RateSetter Review - "Computer Says No"

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An introduction to RateSetter
RateSetter is a British peer to peer lending company, based in Southwark, London. It is the first company to have introduced the concept of a "Provision Fund" into peer to peer lending. Launched in October 2010, the company has matched over £143m in peer to peer loans and has over 345,000 registered users.

Peer to Peer Lending on RateSetter
RateSetter's holding company, Retail Money Market Ltd, was incorporated in October 2009 by Rhydian Lewis, an investment banker from Lazard, and Peter Behrens, a lawyer turned banker formerly of Royal Bank of Scotland. The company was privately funded from the start, and has completed three rounds of funding, the most recent in July 2013.

Peer to Peer Borrowing on RateSetter
RateSetter is based on the principle of an exchange, with borrowers and lenders competing for matched loans based on price, with both sides of the market specifying the rate they will accept. The firm has four markets for lenders to participate in: 3 and 5 year fixed amortizing loans, a 1 year bond, or a variable rate loan.
Borrowers can apply for a 3 and 5 Year loan at a rate fixed from the 3 and 5 year loan market, or from six to twenty four month variable rate loans based on the rolling market. The company has strict lending criteria, accepting between 12 and 15 per cent of borrower applications.
The firm introduced to consumer finance the concept of a "Provision Fund" to reimburses lenders in the event of a late payment or default.. This is a capital sum (currently over £2,400,000), generated by borrowers' payment of a "credit rate" fee based on their financial credit history.

The firm won the Moneywise Most Trusted Alternative Financial Provider Award 2013. In May 2013, it won the Credit Today Award for "Best Alternative lender of the Year - Consumer". It has been awarded 5 Stars by Defaqto for its 3, 4, and 5 year fixed personal loans.
The firm is a founding member of the P2P Finance Association, the first trade association for the peer to peer finance industry.


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Zopa is the UK's largest peer-to-peer lending service. Zopa peer-to-peer lending works by bringing together individuals who have money to lend, and individuals who wish to borrow money. Instead of going through traditional banks, borrowers looking for low rate loans are matched with savers looking for higher interest on their savings. The name, Zopa, stands for "zone of possible agreement", a negotiating term identifying the bounds within which agreement can be reached between two parties.

Launched in 2005, and likened to eBay and Betfair by the UK press, Zopa was one of the first companies in an emerging group of peer-to-peer services enabled by the internet. It was set up by a management team drawn from many of those that founded Egg in the UK. The company is based in London and backed by Benchmark Capital and Wellington Partners.
In 2006 the Social Futures Observatory published a study entitled "Internet Based Social Lending", which seeks to understand the antecedents of social lending, drawing parallels with friendly societies. The study used Zopa as a major source of case study material.
Zopa operates in the United Kingdom. It used to operate in Italy, Japan and the USA, each under a slightly different model. However, the overseas operations have now either closed down or been spun off.

An introduction to RateSetter

Customers can be a "Lender", a "Borrower" or both. Requests to borrow are matched to offers to lend in a number of 'Markets' of which there are currently three. A separate system, known as 'Listings', was discontinued in July 2011.
A potential borrower is graded by risk by the credit reference agency Equifax. The current risk bands are A*, A and B. Bands C and Y (standing for Young, for borrowers aged between 20 and 25, who have not yet established a credit history) were discontinued for new loans in mid-2012. After initial online credit checking, borrowers also get full underwriting checks by humans and many applications are rejected by the very strict checks at this stage.
There have been various loan terms over the years but as of late May 2012 these are simplified to just two - 'short' (24/36 months) and 'long' (48/60 months). In early 2013 short was amended to include 12 month as well as 24 & 36 month loans. As of July 2013 lenders' money is matched with borrowers only after the final underwriting is complete, to improve the matching process between available funds from lenders and loans ready to be disbursed.