Up to 9% Interest Rate – How To Register as a Non-Resident Investor at Ratesetter Australia

Ratesetter is the brand name of one of the top 3 UK p2p lending marketplaces. Unfortunately only UK investors can invest on Ratesetter UK, otherwise I would have tried it out.

Ratesetter is also the brandname of Ratesetter Australia. While not rund by the same company this Australian p2p lending marketplace uses the same technology base and is offering similar products, consumer loans of up to 5 years. Since launching in 2014 Ratesetter Australia has originated more than 325 million AUD in loan.

The site does not feature it, but actually Ratesetter is open to non-resident investors. I recently found this out and went ahead and opened I account in the past week. The signup process for non-residents is not as straightforward as on other marketplaces. I post a detailed description of how I did it below.

But why send money that far away?

Because rates are attractive. Interest rates are currently up to 9.3% (compare that to around 6% that is achieveable for 5 year investments on Ratesetter UK).
And that rate is AFTER fees.

Ratesetter Australia Returns

A further important feature is the provision fund. That is capital stored that is used to reimburse lenders of defaulted loans. While that is no insurance or guarantee, it is in my view a much stronger portection than the ‘buyback guarantee’ that some other market places promise.

There is currently 10.6 million AUD in the Ratesetter Australia provision fund. And since 2014 the provision fund has paid for every default without exception.

Ratesetter provision fund

Review of advantages

  • established platform
  • very high interest rates (displayed rates are after fees)
  • no default losses since 2014 for investors (due to the provision fund)
  • comprehensive statistics & loanbook download

Review of disadvantages

  • signup a little more effort than usual (see description below)
  • no secondary market. Investors investing in the secondary market should not expect to be in a situation were they might need that money earlier
  • 10% withholding Tax for German residents (for other countries check here – according to Ratesetter it is either 0% or 10% depending on country)
  • very volatile currency exchange rate
  • transaction fees for changing EUR -> AUD according to description below is 0.35%; to convert back AUD -> EUR the fee is 0.45%

My conclusion

Only investors that want to invest a larger amount for a long duration should consider this. Otherwise it is not worth the effort in my opinion.

Currency EUR AUD chart
Currency exchange rates EUR/AUD last five years (Source)

How I signed up as a a non-resident investor on Ratesetter Australia – step my step explanation

As the process is more effort than usual, I suggest you read the complete remainder of the article and decide if it is for you, instead of just diving into the registration process.

Step 1: Trigger Ratesetter registration process

Sign up via this link and the first 5 investors have a chance to get a cashback bonus of $75 AUD – see conditions below*

First there is a welcome page, click “Register Now” there and then this page is shown:

Ratesetter AUS Registration

Yes, you saw that right. After clicking Register, you STOP and do NOT proceed with the signup on the website as it can only handle Australian residents.

Step 2: Continue registration

After a few minutes I got an automated email asking me to complete my registration. I did NOT click on the link provided in the email, but rather send a reply email, stating that I am a German resident and would like to invest on Ratesetter and that I have an Australian bank account. I asked that they would please guide me through the process.

Step 3: Australian bank account

WTF? Sounds much more prohibiting than it actually is. I had a Transferwise account already and with a few clicks could open a free Transferwise borderless account in Australian dollar which comes complete with account number and BSB code (routing code). If you don’t have Transferwise you can open it for free, only plan a little time for verification.

The Australian Transferwise account later serves as reference bank account which is entered into the form in step 5.

Converting EUR in AUD costs 0.35% at Transferwise (how I saved that fees is written below). The current fee for later changing back AUD to EUR is 0.45%.

Step 4: Obtain scanned certified copies of documents for registration

While I waited for the answer from Ratesetter from Step 2, I went ahead and obtained scanned certified copies of documents. I could do that a the town hall (cost incurred 3.50 EUR). It will probably be different in other countries. Needed is
a) current driver licence OR current passport
b) proof of address no older then 60 days: utilities bill (such as an electricity bill or phone statement) OR bank statement or other bank correspondence OR correspondence from a local or central government department

Step 5:. Going on with registration

Meanwhile I got the reply from Ratesetter support. They are super helpful, but time zone difference means every back and forth takes a day. Ratesetter sent me a link of a web form to complete. I did that (entered ‘-‘ for SWIFT) and told them so via email, which I attached the requested certified document copies to.

Step 6: Registration is complete

One day later I got the confirmation that my registration was completed and I was ready to go.

Step 7: Deposit

One can now convert in the Transferwise account Euro to AUD wechseln and then send money from the Transferwise Australian currency account to Ratesetter. Ratesetter shows the necessary routing information under Transfer funds in > Transfer by Bank Transfer > Other

Saving in currency exchange when depositing

I could save the 0.35% Transferwise currency exchange fee for EUR > AUD by using a free Revolut account and exchanging between Monday and Friday EUR to AUD fee free. Then transfer the AUD either to the Transferwise AUD account or directly as a Ratesetter deposit payment.

I just started. I intend to lend for the 5 year market and experiment with setting my own desired rates slightly above market rate. Watch out for an update here on the blog after I have several month of experience or – probably more frequently on the dedicated thread on the German discussion forum.

*$75 AUD Cashback Bonus for the first 5 investors, that register thought the given link before 16.09.2018 and at least $2000 AUD  on the 3 or 5 year market. Precise terms and conditions on the Ratesetter site. To qualify I think swift action will be needed, given that the registration, deposit and lending will take some time.

Ratesetter Launches IFISA Offer

Ratesetter announced it will launch the IFISA product offer tomorrow. The Ratesetter ISA will initially be available to existing customers, then to new customers on 1 March and to inward transfers from other ISAs in April.

Key features of the Ratesetter ISA:

  • Average interest rates are 3% to 6% p.a. depending on level of access.
  • Ratesetter says it takes less than five minutes to open a Ratesetter account online.
  • All investors are automatically covered by Ratesetter’s Provision Fund which manages and diversifies risk, meaning investors do not need to choose specific loans. The Provision Fund has ensured that, to date, every individual Ratesetter investor has received their capital and interest in full. Lending on Ratesetter is an investment and capital is at risk.
  • The Ratesetter ISA is a flexible ISA. Investors can withdraw money and replace it later in the same tax year without losing their tax-free allowance.

Ratesetter’s CEO and founder, Rhydian Lewis OBE, told P2P-Banking:

‘RateSetter’s purpose is to give people the opportunity to earn more on their money. Our ISA makes that opportunity even more compelling because investing is now tax-free.

 Cash ISA savers are frustrated with low interest rates, while inflation is always nibbling away at their money. Stocks & Shares ISA investors have enjoyed good returns recently but may be nervous of market falls, as demonstrated in the last few days. Lending is a third asset class in the middle, offering the potential for higher returns than cash without the volatility of shares.

 With RateSetter’s excellent track record and our focus on the retail investor, we believe our ISA will become an attractive home for people looking to put their money to work.’

For more Innovative Finance ISA products see the large P2P-Banking IFISA comparison table.

Plum Automates Investment in Ratesetter – Plum Equity Crowdfunding Pitch

Plum is another fintech that makes use of Ratesetter’s products through a cooperation. Plum is bot on Facebook messenger designed to automate savings for the user and to invest money on his behalf. Savings can currently be invested in Ratesetters rolling market. Plum is currently pitching to raise 700K GBP through a convertible with a valuation cap of 5M GBP on Seedrs. Watch the video for more information on the Plum product and pitch. The minimum investment for this equity crowdfunding campaign is 10 GBP. The pitch is EIS eligible (UK residents). Other investors include 200K US$ invested by VC 500 Startups. This pitch is not yet officially launched on Seedrs, but already open for investments. You can use P2P-Banking’s free notification service to be alerted of upcoming Seedrs pitches early and review them ahead of the crowd.

Competitors of Plum include Digit, Qapital, Clarity, Albert, Squirrel, Cleo and Savedroid.

The Plum pitch deck is  informative reading. To request that, login, click on ‘Documents’ in the pitch, and send a message to request the pitch deck.

Another example of an innovative cooperative cooperation making use of products of a p2p lending service is Commuterclub.

This article is not an investment advice. Investing in startups bears significant risks, including total loss of investment.

Ratesetter Reports Rising Revenue & Pre-Tax Loss

Peer-to-peer lending platform RateSetter has published its 2015-16 accounts, showing that it increased revenues from 12.6M to 18.5M GBP over the year. The company made a pre-tax loss of 4.9M GBP, compared to a pre-tax profit of 476K GBP for the preceding year. The company’s results are in line with expectations set out at the start of the year and reflect the decision to charge more fees over the lifetime of loans rather than upfront and a planned increase in investment back into the business.

Loans under management increased by 70 per cent, from 341M GBP on 31 March 2015, to 581M a year later, while the number of active investors grew from 18,608 to 31,036 over the same period. Today these figures stand at 640M GBP and 36,310 respectively – with a 70 per cent increase in new active investors in the period since the EU referendum compared to the same three months last year.

RateSetter made a profit for the years ending 31 March 2014 and 2015.

One of the main investment considerations for the money raised in 2015 from a consortium of investors including Woodford and Artemis was to alter the timing of receiving income: in 2015 RateSetter started to charge a greater proportion of its fees over the lifetime of loans rather than purely up front when loans are written. This creates a more sustainable recurring income stream as more money comes in over the term of loans, reducing pressure to lend in order to generate revenue when credit conditions are poor. Importantly, it also aligns RateSetter’s interests with those of its investors as it provides a financial incentive to only approve loans which perform. If all fees had been taken upfront when loans were written, rather than charged over the lifetime of loans, RateSetter would have recorded a pre-tax profit in 2015-16. Continue reading

RateSetter Becomes First Major Marketplace Lender to Offer ‘Easy Access’

‘Easy access’ investment will be available in a RateSetter ISA

RateSetter has improved customers’ access to their money by removing all early exit fees from its monthly investment market. This means that RateSetter’s 33,000 investors can now benefit from great rates of return combined with easy access to their money.

RateSetter’s monthly market has proven very popular with investors, delivering an average rate of 3.1% p.a. over the last five years. The latest rate can be found here.

As with all marketplace lending, the speed of access to money is dependent on liquidity. RateSetter has managed market liquidity for over five years, the result being that no investor has ever had to wait to withdraw their money from RateSetter. Early withdrawal fees remain in place for RateSetter’s one year, three year and five year investments.  More information can be found here.  RateSetter is looking at options to simplify the way fees are calculated to provide greater certainty to investors.

The announcement comes less than two months before the launch date for the Innovative Finance ISA (IF ISA) on 6 April and follows the release of information on RateSetter’s forthcoming IF ISA over a week ago.  RateSetter has confirmed that customers will be able to invest in any of its markets within an IF ISA wrapper, and thus can benefit from easy access investments with tax-free returns. Continue reading

Interview: Commuterclub Pitches to Raise 650K from the Crowd

CommuterClub is a promising startup currently running a pitch to raise their 2nd round from the crowd. I really like their business model and have invested in both rounds.

Interview with Petko Plachkov, CEO and Founder

What is Commuter Club about?

CommuterClub delivers a new and innovative way to access public transport as a subscription service.

By bringing together a low cost loan with the existing annual ticket, CommuterClub can deliver the savings of an annual, in a far more convenient and attractive package as a monthly payment plan.

Our goal is to continue to bring new innovative products for commuters, delivering value for money and ease of use.

I really like the fact that your business model builds on long customer relationships. What do you do to achieve high customer satisfaction?

CommuterClub operates in a sector dominated by large slow moving monopolies who manage public transportation. Our proposition is to offer an alternative approach to commuters that begins with their needs. Our focus on a simple customer journey, great customer service and a simple product all deliver a fantastic outcome for consumers.

This is key in ensuring high customer satisfaction and providing a real alternative to the existing ticketing options.

The audience of this blog is highly interested in p2p lending. Can you please explain how your company ties into this industry and what role Ratesetter and potentially Zopa play for your financing?

CommuterClub works with RateSetter to fund all loans. As a business P2P was the key building block enabling us to deliver a low cost and flexible product to consumers, something that we would have found exceedingly difficult if we worked with incumbent banks.

We expect to continue to work with p2p going forward and to maintain our close relationship with RateSetter.

The pitch video

The timing of this round is a bit of a surprise to me since you indicated to shareholders recently ‘at our current trajectory we expect to be [able to] sustain growth from retained earnings’. Why did you decide to raise further capital now?

CommuterClub has made tremendous progress in diversifying the business expanding nationally in the UK, launching a B2B solution and also looking to cover other verticals like parking.

This expansion of our product set has also expanded our target market and we are now raising capital to fund our continued expansion and growth.

Name one fact that makes your pitch a better investment than any other pitch on Seedrs.

Real, proven traction backed by millions in loans and thousands of happy customers.

P2P-Banking.com thanks Petko Plachkov for the interview.

This article is not an investment advice. Investing in startups bears significant risks, including total loss of investment.

 

Ratesetter Updates Legal Structure of the Provision Fund

RatesetterRatesetter informed its investors that it will update the legal structure of the provision fund by changing it from a trust to a limited company. Ratesetter was the first UK p2p lending marketplace to introduce a fund to protect investors against defaults (up to the amount available in the fund). So far no retail investor has lost a penny on Ratesetter since the launch in 2010.

Excerpt from the announcement: Continue reading

P2P Lending Marketplace Ratesetter Turns Five

Ratesetter LogoThis week UK p2p lending marketplace Ratesetter celebrates its 5th anniversary. When Ratesetter launched in 2010 it introduced the concept of a Provision Fund to p2p lending – an idea that has been adopted by several UK marketplaces since. The Provision Fund now stands at over £16m, the largest in the industry, and has ensured that so far no individual investor has ever lost a penny.

Since 2010, the fast-growing platform has delivered 815M GBP in loans to individuals, businesses and sole traders and expects to lend 500M GBP this year.  While most loans are used to buy a car (28%), to pay off more expensive credit card balances (18%) and for home improvements (17%), RateSetter’s 160,000 loans have funded things as diverse as a mobile pizza kitchen that operates from the back of a Land Rover, a didgeridoo and a wind turbine.

Over 26,000 people currently invest with RateSetter, a number that is growing.  In total, investors have earned 25M GBP in interest by using the platform. Continue reading

Ratesetter Changes Bidding Mechanism

Ratesetter LogoThe way bidding works at p2p lending service Ratesetter will change on June 24th. Ratesetter informed investors

Currently your money is re-invested at the higher of “Your Rate” (i.e. the rate you have specified) or “Market Rate” (i.e. the rate that is worked out daily at RateSetter looking at the whole market). Once re-set to Market Rate it stays at that rate which resulted in some scenarios where your money could be sitting at Market Rate unmatched when in actual fact your specified rate was lower.

From 24th June, your money will simply be put on the market to be re-invested at your specified rate. Simple as that.

It is worth saying that if the highest borrower bid at the time of your re-investment is higher than your specified rate, your money will be matched at that rate.

So, we hope that you can now use the “Your Rate” functionality to better control the rate at which you re-invest. One way of looking at it is that is like a floor – you will get at least your rate, or the best borrower bid if that is higher.

There has been some discussion among investors what this means and what actually changes for investors. The way I interpret it (but I am not even a Ratesetter investor) is that the market rate will become less important as Ratesetter could advice the borrower at what rate his loan request would match instantly. Since many investors will not micro-manage their set rate and only login occasionally it will lead to a broader distribution of interest rates set as ‘Your Rate’ and thereby reduce volatility. E.g. should interest rates move upward on the market (for whatever reason), unchanged ‘Your Rates’ at lower levels from earlier times will delay and slow the rise (provided they have unused cash from repayments in their accounts).
But let’s hear opinion of actual Ratesetter investors in the comments, please!

Queue Up for P2P Lending!

When was the last time you stood in a long line outside your bank branch, patiently waiting to deposit money into your savings account? Imagining a scene like that seems ridiculous at a time with near-zero interest rates in an increasingly large number of developed countries.

But there where you would least expect it, in the Fintech world of fast-moving bits, some startups actually are imposing measures to throttle influx of investor money in order to balance it with borrower demand. Welcome to p2p lending (short for peer-to-peer lending). The sector is experiencing tremendous growth rates. With attractive yields for investors some platforms struggle to acquire new borrowers fast enough for loan demand to match the ever-rising available investor demand.

One challenging factor is deeply ingrained in the business model of p2p lending marketplaces: once a new investor is onboarded and found the product satisfactory, he is most likely to stay a customer for years to come and reinvest repayments received and maybe the interest also. On the other hand the majority of borrowers are one-time customers. They take out a loan typically just once. While it may take years for the borrower to repay that loan, in most instances there is no repeat business for the marketplaces. So the marketplaces have to constantly fire on all marketing cylinders to win new borrowers in order to keep up and grow loan origination volume.

This has sparked some outside of the box thinking, e.g. the partnership of Ratesetter with CommuterClub to win their loan volume, which is in fact mostly repeat business.

Winning investors has been relatively easy for many of the p2p lending services in the recent past. Investors are attracted typically through press articles or word of mouth. One UK CEO told me he never spent a marketing penny ever to acquire investors.

But what happens on the marketplace, when there are so many investors waiting to invest their money in loans, but loans are in short supply?

  • If the marketplace does nothing or little to steer it, then those investors that react the fastest, when new loans are available, will be able to bid and invest their money. This is the situation e.g. on Prosper, Lending Club and Saving Stream.
  • The marketplace has some kind of queuing mechanism. This is typically coupled with an auto-bid functionality. Examples of this are Zopa, Ratesetter and Bondora.
  • The investors are competing during an auction period by underbidding each other through lower interest rates. Examples of p2p lending services with this model are Funding Circle, Rebuilding Society and Investly.
  • The marketplace can lower overall interest rates to attract more borrowers while the resulting lower yields slow investor money influx.

The UK p2p lending sector is eagerly awaiting the sector to become eligible for the new ISA wrapper. Inclusion into the popular tax-efficient wrapper will attract an avalanche of new investor money to the platforms.

“That’s going to be a challenge for the industry,” said Giles Andrews, CEO of Zopa. “Once the dates are worked out, the industry will need to plan for that together, and we may have to do something we have never done before, which is to limit the supply of money. It’s not good to have people’s money lying around [awaiting new borrowers] or to lower standards of borrowers.”[1]

So there is some speculation that UK p2p lending services could impose temporary limits on new investments.

The investor viewpoint

The aim of the investor is to lend the deposited money easy and speedy into those loans that match his selected criteria/risk appetite. Idle cash earns no interest and will impact yields achieved (aka cash drag).

For the retail investor none of the above mentioned mechanisms are ideal. The “fastest bidder wins” scenario means he would either have to sit in front of the computer most of the time or be lucky to be logged in just as new loans arrive. The queuing mechanisms are disliked as they can prove to be very slow in lending out the funds and can be perceived as nontransparent (see the lengthy and numerous forum discussions on the Zopa queuing mechanism). Underbidding in auctions does provide the chance to lend fast, but at the risk of setting the interest rate too low and this requires a strategy and can also be time consuming. Continue reading