Inside RateSetter: Consumer Finance

In the latest blog in our ‘Inside RateSetter’ series we talk to Anna Decoudu, RateSetter’s Head of Consumer Finance.

Anna, tell us about your background in consumer finance

After studying econometrics, I started my career at Capital One and worked on Credit Card portfolios as a data scientist in the US and here in the UK. I moved to Dollar Financial where, as the Director of Risk and Analytics, I managed the loan book. At Metro Bank, my role in the Credit Risk function expanded my consumer finance knowledge to mortgages and overdrafts. In recent years, I focused on applying my commercial skills whilst at Hargreaves Lansdown and 118 118 Money, where I was Director of Commercial Strategy & Decisioning. I’ve been at RateSetter since October 2019 as the Head of Consumer Finance.

What is the role of RateSetter’s Consumer Finance team?

The Consumer Finance team at RateSetter looks after the acquisition, pricing and existing customer management of our consumer borrowers.

My team comprises two partnership managers and two analysts. The partnership managers negotiate the placement of RateSetter’s product on major price comparison websites and ensure the seamless integration of the customer journey. The analysts’ role is to optimise loan pricing and engagement strategies to deliver an appealing product proposition to individual borrowers while generating healthy returns for RateSetter’s investors and RateSetter itself. It’s a fine balance of scale and returns, whilst ensuring we align with RateSetter’s risk appetite and focus our acquisition efforts on creditworthy borrowers.

Internally, there is a close alignment between RateSetter’s Credit Risk and Consumer Finance teams. Externally, we build and maintain strong relationships with affiliates, aggregators and price comparison websites.

How does consumer finance fit into RateSetter’s portfolio?

RateSetter’s main focus has always been consumer loans. Property and asset finance bring diversification and growth opportunities. This range of products brings resilience to the platform, as different types of borrower perform differently over the cycle and RateSetter has the ability to flex its scale across those markets. Overall, this diversified mix of lending provides opportunities for investors to earn returns and helps spread risk.

Can you give us an overview of the UK consumer finance market?

UK consumers benefit from a wide range of borrowing options and the competition for good quality customers is fierce with modern businesses like peer-to-peer platforms challenging the banks. At the same time, the demand from consumers creates a huge market. The key to success is for each lender to understand in which segments of the market they want to operate, ensuring alignment between their risk appetite, the needs of customers, the size of those segments and the lender’s economics. RateSetter is focussed on the prime end of the market, where we can operate at scale and with great efficiency.

Who are RateSetter’s main competitors in the consumer finance market?

We compete against high street banks, supermarket banks and other specialist lenders. Consumer loans are commoditised but our loan products can still stand out in terms of price, speed, availability, flexibility and service for borrowers.

How do people take out a RateSetter loan?

Borrowers come to our website either directly or through an introducer (such as an affiliate or aggregator). Over the last decade, price comparison websites have become a key feature of the financial ecosystem because they can provide a route towards acquiring good quality customers and alongside other channels are an integral part of our lending strategy.  Most of our returning customers come directly to our website – a testament to our outstanding customer service.

Can you describe a typical RateSetter consumer loan customer?

Our typical borrower is in their early 40s, in full-time employment, earning c. £40k annually. They are looking to borrow around £8,000 over 4 years to finance a car, home improvement project, or consolidate their debt.

How does RateSetter decide who to lend to?

Lending decisions are made within the framework of our lending criteria. We use industry-leading data, technology and skills to collect the information we require from borrowers, process this information and issue rapid lending decisions. The data available from Consumer Credit Reference Agencies or via Open Banking can provide significant depth and breadth of credit and payment history information on each consumer, and this data can be accessed via real-time electronic means. RateSetter uses expert knowledge and optimised algorithms to automate lending decisions from this data. In addition, analytical tools are used to extract insights from historical data and forecast future trends.

The automation of lending and account management processes delivers value to customers, such as fairness in the consistency of decisions and speed for completion. Automation also results in greater efficiency and improved profitability.

Has RateSetter made any changes to its approach to lending due to Covid-19?

Our customers tend to borrow for a specific reason such as a major purchase like a car, or a home improvement project. The lockdown has resulted in fewer people making these kinds of purchases, so the consumer finance market has contracted commensurately – the Finance and Leasing Association recently reported that lending volumes were down by more than 60% in April 2020 compared to April 2019 – and RateSetter, like other major lenders, has seen a reduction in lending volumes.

In parallel, to protect our investors, we have tightened our lending criteria so that our lending is focussed on the highest quality customers, who are expected to be the most resilient throughout a downturn, favouring homeowners and customers with greater affordability and creditworthiness.

Will you increase consumer finance lending volumes as the lockdown eases?

Lending volumes depend on the supply of funds and demand for finance from creditworthy consumers. Our aim is to identify the right opportunities to generate a healthy return for investors at an acceptable level of risk, so we control credit quality and lending volumes very carefully, and in an environment with increased uncertainty, we will be cautious with managing our lending volumes.

What does the future look like for consumer lending?

Despite the current economic uncertainty, consumer finance is a resilient and consistently strong-performing asset class, and with appropriate management the risk-return balance for investors is very attractive. This is, after all, precisely why banks have invested in consumer loans for so long – but now, finally, everyone is able to enjoy access to this asset class. I am sure that consumer finance has a strong role to play in the future as the RateSetter platform continues to grow and generate attractive opportunities for investors.