Ratesetter is an example of a product business model eventhough it has multiple sides. It joins lenders to borrowers. The sides are kept separated as exact details of who the lenders and borrowers are is not disclosed to either side, and no choice of borrowers is presented to the lenders. Both sides are required to make the business viable. The lenders are not charged and are provided a better rate of return than they could get in many other investments. Lenders could be considered a supplier of capital in the strictest sense rather than a customer, but we consider them a customer as they have the power to choose where they invest their money, and therefore Ratesetter actively markets to them.
Since its launch in 2010, RateSetter has become the UK’s biggest peer-to-peer lending service by monthly volume. The company was founded by Rhydian Lewis who saw the opportunity to shorten the distance between investors and borrowers to provide better rates for both than banks and traditional finance institution. Although it is not the first player into the P2P lending space in the UK, since that point it has achieved a lot of firsts and seeks to lead the industry. In 2014, the company expanded to Australia, and the firm is a founding member of the P2P Finance Association, the first trade association for the peer to peer finance industry. Through November 2015, the company has enabled £905,162,664 of loans, matching 3,434,500 lenders to borrowers. On average, each investor lends to 40 borrowers.
The model serves two classes of customer: lenders and borrowers. The lenders are primarily individuals but also include smaller businesses like schools, partnerships and charities and large institutions like the British Business Bank, who use RateSetter to support the funding of UK SME’s. This represents a broader base of lenders than some of its competitors such as Zopa. The borrowers are both individuals seeking personal loans and small companies seeking both small loans and larger secured loans. Again this represents a broader base of customers than its key competitors.
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A dyadic transactional relationship where your good or service can be designed and delivered without prior interactions with the customer.
Engagement — Value Creation Proposition
The value proposition is twofold. Ratesetter offers loans to customers who have a requirement for a loan. The period of borrowing falls between 1-5 years and there are no early repayment charges. A decision on the loan is made quickly and a fee is payable upon taking the loan. These loans are designed to be at a better rate than available elsewhere.
On the lender side Ratesetter offers an opportunity for lenders to put their money to work in the market for a return. Lenders have the choice of how much they want to lend and for how long. The rates obtained from the lending market are designed to be better value than the high street banks. Lenders’ investments are in-part protected by a Provision Fund (Provision Fund is money that has been set aside to reimburse lenders in the event of a late payment or default. This is a fund – over £16 million as of November 2015 – generated by borrowers’ payment of a “credit rate” fee based on their credit profile. More information is available at: https://www.ratesetter.com/lend/provisionfund).
The business model is targeting volume for both lenders and borrowers. It is aimed at encouraging uptake of its platform with minimal human interface and so investment and an increasing percentage of loans are automated.
There is no direct networking possibility between lenders and borrowers.
Ratesetter has a number of partners that either use loans provided by Ratesetter or recommend potential customers to Ratesetter.
Delivery — Value Chain
The product is delivered as an internet service. Borrowers are vetted using Ratesetters’ proprietary credit rating algorithm as well as credit ratings from existing ratings agencies. Ratesetter often packages many smaller loans from lenders to make up the full loan for the borrower, a process of matching that Ratesetter handles internally. Ratesetter fully mediates the transactions – that is, lenders do not pay borrowers directly because the money flows through Ratesetter. The web services were developed by Ratesetter using the .NET framework.
Monetisation — Value Capture
Ratesetter’s monetization is via fees charged to borrowers. Lenders are not charged fees. Due to the nature of the service Lenders will only be paid interest if their funds are matched with borrowers. Ratesetter does its best to shift the rates on a daily basis to ensure this occurs, but customers must manage the money in their holding account themselves, choosing to re-invest it or extract it. There is no claim that any money is made by arbitrage between the lending and borrowing rate.
www.linkedin.com employee backgrounds.
Conversations with Zopa CTO about Ratesetter
Disclaimer — Written by Timothy Ball and edited by James Knuckles under the direction of Prof Charles Baden-Fuller, Cass Business School. This case is designed to illustrate a business model category. It leverages public sources and is written to further management understanding, and it is not meant to suggest individuals made either correct or incorrect decisions. © 2016 Published 21 April 2016