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.


 

Leave a Comment:

RELATED ARTICLES

How marketplace lending meets investor needs

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Latest Updates

SMSF strategies

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Superannuation

The huge cost of super tax concessions

The current net annual cost of superannuation tax subsidies is around $40 billion, growing to more than $110 billion by 2060. These subsidies have always been bad policy, representing a waste of taxpayers' money.

Planning

How to avoid inheritance fights

Inspired by the papal conclave, this explores how families can avoid post-death drama through honest conversations, better planning, and trial runs - so there are no surprises when it really matters.

Superannuation

Super contribution splitting

Super contribution splitting allows couples to divide before-tax contributions to super between spouses, maximizing savings. It’s not for everyone, but in the right circumstances, it can be a smart strategy worth exploring.

Economy

Trump vs Powell: Who will blink first?

The US economy faces an unprecedented clash in leadership styles, but the President and Fed Chair could both take a lesson from the other. Not least because the fiscal and monetary authorities need to work together.

Gold

Credit cuts, rising risks, and the case for gold

Shares trade at steep valuations despite higher risks of a recession. Amid doubts that a 60/40 portfolio can still provide enough protection through times of market stress, gold's record shines bright.

Investment strategies

Buffett acolyte warns passive investors of mediocre future returns

While Chris Bloomstan doesn't have the track record of his hero, it's impressive nonetheless. And he's recently warned that today has uncanny resemblances to the 1990s tech bubble and US returns are likely to be disappointing.

Sponsors

Alliances

© 2025 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.