In 2010 we set out to ensure not one single lender lost even so much as one penny by lending through RateSetter. £633,812,218 later, we're proud that not one of our 22,596 lenders has. Despite this intention and our track record, we like to be clear that the Provision Fund does not provide a guarantee and your money is not covered by the Financial Services Compensation Scheme.
(FE risk rating for cash = 0 and
FTSE 100 = 100)
“We choose to use RateSetter primarily because of the combination of the rates available (the best for this sector of lending) and the Provision Fund”
Borrowers pay a fee into the fund
The fund is there to cover expected borrower defaults
Lenders are repaid if borrowers miss a payment
Although RateSetter isn't covered by FSCS, we've created what we think is a better way to shield your money.
FSCS cover is pricey, and large institutions pass on the cost to their customers. So while they have £85k "protected" against disaster, these customers aren't protected from the disastrously low rates partly caused by the cost of that cover.
To help our lenders get bigger returns, we've created our own protection system - the Provision Fund. It's not a guarantee but it has enjoyed a 100% track record since our 2010 launch, and has an independent FE score of 1.0, compared to cash at "0". None of our 22,596 lenders has lost a single penny. They have, however, made substantial returns. The shield provided by the Provision Fund's 165% coverage ratio (view historical performance) has given many the confidence to invest more in RateSetter, way above the limited £85k guaranteed by FSCS-covered alternatives.
RateSetter was the world's first P2P lender to introduce a Provision Fund. Unsurprisingly, since then, many imitators have emerged, offering their own versions of our fund. But none can match our scale, sophistication and performance history. We should be resting on our laurels, right?
Not a bit of it.
We rather like our Provision Fund's 100% track record. But achieving it is one thing, keeping it another.
We work tirelessly to strengthen our processes to ensure we don't just maintain the industry standards we set back in 2010, but improve them.
And our Provision Fund is key to that. It's more than just a fund that covers borrower claims. It's a comprehensive system designed to give our 100% record 100% protection.
To show faith in the quality of our borrowers, we, RateSetter, have always been willing to put our own money at risk in the Provision Fund. We have had skin in the game since we launched back in 2010 when we kick-started the Provision Fund with a loan of £150,000 and in 2015 we decided to increase our commitment and add a further layer of protection for our lenders. Our commitment is currently £500,000 in the form of a loan that has an interest rate based on the RateSetter 1 year market.
We never forget that we're looking after your money. It's a responsibility that drives us to go beyond standard industry processes and use a series of advanced systems and checks to ensure borrowers are creditworthy.
Of course we use industry standard credit checks that the likes of CallCredit and Equifax provide. But we also use new credit checking software and external data feeds (such as telecoms industry anti-fraud tools) to give us a more holistic view of potential borrowers.
So as well as knowing their past credit history, we can determine what they can currently afford, and more accurately forecast their future ability to repay a loan.
It all helps keep our coverage ratio at an exceptional 165%, despite our loan book growing and maturing.
Our automatic defences are in rude health, thanks to rigorous testing. Standard checks are swiftly taken care of, leaving our credit team free to focus on more complicated matters.
Processes and software are only as good as the people operating them.
It's why we've invested heavily in skilled credit specialists. Our Head of Retail Lending has over 20 years' banking experience, while our credit and risk team is fully CIFAS qualified.
To ensure credit standard are constantly challenged and monitored, RateSetter has a Credit Committee that meets weekly, and a monthly credit review at which performance is scrutinised by the heads of Credit, the CFO and the CEO.
Relying on standard checks or loose diversification strategies isn't enough for us. Accuracy is critical to ensure the Provision Fund covers predicted claims as well as current ones.
In 2013, our Credit Team created a detailed risk grading structure to allow segmented pricing and forecasting based on predicted risk and a 360 degree view of applicants.
RateSetter borrowers now fall under one of 15 credit grades, each of which carries a specific risk fee that the borrower pays into the Provision Fund to protect lenders. This grading has helped the coverage-to-claim ratio of the fund to grow, despite the expansion of our loan book.
FE Trustnet, the independent risk evaluator and main supplier of data to the UK financial sector, gave RateSetter products a risk score of just "1". When you compare that to cash's score of "0" and direct equities score of over "100", you get a sense of how safe they believe RateSetter is.
On top of checking a borrower's credit rating, we carry out affordability checks. These ensure a borrower's repayments are covered by their disposable income, even if unforeseen expenses crop up. This is an approach we have followed from day one.
Even though our claim rate is one of the industry's lowest, we're far from complacent. We're alert to the threat posed by the rising claim rates that fuelled the banking crisis. It's why we implement regular scenario testing to identify coverage ratios and ensure our Provision Fund is as strong as it can be.
Despite having total confidence in our processes and the decisions we make based on 4 years of data and over 7.8m historic personal loan records, we still feel it's vital to get external validation.
That's why in 2014 we asked leading consumer credit report agency Equifax to carry out an independent review of our systems and processes.Their findings delighted us and we've already implemented their few minor development suggestions.
“RateSetter has a comprehensive and well-documented underwriting process.”
Having a pot of money ready to dip into to pay claims isn't enough for us. We need to be constantly vigilant. That's why we've several systems in place to alert our Credit Committee to any potential increased threats to the Provision Fund. And we proactively manage how the fund reacts to the economy, ensuring we take swift action to cover our lenders.
On the rare occasions a borrower defaults on their loan, the Provision Fund covers the cost, so lenders don't lose out. We understand that speed is important and that is why the Provision Fund is designed to pay out as quickly as possible.
“It is evident that the quality of RateSetter is very much in line with a benchmark group of similar super-prime unsecured loan providers”
Our Credit Team keeps a beady eye on the underlying performance of all loan contracts so we're ready to respond to increases in the average claim rate. Their findings are fed into the Credit Committee who decide whether our lending criteria needs tightening to boost the Provision Fund. Think of it like a series of dials and switches. If we see increases in claims we're able to adjust our risk parameters with a deft flick here and a minor twist there.
We introduced a specialist claim management team in 2013. Their mission? Improve all claim recovery metrics. They did that by creating a 3-step plan designed to help claimants get back on track and manage their debt obligations:
Firstly, we'd declare a Resolution Event. All outstanding loan contracts would be automatically assigned to the Provision Fund, and all loan repayments collected by the Provision Fund on behalf of our lenders.
Pooled repayments would then be shared out (pro rata) to lenders to ensure diversification of default risk.
No single lender would be exposed to any individual default.
Some people think that if the Provision Fund failed, lenders would lose all their money. Not so. The Resolution Event would work to give lenders a return of (say) £0.95 on every £1.00 lent.
Thankfully, it's highly unlikely. But if the worst happened, there's a Fully Funded Run-Off plan in place, as required by regulation.
Loan repayments and the Provision Fund would continue to operate as before. During the winding up process any fees owed to RateSetter would be used for the run-off process. That would ensure contracts with borrowers are fulfilled and lenders get their money back.
We use a 4-tier policy to deter unwanted visitors and protect your data:
The RateSetter website is built using .NET, a Microsoft development framework that's responsible for 15.3% of the internet's websites, including the NHS and Bank of America.
ASP.NET works with .NET and Microsoft Internet Information Services (IIS) to help provide Web application security.
At RateSetter, we continually maintain our firewalls with batch updates and manual reconfiguration to better shield our networks from unwanted traffic.
Our database has built-in data encryption for passwords and system procedures.
In 2013, we introduced a 2-Step Verification process to increase security when customers log-in to their accounts.
We recommend it, because it can keep the bad guys out, even if they get your password.
Your data doesn't just need protecting from digital nasties. Disaster can strike anytime, so it's just as vital that data is physically stored somewhere safe and secure.
We use two secure web hosting data centres, home to thousands of the latest Microsoft Windows and Linux servers which support all major scripting languages and database technologies. All are maintained 24/7.
We make sure our servers operate to their full potential, delivering the highest levels of uptime and best possible security. Our security features include:
UNRIVALLED CONNECTIVITY - Every server enjoys a fully redundant Tier 1 connection, so there's never any slow-down or service interruptions.
ULTIMATE SECURITY - only security-cleared personnel can access the data centre, which is controlled by extensive CCTV monitoring and state-of-the-art access control systems.
CLIMATE CONTROLLED ENVIRONMENT - to deliver high performance day in, day out, servers like their working area to be just-so. That's why we closely monitor and control the areas that house them to make sure they work to their full potential.
FIRE PROTECTION - should the worst happen, it'll take just 2 seconds for FM-200 gas to work its magic on the affected area.
UNINTERRUPTABLE POWER SUPPLY - our data centres use the most advanced APC X UPS systems around. So if there's a power outage, there's absolutely no interruption. The power supply switches instantly to a diesel generator that has enough puff to keep the data centres running for 30 days.
MONITORING - Sure, we've got some hi-tech monitoring systems in place. But you can't beat having the expert eye of engineers watching over your data centres 24/7, ready to deal with potential issues before they become problems.
How do we know our defence systems are up to scratch? Simple. We arrange for an expert 3rd party to stage controlled 'attacks' on them. These help us spot areas that need improvement to further protect your data from hackers and internet nasties.
If, (and it's a really big 'if'), someone was able to bypass all our security features, they still couldn't get your bank details or transfer money out of your RateSetter account.
Why? Because all the money we hold in cash is actually held by a leading high street bank. We don't take deposits, so the cash in your holding account is actually with this global bank. And they have their own highly complex security procedures.
On top of this, we use an industry compliant anti-fraud procedure that checks any bank accounts attached to a lender's RateSetter account. If the nominated account fails to pass these checks, no withdrawals or deposits can be made.
Hopefully you'll find answers to your questions in our FAQ section.
Still need help? That's fine. Just call us on 0203 142 6226 or email firstname.lastname@example.org
Here's where you can view, select and compare previously matched market rates on RateSetter. Also, check out our default and coverage ratios and see a guide to matched volumes over time.