What a difference a tax year makes! P2P platforms pile in to the IFISA market
THE INNOVATIVE Finance ISA (IFISA) market looks vastly different as ISA season approaches compared with this time last year.
Just a handful of peer-to-peer platforms had full Financial Conduct Authority approval in time to launch an IFISA product in April 2016, with 2,000 accounts and £17m subscribed up to April 2017.
Many saw this as a damp squib, but as we enter ISA season for the 2017/18 tax year, platforms representing almost 80 per cent of the market could be set to lead the charge.
Both Zopa and Funding Circle have loan books worth more than £3bn each, while RateSetter boasts a portfolio worth £2.5bn.
The ‘big three’ are the most recognisable brands in P2P and the size of their loan books underlines their popularity.
All have opened their ISA wrappers to existing investors first to manage demand, perhaps learning a lesson from Lending Works in the previous tax year.
Lending Works was the first major lender and Peer-to-Peer Finance Association member to launche its IFISA, back in February 2017. It had to temporarily close its product when it attracted £1.5m of new money within just 24 hours, causing a lender/borrower imbalance.
The ‘big three’ lenders make up more than £8.5bn of the £13bn or so of cumulative lending in the UK P2P market. Plenty of other big lenders will also be entering the IFISA market for the first time such as Assetz Capital, which has lent out close to £500m to UK businesses.
The public are already flocking to them so may be more likely to invest more when the interest can be earned tax-free.
Zopa alone says it lent more than £985m in the past 12 months, which is already more than 60 times the total invested in the IFISA previously.
There are also those who offered ISA status last year and have a decent market share, such as Lending Works and Landbay, who have loan books of close to £100m each and Funding Secure which has a portfolio of more than £200m.
This means that providers with loan books worth close to £10bn of the £13bn total value of lending in the UK market are now ISA-eligible, representing around 77 per cent of platforms.
That is even before you consider ISA transfers from savers in poor-paying cash ISAs.
Read more: Assetz Capital launches IFISA
Among the biggest IFISA providers last year, business platform Crowdstacker – which took in £15.6m – says £6.5m came from transfers.
Meanwhile, renewables P2P lender Abundance had £10.5m of subscriptions, £2.8m of which were transfers.
The entrance of the bigger providers may be of concern to last year’s players, but they have the benefit of being first-to-market so will be hoping to hold onto their investor base from their bigger rivals.
Ultimately, investors will benefit from greater choice and all platforms – no matter their size – will appreciate the increased focus and respectability associated with the IFISA that will inevitably be created by most of the market now offering it.