Why investors are backing fintech

Last year, we announced that well-known fund managers including Woodford and Artemis were backing RateSetter with a £20m equity investment.

That funding has helped RateSetter to grow – we’ve invested in our people (there are now more than 150 people in our team), improved the technology on our platform and worked on new products, including the upcoming RateSetter ISA. We’ve moved to new offices to accommodate this growth, and we’re looking forward to hosting our first in-house investor drinks here in the coming months.

Earlier this week in a memorandum, Paul Lamacraft, Fund Manager at Woodford, shared his views on the sector, and on RateSetter in particular:

“Lending, for example, is an area where fintech has massive potential. That potential is already being realised through the phenomenon of peer-to-peer lending . One of the effects of the financial crisis was a massive tightening up by the banks in an effort to reduce risk. This has made them far more reluctant to lend to smaller businesses and individuals than in the past. In turn, that has allowed tech companies to establish lending platforms that go a long way to disintermediating the process of connecting lenders to borrowers. This not only answers a pressing economic need, but has facilitated the advancement of technology-enabled risk assessments.”

“We have reviewed several opportunities to invest directly in these peer-to-peer lending platforms which match borrowers and lenders in such an intuitive and well-thought through way.”

“We hold a position in Ratesetter, which allows lenders to choose the rate of interest they wish to charge and is planning an ISA launch which, subject to regulatory approval, will offer investors increased tax-efficiency when providing loans via its platform. The business has a high quality and ambitious management team. Its solid business model is underpinned by a conservative approach to risk, a diversified funding profile and a clear focus on the quality of both lenders and borrowers.”

Talking at an event this week about the finance companies in his portfolio, Neil Woodford commented: “they don't look anything like the things we now call banks. I find [fintech companies] much easier to understand - how they make money, how they manage risk and how they succeed and fail in the future”.

You can view the original memorandum from Paul Lamacraft here.