21st February 2018
When we launched our Innovative Finance ISA (IFISA) on Wednesday 6 April, only seven other platforms joined us in being the first on the market to offer the Innovative Finance ISA product. Whilst there are still around 80 other organisations waiting to receive full approval, the FCA should be praised for not rushing through the approval of other platforms. It is important that investors and savers are given a wide choice of providers in order for them to make an informed decision about where they want to invest their money, and in order to make sure that the nascent and fast growing P2P sector is not dominated by a small monopoly.
The significance of the launch of the Government’s IFISA product cannot be underestimated. Whilst the ISA, first launched in 1999, has traditionally been a very effective measure to grow cash investments tax free, the current headline rates offered are not more than around 1.5%, due to the Bank Of England being held at 0.5% Under these terms, your money in a cash ISA will not even keep up with long term inflation, commonly pegged at around 3%. A stocks and shares ISA can, in theory, offer higher returns. However, equities by their nature are risky, and the markets have been in a flux since the start of the year due to the drop in oil prices and slowdown of growth in China.
The IFISA has the potential to be a hugely disruptive product due to offering interest rates on average of 8.7%, on Crowd2Fund, whilst allowing savers and investors to be able to lend directly to economy boosting British businesses. Traditional cash ISAs result in banks inefficiently taking funds from savers and lending to businesses, thus reducing the returns for savers. The IFISA product allows savers and investors to select who and how much they want to lend to, with the P2P platform taking a comparably negligible transaction and service fee.
In order for the growth and effectiveness of the IFISA, it is crucially important that compliance and regulation around platforms is not rushed through. This is a genuinely massive opportunity for the alternative finance industry, and its long term element should be considered at the expense of fast tracking platform applications who want to gain first mover advantage and grow market share.
We therefore think it is encouraging that the FCA and HMRC have not buckled under pressure to approve more mainstream P2P platforms for the IFISA. At Crowd2Fund we have had the aspiration to be a leading platform and also define global standards in alternative finance since we founded the business. It was this mindset and follow through which resulted in Crowd2Fund being one of the first fully FCA regulated P2P platforms, alongside being one of just a handful to have launched an IFISA. Some of the larger and more established platforms are facing a wake up call due to the rigorous regulatory regime required by the FCA.
We are different to other P2P platforms in that we have been fully FCA regulated since launch, unlike other dominant P2P lending platforms, and have a track record of launching innovative products, such as the revenue loan, and building easy to use technology. Every opportunity listed undergoes strict due diligence to confirm their credit worthiness before being offered to savers and investors.
Trickle approving the IFISA for P2P platforms is likely to result in a large and diversified market. Overall, this is likely to be less risky for savers as the market will be more competitive, and thus give investors a diverse choice in selecting the types of platforms and companies they want to utilise and invest in.
It is important that the finance industry learns from the mistakes of the past and does not give control to a dominant handful of players in the market, which are too big to fail. This can be precarious for the economy as well as investors.
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