FinTech: We meet Rhydian Lewis CEO and founder of RateSetter

By Brian Henderson

Rhydian Lewis is CEO and founder of RateSetter. Although the business was launched in 2010, the initial concept was dreamed up back in 2002 and amongst other things, it was the recession that helped encourage Rhydian to seize the market opportunity. RateSetter is now one of the trailblazers in the FinTech space, changing the way the industry meets the demands of consumers today.

We caught up with Rhydian to talk about the inspiration behind his success.

What inspired you to launch the business?

In 2002, when I was working at Betfair, I got very animated about the whole peer-to-peer concept, the transparency and control it can bring. After I left there I joined the graduate scheme at Lazard, where I stayed for six and a half years learning all sorts of things and receiving fantastic training. After two or three years you specialise in a sector and I was drawn to the banking, insurance and asset management sectors.

So, in a sense, the combination of my understanding of financial services businesses and my enthusiasm for the peer-to-peer model came together. I had been thinking about whether the peer-to peer exchange model could be applied to money for years, but these things take a while to digest and also it's all about timing and opportunity. The recession in 08-09 was a trigger if you like, as it felt like a time of complete change.

It sounds like those specific economic conditions facilitated a change in mind-set from not just the marketplace but also the consumer at that time?

It's always during times of change and turmoil that innovation occurs. Consumers bought into the narrative of bank bashing, but it's a different matter to convince them to actually change their behaviour and of course that's the next phase. It was the perfect storm in terms of trust in the banks disintegrating while I guess on the borrowers’ side there was actually just a financial need.

I think the regulation of banking has changed and I must say, I totally agree with it because it was clearly unstable beforehand, so they've tried to make it safer since then. But there is a direct relationship between how safe you want to make something and the value that it can deliver, so I don't think banks are going to bounce back with regards to giving savers value.

What are the challenges that you faced building the business?

RateSetter wasn’t the first UK peer-to-peer lender - Zopa had been going for a few years, which helped RateSetter and others in hacking down a few of the initial trees in the jungle. But the challenge we then faced came with our fundamentally different model, as we rewrote peer-to-peer lending. That's something we're very proud of.

So although we weren't the first peer-to-peer lender, we feel we had a right to exist, because we came up with a completely different model. That's a challenge in itself because you're having to re-define the concept. People thought peer to peer lending worked one way, then RateSetter arrived and did it in a different way. I think we're now the number one choice for the retail investor, which I believe is the long-term opportunity in this space.

As for the early stages, I don't think there's any magic formula and I think we were very lucky. We had a very clear vision about what we were trying to create and what didn't work. The rest of it is just sheer gritty determination. In most cases in life people give up at the first hurdle, but sometimes there are certain things one's willing and determined not to give up on. I think that's the secret sauce actually.

Do you think regulation is one of the biggest threats to the peer to peer lending space?

I don't think it's a threat, I think it's going to enable a lot more growth actually. Obviously it takes a long time to gain trust in any new industry, and one of the questions we always faced was “are you regulated?” We’d like to put that question to bed.

We have interim permission from the FCA and we're hoping to soon be fully authorised, and I hope that reassurance means that people won’t hold back from investing in peer-to-peer.

On the other hand, there are pros and cons to these things - it's the other side of the coin. Of course we need to put structure in place, because that gives you a kind of motorway on which you can zoom ahead, but then quite soon you can find that motorway's heading in the wrong direction and impossible to change. I think all in all it's going to be a major boost to peer-to-peer lending.

It's quite rare in financial services that you are able to have such a collaborative legislative process. Normally regulation is imposed after there has been a crisis or scandal. The regulation of peer-to-peer lending has not been unique, but at least different in that sense.

The government has made it an explicit aim of theirs to actually enable peer-to-peer lending to grow, which is very rare, and it is also striking that the government, which is often accused of being behind trends, is actually, I would argue, ahead of the trends in this case.

What is your vision for RateSetter in the next five to ten years?

I think if you put size and geographic diversification to one side, we would love to achieve a system whereby everybody gets at least the market rate of interest, so that our system becomes almost a benchmark. The way our system works is that it's actually the supply of and demand for money that drives our rates. It changes the customer relationship in that with a bank, you are counterparty to the bank: it's you versus the bank basically. They're trying to pay you as little as they can possibly get away with, whereas we just let the market set the interest rate, and so from that rather esoteric concept, we'd love it if the RateSetter rate became “the going rate” for money.

Designing a system whereby everybody gets at least the market rate, that's what we'd really like to achieve. Now I think that's ambitious, and it's going to require a whole deal of communication and marketing, because not everybody has the time to think about such things.

If we achieve that we will be a very large business. It’d be easier to say 'our ambition is to become very big', but we've always placed our vision in terms of what the outcome is for the consumer. The idea of a RateSetter rate that is “the going rate for money” is something that we aspire to, because for it to be relevant and valid you need to be big.

How easy did you find it to bring on board either friends, family or institutions for the funding to support the business?

We've raised £30 million and started off with friends and family, then people that were neither friends nor family but were willing to invest. Then we have investment funds, the thinking behind that was to try and position the business on a very stable footing. How difficult was it to get that funding? If there is momentum, the business is going well and the management are credible, there's always money. My personal view is that there's actually more money than there is opportunity.

We had a good story, so we were able to do it and we were able to pick the investors. If people are copying your idea, it’s scalable, but at that point the capital has more power because there are five people trying to build a business and not all of them can succeed. It’s swings and roundabouts in terms of who holds all the cards: the person with the capital or the person with the idea.

Do you think the government's doing enough? Either through policy, support, or creating the regime to support scale-ups on the verge of further exponential growth.

The government has done a lot for start-up businesses. That said, I don’t think enough is done to help businesses in the scale-up phase. It's the scale-up phase where you get real growth, real employment and big businesses, but it all runs dry at that stage. SEIS and EIS relief and even schemes like EMI, which is the way that companies incentivise their people with options, have relatively small limits.

If the Government wants to promote scale-ups, then they don't have the tax regime to do it at the moment and this is something we've spoken to them about. There's no programme that seeks to support the phase that we're at.

Within peer-to-peer lending, the government has done a lot to try and scale up, ISAs being the most obvious thing. That change actually took a bit of guts and it was like saying, ‘Okay we're going to let this industry go for mass market’. You've got to change the mind-set or the ambition of the investors, and the people who work there.

What do you think your biggest challenge around talent has been?

I think it's a problem of mind-set, not talent, because the UK education system produces wonderfully talented people. I don't think there have been enough success stories or role models in the UK for ambitious, talented execs to think ‘I get it and I know exactly where you're at. I've got to come in, take responsibility, organise teams and drive the business forward.’ I think we need to see more of that.

In America there are so many success stories that people can see exactly where they're at and think ‘Well, if I really invest some blood, sweat and tears into that business, I could actually make some money.’ I just don't think there's that belief in the UK. So I think that's the problem, we should be encouraging personal risk-taking.

If you could have told yourself one thing when you started RateSetter, what would that be?

I think I would have spent much more time on people and working out how teams are going to fit - people and structure, but bringing on people. Constantly making sure that the business has the right people to take it to the next level, because there's a constant lag.

We're always recruiting great people, but I think we've learnt in the last eighteen months that we could have started earlier. We definitely went ahead of the curve at one stage, and then the business catches up.

I think you can keep your cool with regards to funding as well. Growth solves everything.

Brian Henderson: Growth solves everything is going to be the mantra for this. Thank you that has been really insightful. We appreciate you taking the time to speak with us.