One of the few fully authorised peer-to-peer lenders sizes up the Innovative Finance ISA opportunity.
Crowd2Fund, one of only a handful of approved ISA managers within the peer-to-peer lending space, is urging savers to shift their money away from traditional savings accounts.
As at 31 October 2016, the value of all cash ISAs held in banks and building societies was £271bn, according to Bank of England figures. Bearing in mind October’s interest rate cut to the historic low of 0.25 per cent, Crowd2Fund says that the highest return on offer to savers via easy access cash ISAs is now around 1 per cent. And Crowd2Fund argues that the real value of deposited funds is in fact depleting, given the effects of rising inflation.
“In current market and macroeconomic conditions it’s clear that traditional savings and cash ISAs will in fact see your capital decline in value,” wrote the platform in a press release.
Crowd2Fund says that savers are missing out on £23.5bn in annual returns via peer-to-peer investments, which is the amount that could be earned if all cash ISA deposits were moved into IFISAs, using 8.7 per cent as an average return.
8.7 per cent is Crowd2Fund’s “estimated gross APR”, and does not factor in losses or investor fees. So in reality the net returns could be lower. For context, the Liberum AltFi Returns Index (LARI) reflects a lifetime net return for the peer-to-peer lending industry of between 4.5 and 6.5 per cent.
And clearly there are further limitations to the £23.5bn figure. First and foremost, returns for savers in cash ISAs may be low, but they enjoy a level of capital security under the FSCS scheme that peer-to-peer lenders cannot match. It is of course pie-in-the-sky thinking to imagine that the entirety of the cash ISA savings pool will all of a sudden be airlifted into peer-to-peer investments, which come with the risk of capital loss.
But Crowd2Fund’s figures nonetheless give some idea of the size of the capital reserves that the IFISA revolution might cut into. At present, only a handful of peer-to-peer platforms are able to offer the product, because only a handful hold full permissions from the regulator. Platforms must hold full permissions in order to apply for ISA manager status. The pace of authorisation has been picking up over the past few months – with platforms like Landbay and Folk2Folk squeezing through – but the very largest platforms such as Zopa and Funding Circle continue to labour under interim permissions.
“Since the financial crisis savers and investors have been hit hard with low interest rates,” said Chris Hancock (pictured above), CEO of Crowd2Fund. “The paltry returns offered by traditional cash ISAs make them hardly worth bothering with. In times of uncertainty, stoked further following Brexit and the US election result, investors should consider utilising an IFISA to protect and grow their net worth for the long term.”
For investors considering the IFISA, below is a list of the platforms that currently hold full permissions (in no particular order). These platforms are authorised under 36H rules. There are also a handful fully authorised investment based crowdfunders, such as UK Bond Network and Abundance, which are also eligible to offer IFISA products.
N.B. These platforms will need to acquire ISA manager status from HMRC prior to launching an IFISA.
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.