RateSetter's Ian Cruickshank on Handling Risk and Bolstering the Consumer Proposition

There is only really one burning question that prospective lenders ask when it comes to lending money via peer-to-peer platforms such as RateSetter; what’s the risk?

At RateSetter we believe in transparency and being members of the Open Data Institute we actively encourage customers and others to download our loan book in its entirety. Why? Ask yourself this; if pre-financial crisis banks were totally transparent about their portfolios of mixed cocktails of various levels of subprime debt, would the wisdom of the crowds have been able to spot and lobby for regulatory intervention early enough to avoid the crisis?

Modern finance firms like RateSetter are embracing risk and being as open with data as possible to differentiate from other firms. In 2010 we launched with a concept we called the Provision Fund to provide stability and safety for lenders. The idea was this fund would cover any borrower bad debt leaving lenders unscathed and allowing for a platform to flourish with a 100% record of lenders not losing money. Thanks to our prudent credit profiling our Provision Fund has done exactly this and is now stronger than ever before with a coverage to anticipated bad debt rate of 180% plus. Also, in January this year borrowers added over £0.5m to the Provision Fund, the largest ever allocation yet.

The fund continues to grow at an exponential rate but we want go further than increased coverage. What else can we speak to consumers about that will ease their concerns around the risk of lending money online?

One area RateSetter are focusing on is scenario testing. By providing prospective lenders with an idea of the potential impact of for example, a deteriorating economy on the bad debt rate and subsequently how many claims the Provision Fund has to meet, it allows for context. Putting risk into context allows for lenders to see things relatively. It also allows for comparison of risk management practices across modern finance firms; yet further openness and transparency.