Summer 2019 investor news

I am the Chief Investments Officer here at RateSetter. I would like to introduce the first in a series of periodical updates on developments that are relevant to your investments with RateSetter, covering news from the peer-to-peer sector, trends in the investment industry and analysis of the wider financial environment.

At RateSetter, we want to be the best investment you will ever make. We know that there are other investments you could consider – but the thing about a lot of investments is that they have a habit of going down as well as up. We think there is a place for an investment that seeks to only ever go up, not down, and that is why all of our effort goes into maintaining a steady and stable investment. So far, this has meant that every investor at RateSetter is “up”, receiving all their expected capital and interest since 2010 (past performance is not a guarantee for the future).

It is true that some investors look for racy returns, but RateSetter, we think, appeals to investors who are looking for a steady rate. A more rewarding alternative to cash savings.

Stability seems to be the theme of current investor sentiment. Globally there has been a strong shift toward more stable assets such as government bonds. This is likely a response to increased uncertainty around global trade, political uncertainty and indeed tension. In the UK, there has been controversy over several collapses or disappointments from investment platforms and funds.

The past few weeks have also brought interesting developments in the P2P sector.

Stronger regulation

The introduction of stronger regulations for the P2P sector is the most important news for our industry since the announcement of the Innovative Finance ISA.

The Financial Conduct Authority (FCA) is bringing areas such as risk management and governance for P2P into line with the wider financial services industry. This means P2P investing will be better regulated than ever before, putting it firmly on a par with other mainstream savings and investment choices.

The new rules won’t affect your RateSetter account or investment, so you don’t need to do anything. The most noticeable change will be for people who will use P2P for the first time. This will be a “try before you buy” concept that seeks to limit initial investments to ten percent of an investor’s assets. Of course, this is just an initial limit which is removed as investors gain experience, but we think it could even be seen as a target. It is our aspiration for everyone to have at least ten percent of their money in RateSetter.

Most importantly, we believe that investing in RateSetter can be for everyone so we are thrilled that the regulator agrees with this.

Natural selection removes weak platforms

Tighter regulation will also help to hasten the exit of sub-standard platforms, ensuring that well run platforms which put the customer at the heart of their model will endure and grow.

Currently, there is a handful of established, popular P2P platforms that are operating at scale, and then there is a long list of smaller niche platforms. My view is that consolidation of the number of P2P platforms - and across fintech more generally - is inevitable.

This may involve orderly wind-downs, but also platform failures in the case of particularly weak platforms. While the failure of any business is understandably a blow for its customers, failure is inevitable in the case of poorly run platforms or those that lend to poor quality borrowers.

Taken at face value, it may not be immediately obvious how consolidation could help build investor confidence, but this is exactly what I anticipate will happen over time.

The point is that in the P2P sector, just like any other industry, businesses that are not up to scratch, being badly run or having weak business models, simply do not continue for long - while those that are well run with solid business models grow. It’s a Darwinian process that will result in a stronger, better P2P sector.

Investing with confidence

With tightened regulation and the FCA showing that it is vigilant and will act to tackle poorly run platforms, I am confident that the P2P sector has never been better regulated. This can only help manage risks in our sector. So, in turn, investors can be increasingly confident that the opportunities to obtain value – particularly from established and stable platforms like RateSetter – have never been better too.