Are giant P2P lenders profitable? UK peer-to-peer lender RateSetter says it is “bucking the trend” in the troubled sector and predicts that it will turn a profit next year.
Peer-to-peer or “marketplace” lenders match borrowers with people or companies who want to lend and earn interest. Most of the largest P2P groups, like Funding Circle in the UK and Lending Club in the USA, are increasingly reliant on institutions such as banks and asset managers to fund loans, but RateSetter has stuck to a model of relying on individual lenders.
Rhydian Lewis, chief executive, said it was clear that this model was “winning”, in light of problems at rivals like Funding Circle, which reported widening losses and growing bad debts earlier this summer and Lendy, a now collapsed business that focused on property developments.
Mr Lewis was speaking ahead of the publication of Ratesetter’s annual report, which showed a 69 per cent reduction in pre-tax losses over the 12 months to March 31, from £26.7m to £8.3m.
The company reported a significant fall in administrative costs — after a restructuring that followed the purchase of two motor finance businesses in 2017 — and a reduction in one-off expenses.
Overall revenues fell from £34.3m to £33.2m because of the wind-down of a loan book acquired alongside the motor finance businesses, but revenues from Ratesetter’s core businesses rose 16 per cent to £29.7m.
Mr Lewis said he expected the company to be fully profitable in the 2020-21 financial year.
Ratesetter’s largest rival Funding Circle reported a 40 per cent rise in losses last year and a further rise in the first six months of this year. Falling demand has also created problems, with investors who want to withdraw their money struggling to find buyers for the loans they have funded.
At the same time, regulators have been taking a tougher line on the sector, with the Financial Conduct Authority telling lenders last month that several were under review.
Stricter rules on marketing and governance are due to come into force in December. Many in the industry have said this will lead to the closure of some smaller firms.