loan applications submitted run through our decision engine and credit scorecard. The underwriter’s role is essentially to pick up these applications and “join the dots” on the application across dimensions like character, capacity, conduct on other credit commitments to finalise a decision. This typically involves speaking with the applicant and reviewing their bank statements. The team currently decision over 3,000 applications a month and growing quickly!

How is the RateSetter credit performance doing?

Our credit appetite is limited to creditworthy individuals and this is reflected in our portfolio performance. On our statistics page, you can see our strong credit performance by vintage. You can also see that the Provision Fund is well capitalised, with ~1.6 times coverage of what we have forecast to experience in losses.

What changes do you see coming in the next 12 months?

It’s a really exciting time to be in the consumer lending space in Australia. After decades of status quo, changes in technology, data availability, regulation and customer demand are disrupting the traditional providers of finance and providing significant opportunities for innovative, technology-led lenders like RateSetter.

Improved access to underwriting data is maybe the most exciting transition from my perspective, given an imminent shift to comprehensive credit reporting in Australia and the advent of open banking.

At RateSetter we have been busy building the infrastructure that will allow us to use these new data sources in exciting ways. Fortunately, we have had a head start by tapping directly into the experience and learnings of the UK, which has been working within an enriched data landscape for many years.

Ultimately, we will use these new data sources to deliver even better customer experiences, whilst sharpening our risk management capabilities so we can ensure more people are eligible and are receiving great value RateSetter products.

That’s great, thanks so much for your time today. Simon.

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.