I've been waiting for P2P lending to become available to retail investors for a while, so good to see something finally out. In concept, I think it's very interesting, but there are a LOT of caveats. So here is my view on Rate Setter;
• What constitutes 'creditworthy' is relatively undefined.
• There is no information given on the experience in the UK/US (or here) on the level of defaults and arrears. While the presence of a Provision Fund is useful, these can be easily overwhelmed by surges in arrears/defaults. Based on current numbers, the value of the provision fund is ~5.7% of total loans. Over the past few years, arrears levels in personal lending from ADI's has been around 3%-5% and rising. Food for thought, they may have to provision more as time goes by. I'd want to take a look at the formal rules around how management makes allowances for calculating this and how often.
• The system seems to lack transparency in that you cannot see where your money is being lent. Traditional Select Mortgage funds allow this (you can see the exact loan), so that the investor/lender can make an informed choice. This needs addressing before I'd get comfortable personally.
• Difficult to tell if the risk premium is worth it. Looking at credit rated ASX Exchange Traded Bonds, the YTM on some of these seems like a better bet on a risk adjusted basis, particularly when you don't know the risk level here.
• There are a lot of questions I'd want answered about liquidity matching, particularly on longer dated loans.
So is it worth it? Possibly. But I'd be very careful on this one. Based on the information publicly available, personally I'd leave it alone until I could get more information. But perhaps there is more available once you sign up as a lender. On the plus side, I do know one of the individuals involved from one of my past professional lives and he's not an idiot. I might have a closer look at some point and if I do, I'll let you all know!
