Controlled roll-out of the IFISA is best for consumers
Chris Hancock, chief executive of peer-to-peer finance platform Crowd2Fund, hits back at criticism of the IFISA authorisation process…
WITH the fallout from Brexit resulting in an interest rate cut to 0.25 per cent, the Innovative Finance ISA (IFISA) is needed more than ever, as people look for their hard-earned money to do more for them. The government should be praised for introducing a tax-efficient vehicle through which investors can gain returns that aren’t available from bank deposits or the primary capital markets.
However, since its controlled roll-out earlier in the year, the IFISA has come under criticism from some commentators who accuse the few platforms which have received full accreditation (including Crowd2Fund) of being risky, deterring investors from the product.
Such scare mongering and unsubstantiated claims need redressing.
Statistically, this claim is untrue. Since our launch two years ago, zero businesses have defaulted on their loans. This includes the businesses in our IFISA, which has seen significant uptake since it was launched in April.
We believe we provide more transparency about the borrowers on our platforms than some of our competitors. Also, as we work exclusively with private investors, this ensures that the product is specifically designed with the consumer in mind rather than bigger institutions.
Being one of the few P2P platforms that is directly regulated by the Financial Conduct Authority, compliance is something that has been at our core since day one. This gives assurance to our investors that they are receiving a best-in-class service when it comes to security and that we as a financial services business are offering a reliable, credible investment product.
Additionally, criticism of IFISA-authorised firms requires a response in order for the P2P space not to become a monopoly, akin to the way the Big Six dominate the energy market which has resulted in a poorer deal for consumers.
The government has acknowledged publicly that the IFISA has the potential to unlock up to £480bn of personal investment funds and with this comes huge responsibility. The IFISA is now a mainstream product and is likely to attract a larger and more diverse range of investors.
Whilst it is true that the larger platforms have not yet been approved, compliance and red tape need to be taken very seriously and closely adhered to.
We are now seeing a new breed of P2P investor come to market and they need to educated about the product’s risks and rewards – transparency is key and this can only be achieved by a process of gradual adoption communicated clearly and transparently.
Whilst the IFISA is not risk free – investors’ capital is at risk – this is the same as a stocks and shares ISA. However, when it comes to the IFISA, investors are better rewarded for their exposure to risk.
In a low-interest environment, a change in mind-set is crucial. In order to protect and grow funds, savers need to become investors. The education process of our IFISA relays this to everyday investors and tells them about their need to take a calculated risk depending on their own individual circumstances.
Given the fiscal environment we are in, our money can’t sit idle anymore and consumers should invest rather than save. This should maximise returns and inject stimulus into the wider economy.
This should be a real coming of age moment for the alternative finance sector and the opportunity should not be squandered. Fintech is a long term play and it is important to get it right – especially as experts predict it will form a core part of the UK economy in years to come.
The IFISA provides a compelling opportunity to help savers and British businesses secure their future. Unjust criticisms are only likely to damage the overall P2P sector and investor confidence as well.