Exploring Perceptions of the FSCS Scheme

A RateSetter survey explores consumer attitudes to the FSCS. 

RateSetter has suggested that the protection currently provided by the FSCS (Financial Compensation Scheme) is outdated, inefficient and that it is fast losing relevance in the modern financial landscape.

RateSetter commissioned a survey to assess public perceptions of the FSCS:

• 18% agreed the new regulation to prevent the collapse of banks means that the scheme is less relevant than ever before.
• 17% of consumers believe a low rate of interest on their savings is a fair price to pay for the protection afforded by the FSCS. Over 52% of people disagree.

The survey illustrated a general lack of awareness of the FSCS – in terms of what it provides and how it works – amongst the British public:

• Of the people surveyed only 47% had heard of the FSCS scheme.
• Of those who knew about it only 39% were aware of the £85,000 individual protection offered.
• 11% overestimated how much of their money is protected.
• 71% thought the scheme should cover unlimited amounts of money and the average response was that it should cover up to £115,137 – 35% higher than the current level of protection.

The FSCS does nothing to protect the erosion of consumer money due to below inflation interest rates, however:

• 15% of people who are aware of the FSCS think that it protects that money from the effects of inflation.

Rhydian Lewis, Co-Founder and CEO, RateSetter, commented:

“Whilst the FSCS has been important for traditional financial institutions over the last decade, our findings tell us it is no longer fit for purpose. It is for this reason that its one size fits all approach has not been adopted by the burgeoning P2P industry. Instead, unique processes to protect customer’s money have been put in place by the key players in the market.

“RateSetter, for instance, pioneered the first Provision Fund in the market which remains the biggest at over £9.5 million and has the best track record with no lender having ever lost a penny since launch in 2010.

“However, the Provision Fund is by no means a guarantee, and we have worked hard to ensure transparency and education within this relatively young sector, so that consumers know their money isn’t fully protected, and can make an informed and intelligent decision on how to diversify their portfolio.

“By creating bespoke solutions for the industry, we have tried to ensure that our lenders are as protected as possible whilst allowing them to enjoy greater returns of up to 6%. Whilst we continue to strive to diminish the risk of P2P finance, it is paramount that the FSCS also takes heed of changing consumer sentiment and reacts accordingly.

“For too long consumers have suffered stagnant rates and with an upturn in the economy, the Scheme should work to become more efficient and allow a better deal for people’s hard earned money.”

RateSetter was the first platform to put a provision fund in place, which currently stands at £9.5 million and compensates lenders automatically in the event of a borrower default. Zopa, Wellesley & Co, and LendingWorks also have provision funds. 

RateSetter clearly feels that the FSCS scheme is in need of a revamp. But a clear distinction must be drawn between a consumer deposit with a bank and an investment via a peer-to-peer platform. The higher rates available from peer-to-peer platforms are partly due to the fact that consumers are taking a more pronounced risk when they invest their money, and such investments should not be seen in the same light as depositing money with a bank.