Just 40 per cent of Innovative Finance ISA (IFISA) providers are open to retail investment in the current tax year, exclusive data by Peer2Peer Finance News has found.
Of the 91 companies which have been authorised by HMRC to offer IFISA products, just 36 are accepting retail money for the 2020/21 tax year.
Of these 36 firms, four require a minimum deposit of between £10,000 and £20,000, making them less accessible to the average retail investor.
The IFISA launched five years ago and experienced year-on-year growth, but recent anecdotal and quantitative data suggests that the market is now shrinking.
By the end of the 2016/17 tax year, 30 firms had received IFISA manager status, but just seven platforms were able to offer IFISA products to retail investors. During this year, approximately 5,000 IFISA accounts were opened by investors, with a total of £36m invested in the tax wrapper.
During the 2017/18 tax year, IFISA approvals increased and 22 platforms were offering IFISAs to their investors. 31,000 taxpayers opened an IFISA during this tax year, investing more than £290m.
The following year 78,714 IFISA accounts had been opened, with at least £711m invested in total.
By 2019, 93 firms had been authorised to offer an IFISA, with 71 managers offering IFISA products. And by February 2020, data from The Investing and Saving Alliance found that the total amount invested in the IFISA tax wrapper had reached £1.14bn.
However, since then the IFISA market has diminished. The number of IFISA providers with live IFISA offerings has halved over the past year, and numerous platforms have told Peer2Peer Finance News that they expect to see a reduction in their IFISA inflows for the current tax year.
This is largely due to the impact of the Covid-19 pandemic, which has created unprecedented uncertainty in the savings and investments market.
Four platforms – Zopa, Funding Circle, Octopus Choice and LendingCrowd – have temporarily closed to retail investors due to the pandemic. Funding Circle and LendingCrowd have done this in order to focus on the institutionally-funded coronavirus business interruption loan scheme (CBILS), while Zopa and Octopus Choice have blamed a lack of deal flow and investor waiting lists for their decision to pause their retail offerings.
Meanwhile, registered IFISA providers such as ThinCats, Landbay and Fitzrovia Finance have exited the P2P space over the past 18 months and no longer serve retail investors.
RateSetter – once the largest IFISA provider in the country – closed to retail investors soon after its acquisition by Metro Bank, leaving a huge gap in the market. With Zopa and Funding Circle currently closed to retail money, this means that Assetz Capital is the largest IFISA provider for the 2020/21 tax year.
Read more: Assetz eyes £100m in new IFISA money
Furthermore, a number of IFISA permissions belong to collapsed P2P platforms such as Lendy and FundingSecure.
Separately, Peer2Peer Finance News has identified at least 12 other companies which continue to have IFISA permissions despite the fact that the business is no longer a going concern.
Two authorised IFISA managers – Crowdinvesting BV and NKK Finance – are owned by overseas platforms, Duurzaaminvesteren and Flender, respectively. Neither appear to have any plans to launch UK operations.
Several IFISA managers operate a white label service, which allows them to administer IFISAs on behalf of their appointed representatives. However, even after this is taken into account the 2020/21 IFISA market appears to offer fewer options for retail investors.
This article has been edited from the print version to take into account last Friday’s news that The House Crowd, which offered an IFISA, has fallen into administration.