Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 293

Risk vs reward: How do P2P lenders stack up?

Peer-to-peer lending (P2P) allows everyday Australians to take advantage of investing in consumer loans, a well-established asset class that was previously the exclusive domain of banks and institutional investors.

P2P lending takes place via an online marketplace that uses technology to match borrowers who seek a competitive loan with investors who seek competitive returns.

To everyday investors (including SMSFs), P2P lenders deliver a new source of attractive, stable returns, with regular payments from borrowers. To borrowers, P2P lenders provide an attractive alternative to traditional financial products, with lower rates and a simpler, easier customer experience. By reducing inefficiency, P2P lenders can offer better value to everyone.

If you’re thinking about investing in a P2P lending platform, or have already invested, it’s important to understand the relationship between risk and reward. RateSetter is Australia’s largest P2P lender, with over 14,000 registered Australian investors, including an increasing number of SMSFs. Here we look at how RateSetter manages risk and reward to provide investors with an attractive and stable investment opportunity.

Credit criteria

RateSetter is committed to ensuring that investor risk is managed carefully, not only during benign economic periods, such as we are experiencing now, but also in tougher economic climates. This starts with carefully screening loan applicants to minimise borrower credit risk. We have a large underwriting team that uses both innovative technologies and traditional resources (such as credit bureau information) to analyse data and assess each applicant’s credit risk. Their primary objective, of course, is to lend only to creditworthy borrowers, and ensure that when they do approve a loan applicant, any risks are appropriately priced.

Loss protection – the RateSetter Provision Fund

RateSetter offers a unique additional buffer to help manage risk: our Provision Fund. RateSetter’s Provision Fund is a pool of cash available to compensate investors in the event of borrower late payments or defaults. While the Provision Fund doesn’t provide a guarantee, it currently represents over $12 million, representing 160% coverage of RateSetter’s anticipated loss rate. We’re very proud of the fact that, to date, our Provision Fund has ensured that no RateSetter investor has ever lost a single cent.

Choice and control

One of the best things about P2P lending is the control it gives investors over the amount they lend, the rate at which they lend, and the loan term. With RateSetter, investors decide which market they wish to invest in (from one month to five years) and then select the rate at which they wish to lend. The platform then matches their funds to corresponding loan orders, much like a sell order is matched on a stock market.

Our expertise

As experts in consumer credit risk, RateSetter considers risk assessment to be our responsibility. Our team of experienced professionals protects lenders from undue risk by rigorously assessing each borrower applicant. That means we choose who to lend to, simplifying the process for investors.

Transparency

At RateSetter, transparency is paramount. On our website, investors can access data related to every loan RateSetter has funded through the RateSetter Lending Platform since its launch in 2014, as well as a host of supplementary information, such as the credit performance of loans funded each year.

Every investment entails a degree of risk. At RateSetter, we’re committed to ensuring that our investors understand the risks associated with their investments, and, importantly, that we can mitigate these risks to offer investors strong and stable returns on an ongoing basis.

Ready to find out more or start investing? Get started here.

 

Daniel Foggo is CEO of RateSetter, Australia’s largest peer-to-peer lender, and a sponsor of Cuffelinks. This article is general information and does not consider the circumstances of any investor.  Investors should make their own independent enquiries and consult with a financial adviser.

For more articles and papers from RateSetter, please click here.

  •   12 February 2019
  •      
  •   

 

Leave a Comment:

RELATED ARTICLES

How marketplace lending meets investor needs

banner

Most viewed in recent weeks

Building a lazy ETF portfolio in 2026

What are the best ways to build a simple portfolio from scratch? I’ve addressed this issue before but think it’s worth revisiting given markets and the world have since changed, throwing up new challenges and things to consider.

Ray Dalio on 2025’s real story, Trump, and what’s next

The renowned investor says 2025’s real story wasn’t AI or US stocks but the shift away from American assets and a collapse in the value of money. And he outlines how to best position portfolios for what’s ahead.

13 million spare bedrooms: Rethinking Australia’s housing shortfall

We don’t have a housing shortage; we have housing misallocation. This explores why so many bedrooms go unused, what’s been tried before, and five things to unlock housing capacity – no new building required.

21 reasons we’re nearing the end of a secular bull market

Nearly all the indicators an investor would look for suggest that this secular bull market is approaching its end. My models forecast that the US is set for 0% annual returns over the next decade.

Making sense of record high markets as the world catches fire

The post-World War Two economic system is unravelling, leading to huge shifts in currency, bond and commodity markets, yet stocks seem oblivious to the chaos. This looks to history as a guide for what’s next.

3 ways to fix Australia’s affordability crisis

Our cost-of-living pressures go beyond the RBA: surging house prices, excessive migration, and expanding government programs, including the NDIS, are fuelling inflation, demanding bold, structural solutions.

Latest Updates

Property

How cutting the CGT discount could help rebalance housing market

A more rational taxation system that supports home ownership but discourages asset speculation could provide greater financial support to first home buyers.

Investment strategies

The Ozempic moment for SaaS

Every investing cycle has its Ozempic moment, a narrative shock so compelling that the market briefly forgets that incumbents can and do adapt to transformative technology like AI.

Superannuation

Meg on SMSFs: Last word on Div 296 for a while

The best way to deal with the incoming Division 296 tax on superannuation is likely doing nothing. Earnings will be taxed regardless of where the money sits, so here are some important considerations.

Investment strategies

If people talk about a bubble, it’s unlikely to crash soon

It is almost impossible to identify a bubble in real time, and history shows they last far longer than we think, giving investors (perhaps misplaced) hope and short-sellers seemingly endless pain before the share price collapses.

Investment strategies

Seismic shifts that could drive private markets

Dealmaking appears to be on the mend, but investors could be well served to look through near-term trends toward six major themes that we think may drive private markets for years to come.

Latest from Morningstar

Corporations are winning the stock market. Here’s a new plan for everyone else

Retail investors have the worst trading record, according to a study of trading performance. Institutional investors weren't at the top either. Here are 6 ways to improve your odds.

Infrastructure

The bull case for Melbourne

A counterpoint to today’s prevailing narrative that Melbourne is the capital of a failing state defined by its strained public finances, COVID hangover and an opposition obsessed with undermining its own credibility.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.