Ding ding ding. Yorkshire Building Society has redoubled its efforts to raise doubts about the UK P2P space.
A few weeks ago, Yorkshire Building Society published research which mooted the existence of a general lack of awareness among peer-to-peer investors. 42% of the people polled by the company claimed to be familiar with the concept of P2P, of which 60% were unaware that peer-to-peer investments do not qualify for FSCS coverage.
Now Yorkshire has returned to rain further qualms upon the red hot peer-to-peer sector. This time, the financial advisers have been targeted – 101 of them, to be precise. Of these professionals, just 4% had invested in the peer-to-peer space, while a further 14% would consider investing. The remainder, over 80%, wouldn’t invest in the space, for now.
The advisers’ concerns reportedly revolve around a lack of understanding about the potential risks of peer-to-peer lending among consumers. The absence of FSCS protection and the occasional lack of liquidity – which varies platform to platform, depending on the effectiveness of the secondary market – are what’s keeping advisers up night.
The advent of the Innovative Finance ISA (“IFISA”), which arrives April 6th 2016, serves as the impetus for this rash of Yorkshire Building Society research. Already high (soon to be tax free) returns have financial advisers bracing themselves for a swell of retail investors who will be keen to get a slice of the peer-to-peer market.
45% of those surveyed believe interest in P2P will grow, while 20% have already experienced heightened demand.
Andy Caton, Executive Director at Yorkshire Building Society, explained:
“Investing in P2P can offer strong possible returns but people need to be fully aware of the possible risks and costs involved.
“It is clear that many financial advisers have concerns about consumers’ understanding and are unwilling to invest their own money in P2P despite the potential returns.
“It is good that the Government has decided to create a new and separate type of P2P ISA instead of linking it to the existing stocks and shares option, which will help to limit potential confusion among consumers.
“We hope our research and guide highlights the importance of making sure the risks and possible returns are considered. We would urge anyone considering investing in P2P to discuss their options with a professional adviser.”
Yorkshire Building Society was in fact one of the 81 respondents to weigh in on the HMT survey in October last year, which was designed to explore how best to structure the P2P ISA.
How are we to view the company’s peer-to-peer lending offensive? On the one hand, we applaud and support the concept that the risks of P2P investment need to be better understood by everyday investors. Indeed, the platforms themselves are constantly at pains to ameliorate consumer comprehension. But the credibility of each of the Yorkshire surveys has been ever so slightly marred by the tone in which they have been presented. It smacks of a company that is beginning to wise up to the potentially disruptive power of P2P.
Yes, peer-to-peer lenders are “riskier” than traditional deposit-taking institutions. But that’s not necessarily a bad thing. In fact, peer-to-peer returns might represent a more viable method of beating the effects of inflation. Never mind the fact that many of the top platforms boast impressive records when it comes to managing credit. Zopa, for one, has a strong track record of over a decade, has weathered a recession with aplomb. The Liberum Returns AltFi Index, which tracks the historical performance of Zopa, RateSetter and Funding Circle, demonstrates the remarkably consistent returns produced by the peer-to-peer sector’s brightest lights over the past 10 years.
Isn’t it just as important that prospective investors fully understand the upside of P2P lending, as well as the risks?
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.