Simplifying the Rolling market

By Peter Behrens

RateSetter was created to enable people like you to earn more on your money. We were the first to introduce a “rolling” market to make peer-to-peer lending more accessible and flexible. Since then, the RateSetter Rolling market has become our most popular investment market, used by two-thirds of our investors.

 

Investors choose the Rolling market because it offers:

  • The flexibility of fee-free access

  • The protection of the Provision Fund (capital is still at risk and is not protected by the FSCS)

  • Attractive rates that can be accessed quickly and respond to supply and demand in real-time

But, we think that it could be better so we are changing the product from 6 June 2018 to simplify the Rolling market, making it more predictable and easier to understand.  The changes we are making are:

 

Consistent Returns

  • Currently, investments in the Rolling market ‘roll’ each month. When this happens all your investments are reinvested and matched to different borrowers.  This means that the interest rate of your investment is likely to change every month.  Many of our customers have said they find this complicated and we believe that this fluctuation doesn’t deliver the consistent returns that you would expect.

  • So, from 6 June 2018, when your investment is matched to a borrower it will remain matched to that borrower, at the same rate of interest, until that loan is repaid. This is how RateSetter’s other products work and it will help you get the returns you expected. Of course, the Rolling market will continue to ‘roll’ but this will only affect money that is due for reinvestment.  In other words, as borrowers repay every month, the money that is repaid will simply be matched to new borrowers at the Market Rate.

  • For RateSetter, this will mean a simplification of our Rolling market model which we hope will make the market run even more efficiently and streamline some of our internal processes.

 

Continuous Earning

  • As capital and interest is repaid by borrowers, it is returned to investors in monthly instalments for the duration of the investment.  These repayments will be automatically reinvested back into the Rolling market at the prevailing Market Rate.  As the overwhelming majority (up to 93%) of our investors currently reinvest at the Market Rate, a proportion that continues to rise over time, we have decided to withdraw the option of selecting a bespoke rate for reinvested money in the Rolling market.

  • We will retain the option for investors to choose between setting their own rate or taking the prevailing market rate when investing new money.  It is this new money that will determine the Market Rate.

 

Fair Usage

  • Investors are able to access funds invested in the Rolling market without incurring a fee, subject, of course, to RateSetter being able to transfer the loans to other investors.  As part of this service, RateSetter itself takes on the risk that we won’t be able to transfer loans to another investor at the same interest rate.  This means that when an investor withdraws from the Rolling market and immediately reinvests at a higher interest rate, it has a cost to RateSetter and can artificially alter the Market Rate. 

  • To protect the integrity of our market we are introducing a Fair Usage policy which creates an investment pause of 14 days after a withdrawal from the market.

 

Quick view guide of what’s changing: 

 

Action

Current Rolling market

New Rolling market

Free access

Yes

Yes

Capital reinvestment all at Market Rate

No

Yes

Manage my interest reinvestment settings

Yes

Yes (interest can be taken to the Holding Account)

Set my own rate

Yes

Yes (on new money only)

Fair Usage policy

No

Yes

Provision Fund protection

Yes

Yes

Can hold ISA Funds

Yes

Yes

Credit Risk Profile

Remains the same

 

We’re excited about these changes because we believe that this simplification preserves the key features of the Rolling market whilst bringing greater stability and predictability for both you, our investors, and for our platform. 

 

Q&A:

 

Will I still be able to easily access my money in the Rolling market?

The access characteristics of the Rolling market are unchanged – investors can access money invested in the Rolling market without a fee.  Access is always subject to us being able to transfer your loan contracts to another investor.

 

Are you changing the way the Market Rate is calculated?

No, the Market Rate will continue to be set by the average of the rates that investors have sought for their new investments on the preceding day.

 

Why are you taking away the option to set rates for reinvestments?

Our customers have told us that they would prefer less volatility in the Rolling market rates. By simplifying some of the features of the Rolling market we are aiming to make it more stable and predictable.

Automatic reinvestments at Market Rate will result in continuous earnings for all. Currently more than 93% of RateSetter investors reinvest at the market rate and therefore we have decided to withdraw the option of selecting a bespoke rate for reinvested money in the Rolling Market.

 

Does this change the risk of investing in the Rolling market?

No, this does not change the credit risk of investing in the Rolling market. 

At a platform level, we believe that we are reducing the risk of not being able to access your funds when you want them because we are ensuring that money does not leave the system unintentionally. 

 

Why are you introducing the Fair Usage policy, and why set the period between withdrawing and reinvesting at 14 days and what does it mean in practice?

If an investor withdraws money from the Rolling market and immediately reinvests at a higher interest rate, it has a cost to RateSetter and allows market manipulation which should be discouraged.  The Fair Usage policy is intended to prevent this practice and we believe that the 14 day timeframe strikes a fair balance between investor access to healthy rates in the Rolling market and fee-free early withdrawals.  In practice this means that if you make a withdrawal, you will have to wait for 14 days before placing a new order on the Rolling market.

In practice, we do not expect the Fair Usage policy to affect the overwhelming majority of customers.

 

What happens next?

You will see the changes in the product from 6 June 2018.  Before the changes are made RateSetter will make available updated Investor Terms which reflect the changes in full detail.

If you have any queries or concerns regarding the changes, please don’t hesitate to contact us at [email protected] or call 020 3142 6226.

 

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