A saver who has been trying to get her money out of the UK’s biggest “peer-to-peer” (P2P) website since August has been told her request is 19,050th in the queue for withdrawals.
Michelle Johnson* signed up with RateSetter in 2019 and invested a total of £1,000. After changes at the firm in the summer, she asked to withdraw her money – but months later she is still trying to get hold of the bulk of her cash.
“Please could you investigate what is going on at RateSetter?” she asked us this week. She told us she was in a queue of thousands of people to remove her money, adding: “I’m scared I’ll never see it again.”
Q&AWhat is peer-to-peer lending?
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Peer-to-peer (P2P) websites bypass the banks by matching up savers with borrowers – the idea is that both benefit from better rates than they could get from traditional financial institutions.
Typically savers select the interest rate they want to earn, and the site matches their money with loan requests from borrowers.
However, unlike bank and building society savings, the money they lend via a P2P website is not covered by the UK’s Financial Services Compensation Scheme (FSCS).
That said, some sites operate a fund or similar scheme that will cover a lender’s losses in some cases. And P2P lenders are regulated by the UK’s Financial Conduct Authority.
The three best-known players are RateSetter, Zopa and Funding Circle, though there are lots of others.
They all operate in different ways, and the sites that lend individuals’ money to businesses have traditionally tended to offer higher rates than those lending to other people.
Zopa, for example, breaks a customer’s investment down into small chunks in order to spread it across lots of loans to individuals, which can have terms of up to five years. Investors get monthly repayments, with interest added but minus the site’s borrower servicing fee. Some loans inevitably default, but the site says this is factored in when calculating projected returns, which are currently between 2% and 5.3%.
Each operator has different rules about accessing cash, but money might be locked away for days, weeks or months.
Peer-to-peer investments are typically available as Isas, so savers can enjoy their returns tax-free.
Billions of pounds are tied up in the UK’s P2P platforms, which put savers looking for a better return on their cash in touch with individuals or small businesses looking for a loan. Other major sites include Zopa and Funding Circle.
This year, when the Covid-19 outbreak started escalating, many of the P2P sites experienced a surge in the numbers of customers wanting to liquidate their investments and withdraw their cash.
In the case of RateSetter, it says withdrawal requests peaked on 16 March before falling back to normal levels. Pre-crisis, the website generally took only one day to return cash to investors seeking their money back.
RateSetter this week disclosed that it was still processing customer withdrawal requests that were made as far back as mid-March, so those customers who asked for their money more recently than that may face a long wait.
It is not the only site that is making people wait for their cash or restricting access. Meanwhile, many have closed their doors to new investors for the time being.
The coronavirus crisis has been the biggest challenge the P2P sector has faced and has triggered significant changes as the sites prepare for an expected wave of loan defaults.
In May, RateSetter said it was temporarily halving the interest rates it offered to savers, and then at the beginning of August it announced that it was being bought by Metro Bank.
Johnson says she decided to leave at that point because “I decided I no longer wanted to invest with RateSetter as I had wanted a peer-to-peer lender, not a bank”.
In early August she asked to withdraw all of her money (you can request to release your investments at any time). A small chunk of her cash – less than £100 – that was invested in RateSetter’s so-called five-year market was released in September.
However, the remainder of her cash, which is spread across RateSetter’s Access account (which had its rate halved to 1.5% in May) and its Plus account (which had its rate halved to 1.75%), is still awaiting release.
As of 8 October, her account showed that her “queue positions” for these two sums were 19,095 and 19,096 respectively. Six days later, on 14 October, she had moved up to 19,050 and 19,051. At that rate, it would take almost seven years for her to get to the front of the queue.
RateSetter tells customers: “Your money in the queue is still on loan and continues to accrue interest.”
In an update on its website on Tuesday, the company said it was “very sorry it is taking longer than usual to process [withdrawal] requests. We are continuing to deliver as many requests as possible every day, processing requests in chronological order in each market, with daily delivery determined by the supply of funds within that market.”
It added it was currently processing requests made on 13 March relating to Access, Plus and the Max account; 8 May for the one-year market; and 14 September for the five-year market.
A spokesman says: “Unlike other investments which stopped access, we have delivered requests every day … We are making progress.”
Asked how long Johnson and others in her position might have to wait for their cash, he says: “Unfortunately, we are not able to provide timing for when an investment release request will be delivered, as this depends on a number of factors that fluctuate over time … However, the queuing information allows investors to closely track the progress of their request.”
Unlike some P2P operators, RateSetter has a so-called provision fund to cover losses, and the money saved as a result of the interest rate cut is being diverted to boost this fund.
RateSetter is currently closed to new investors and, at the time of writing, says it is temporarily not accepting loan applications. In future, Metro Bank will fund all of RateSetter’s new consumer loans rather than P2P investors.
What about the two other major P2P players?
Zopa once positioned itself as an alternative to the banks, with the aim of cutting “faceless corporations” out of the equation. But things have moved on – it was granted a full UK banking licence in June, and has been moving into new product areas such as fixed-rate savings accounts and car finance. That said, Zopa is very much continuing with peer-to-peer.
If its savers want to access money that is still invested in loans, they have to sell them to other investors first, and Zopa charges a 1% fee.
Asked how long its peer-to-peer savers are waiting for their cash, a spokeswoman says: “We’re currently selling investors’ loans within business-as-usual timings, with the majority of customers seeing sales being processed within a week.”
Zopa is still accepting new peer-to-peer investors, and currently offers two options: Zopa Core (where the projected return range is 2%-4%) and Zopa Plus (2.1%-5.3%). It stopped approving loans in its riskier categories in response to Covid-19.
At Funding Circle, where people’s money goes to businesses rather than individuals, lending is currently “paused” for all new and existing retail investors. That’s because since April it has been concentrating on helping small businesses access finance through the government’s coronavirus business interruption loan scheme (CBILS).
Its investors are normally able to access their funds in two ways. Businesses pay back interest and capital each month, and by switching lending off, investors receive about 3-5% of their outstanding portfolio after about a month, and approximately 30-40% of their money back after 12 months.
The site also normally lets investors sell loans before they mature to those looking to buy. However, this option has been put on hold for the time being.
* Not her real name