'You have to prove that you're going to be a winner' - Rhydian Lewis, Ratesetter

The P2P lending company has grown at a fearsome pace, and is making a tidy profit to boot.

by Jack Torrance
Last Updated: 17 Feb 2016

A lot of entrepreneurs are successful because they are the first person to come up with an idea and put it into practice. But being second or third to market means you can see the challenges that beset your competitors and adjust your business model accordingly. That can be a huge advantage.

Rhydian Lewis launched Ratesetter a full five years after Zopa brought peer-to-peer lending to the market, but it has since grown in leaps and bounds and is now up there with the best of them.

Since launching in 2010 the company, which connects savers with people looking for a loan, has grown to a turnover of more than £12.5m and now employs 130 people. Last year it says it matched £293m worth of loans, more than any other P2P platform. How could a company that’s only been around for half as long catch up so quickly?

Lewis says it’s because of Ratesetter’s simple business model. Many other platforms let investors choose how to split their risk between different risk bands. With Ratesetter, they just choose how long they want to lend the money for, and at what rate. Borrowers pay money into a provision fund that covers investors’ losses in the case of a default. Though this does not provide a cast-iron guarantee, so far no investors have lost any money.

The seed of the business lies back in Lewis’s time working for the gambling exchange Betfair as a fresh-faced graduate back in the early noughties. ‘It was during that time that I thought, this was an exchange applied to betting, could that ever be applied to money?’ he tells MT.

But rather than jump ship and start his own business, his career took a totally different direction when he landed a job at the investment bank Lazard. ‘It was a completely different discipline of quite staid corporate finance advisory,’ he says. 'It’s hard work, you learn a lot, in fact it’s a very high quality place to learn. But I always had in the back of my mind this enthusiasm for the idea of a marketplace.’

Working in Lazard’s Financial Institutions Group, which advises banks, Lewis says he got a glimpse of ‘just how ugly’ things got during the financial crisis, and a ‘granular’ understanding of how the big institutions function.

‘If there was ever a chance for something to break through, given how customer trust was just being destroyed, this was the time,’ he says. So he teamed up with co-founder and former RBS banker Peter Behrens, and created Ratesetter.

Was making the move from the City to a start-up a culture shock? ‘I guess the shock was the thing in the middle, sitting at Lazard for 7 years,’ he says. ‘I don’t find it a shock being in an entrepreneurial environment. And I don’t find it a shock having to take risks continually, as you do.

‘What I [did find] a shock was, not the adjustment from big business to enterprise, but from the corporate world to the commercial world. The corporate world is full of so many layers of padding, between you and the grubby reality of the real world, where people are just trying to make a living, sell stuff, do stuff. In a lot of London companies – agencies, consultancies, advisories, it’s quite academic some of it. It’s not at the coal face.’

Five years on and Ratesetter has matched a total of more than £850m worth of loans, £350m of which is currently on loan. It’s also one of the few major P2P lenders that made any money last year – a pre-tax profit of more than £618,000, pretty tidy for such a young company. How has it managed that?

‘We’ve gone about it more gradually – we’ve invested as the growth has come along as opposed to front-loading the investment, we’ve invested as the customer numbers have grown, which means our revenue and costs are more in line,’ says Lewis.  

That kind of financial discipline is music to an investor’s ears, and Ratesetter has attracted more than £30m of funding from some impressive backers, including the renowned fund manager Neil Woodford. Raising money is ‘always difficult, however easy it should be,’ Lewis says. ‘It’s just one of those things - parting with cash is difficult. I think we’ve always shown a lot of momentum and a lot of clarity of what we’ve set out to achieve.

'But getting it over the line is always a trauma. I think there’s a lot of interest in this space but you have to prove that you’re going to be a winner. And then people will back that.’

Despite its youth, Lewis says Ratesetter has now passed beyond the ‘start-up phase and it now looking to establish a ‘sense of permanence, a sense of succession.’ The company is about to shift premises from a co-working space south of the Thames to the City, and an IPO could be on the cards at some point in the near future.

‘To do that properly is a thorough process; it’s probably a 2-3 year process,' says Lewis. 'That will give us the option to do it if we think it’s right, but there’s no mad rush to do this.’

Ratesetter's rise is certainly an impressive achievement. But if it can go from nothing to nothing to top of its industry in such a short space of time, imagine what the market might look like in another five years.

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