Leading marketplace lending platform RateSetter posts £4.9m loss in 2015-16, citing tweaked fee structure as key driver.
RateSetter has become the latest in a string of UK-based marketplace lenders to announce a loss in the financial year 2015-16. And like others in the sector, RateSetter points to significant investment in marketing, technology and hiring as a key driver in the result. However, RateSetter has also highlighted changes in the platform’s fee structure as a key factor in its 2015-16 performance.
The company posted a pre-tax loss of £4.9m in 2015-16, despite revenues having climbed from £12.6m in the previous year to £18.5m – up 46 per cent. RateSetter notched a profitable year in 2014-15, with £476k in pre-tax profits. But the company announced this time last year that it would be shifting its emphasis to scale, and thus expected to make a loss in the coming years.
Changes to RateSetter’s business model appear to have had the greatest impact on profits. The company took on a £20m investment led by Woodford Investment Management and Artemis in March 2015. Alterations to the timing of RateSetter receiving income was one the “main investment considerations” in that round. In 2015, the company began to spread a greater proportion of its fees over the lifetime of loans, rather than at the point that loans are written. A statement from RateSetter says that the move creates a more sustainable recurring income stream, “reducing pressure to lend in order to generate revenue when credit conditions are poor”. It also serves to create a level of alignment between platform and investor, in that the platform has a financial interest in both the writing and performance of loans.
Leading consumer lending platform Zopa posted a similar set of results in August, posting losses of £8.9m, while revenues climbed by 45 per cent. Both RateSetter and Zopa invested heavily in laying the foundations for long-term success in 2015-16. Zopa CEO Jaidev Janardana expects the company to be profitable in 2017. RateSetter expects to grow considerably in the financial year ending March 2017, and to record a consecutive loss as it continues to invest heavily in scaling the business.
Rhydian Lewis (pictured above), co-founder and CEO, offered his thoughts on the results:
“Having turned a small profit in 2013-14 and 2014-15, proving our model, we’ve deliberately planned and delivered an increased level of investment into our business. That investment is already starting to pay off.”
“The switch from up front to recurring fees was not a decision we took lightly. However, it greatly enhances the sustainability of our business - we strongly feel that it will prove to be a very positive development and anticipate that others in our industry will follow our lead.”
“Being an early stage lending business is tough and you are prey to negative selection. However, we are now beginning to see P2P work and attract more investors and better borrowers.”