IFISA – A tool for the Government to protect the UK economy in turbulent times

In April of this year Crowd2Fund became one of just a handful of platforms to launch the Government’s new and innovative IFISA product. With £79 billion of liquidity at stake, the amount of ISA funds transacted in 2014-15, this represents a one off opportunity for investors and cash hungry growing British businesses. Undergoing the process to become regulated and fully compliant was an arduous process but one that was necessary in order to give assurance to investors that they would be able to make informed, sustainable investment decisions with a reputable platform. In a short period of time since launch we have seen a marked increase of a number of our KPIs, and all new investors who have registered have selected the IFISA product. Whilst we could have taken an aggressive approach to grow our market share of this new product, we have been careful to deploy a controlled and understated launch in order to best protect investors.

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Additionally, the UK’s decision to Brexit last week conversely creates an opportunity for investors and businesses utilising our IFISA. We expect to see profound deregulation and the removal of red tape from Brussels which will make it easier to start and run businesses. Alongside the expectation of banks reigning in their lending services, it is foreseeable that this will create more demand for businesses seeking financing. 

The ISA, first launched in 1999 is a relatively mainstream product for investors and savers. Whilst the cash ISA has been popular historically, interest in it has waned since 2009, when record low interest rates were introduced at 0.5%. It is therefore not surprising that the Government’s announcement of the IFISA during the 2014 budget caused a lot of interest. It served as recognition for the growing alternative finance sector, an opportunity for a much needed cash boost to capital hungry, growing British businesses, and provided savers with the prospect being able to use their ISA allowance to invest in credit worthy businesses and receive a reliable and steady cash flow through accrued interest at markedly higher rates than having funds on deposit in a bank. The introduction of the IFISA really is an acknowledgement of alternative finance becoming mainstream, and as alluring as the moment is, it is key that investors are made fully aware of the risks they are taking and that all prospective businesses seeking funds are fully vetted and go through thorough due diligence checks.

We believe that one of the reasons Crowd2Fund are one of only a few platforms to be given the green light to offer the IFISA product is that we made regulation and compliance key from when we first launched. We did not fully launch Crowd2Fund until we received our full licence from the FCA. This means that all of the loan opportunities carried on our platform have gone through appropriate risk checks, and that our risk disclaimer warnings are appropriate and sufficient for all businesses qualifying for our IFISA.

The process for qualifying for the FCA and HMRC IFISA licence was arduous. It took around eight months from end to end, and we planned this process well in advance. Crowd2Fund received approval from both HMRC and the FCA before launching the product.

The accusations in the media of the current IFISA providers being overly risky are categorically not true and have been widely distorted. In line with FCA requirements, Crowd2Fund ringfences investor funds in a separate escrow account, which can be withdrawn at any time. In turn, our platform gives appropriate risk warnings, in exactly the same manner as the larger P2P platforms which have not yet been approved for IFISAs.

Additionally, we have built our platform to be specifically geared towards the IFISA, rather than just being a bolt on service. In April, to coincide with its launch, we released an iOS app with functionality bespoke to the IFISA. This allows investors to manage their portfolio on the move, and assess and invest in opportunities at the click of a button from anywhere in the world.

Up until now, none of the qualifying IFISA platforms have been given an opportunity to comment or reply to opinion pieces in the media. In the case of Crowd2Fund, the performance of companies on the platform has resulted in a default rate of 0%, and an estimated return of 8.7% APR.

The popularity of our IFISA has resulted in a significant increase in sign ups to the platform, with campaigns funding much faster. We’ve seen much higher frequency investments but of lower value, demonstrating the appetite for P2P from the retail ISA investor. It is also clear that the retail investors understand the importance of building a diversified portfolio.

Whilst these KPIs and increased funds are encouraging, we have been careful to not exploit our first mover advantage too quickly so as to undermine the rigorous processes which we already have in place. We continue to keep investors’ security front of mind and to ensure growth of our IFISA is sustainable, we want to make sure it is communicated to investors in as controlled a manner as possible. For the foreseeable future we plan to continue to steadily grow the success of our IFISA by educating users gradually – being transparent is paramount to the success of our platform. One way we have done this is by creating an in depth knowledge base explaining what the IFISA is, what its risks are and how to P2P finance works.

No form of investment is risk-free but as long as investors hold a diversified portfolio across a range of different companies, the chances of capital loss are significantly reduced. We have been heartened by the initial success of our IFISA and look forward to generating healthy returns to investors, and cash to innovative British businesses for years to come.

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