Ratesetter Buys Companies To Protect Lenders

A platyform investing its own money alongside the crowd

Leading P2P lender Ratesetter has bought stakes in three companies it lent money to, to keep them afloat and protect Ratesetter lenders.

The platform has bought two subsidiaries of a motor financing business out of administration, taken over an advertising company, and taken a minority stake in a consumer lending business, according to a report in UK Business Insider.

Ratesetter lent a collective £80 million to the companies, and has "intervened over and above the usual course of business", COO Peter Behrens told Ratesetter's customers in an email, which has seen by a UK Business Insider reporter.

Kadhim Shubber comments in FT Alphaville that "the peer-to-peer lending model involves a fair bit of intervention in the market" (a subscription may be required.) But is this really peer-to-peer lending? We note that the deals that went sour  arose from wholesale lending decisions. That means instead of using money from many individual lenders, Ratesetter took big chunks of money from financial institutions.

Ratesetter was founded as a peer-to-peer lender in 2009. The business diversified into wholesale lending, but reversed that decision late last year.This is why Behrens was able to say in his email to customers: "All [the problem loans] stem from RateSetter’s wholesale lending which we discontinued in December 2016 and we do not intend to intervene like this again."

The Financial Conduct Authority (FCA) has expressed concerns before about the adoption of wholesale lending into peer-to-peer lending platforms. It complicates their business models and introduces additional risks. Here is an article from February this year (after Ratesetter had ended the practice) saying the regulator was warning platforms to steer clear of wholesale lending; it falls outside of current P2P regulations

Ratesetter has not been granted full authorisation by the FCA.  Another Crowd has often complained about the slowness of the regulatory approval process, but this is one case where we are happy for the regulators to take as much time and effort as they need to.