Peer2Peer Finance News February 2019 by Alternative Credit Investor

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MILLENNIALS MATTER

The Money Platform targets underserved borrowers LEADING THE CROWD

Crowd2Fund founder Chris Hancock talks to P2PFN

>> 29

Read our latest IFISA special report and tax-free property investing guide supported by >> 14

ISSUE 29 | FEBRUARY 2019

Worries mount over P2P promotion crackdown LEGAL experts have expressed concerns that the Financial Conduct Authority (FCA) may lump peer-to-peer lending in with riskier investment products as part of its crackdown on promotions. The City watchdog sent a ‘Dear CEO’ letter to all regulated firms last month warning that their promotions should be clear and not misleading, which was followed up by a sector review document that warned against “headlinegrabbing returns” in financial products. Its sector review appeared to categorise the P2P sector alongside contracts for difference (CFDs), structured products and spreadbetting – typically seen as risky and opaque investment sectors. “Unsuitable investments in complex and risky products are an area of focus,” said the FCA. “These products include CFDs, spreadbetting, structured products and investment-based crowdfunding. Loan-

based (‘peer-to-peer’) crowdfunding is covered in the retail lending chapter [of the sector review]. “The complexity of these products means that consumers may find it difficult to assess the risks involved in investing in them,” the regulator added. “This means they frequently overestimate potential returns and underestimate the potential for capital loss. Inappropriate sales tactics, such as the use of headline grabbing return figures or mis-

categorisation of retail investors as professional investors, can result in consumers investing in unsuitable products.” Dena Chadderton, senior adviser at regulatory consultancy BWB Compliance, said it was important to differentiate between the risks presented in P2P and those in more complex financial products. “With the right risk warnings, P2P lending is not difficult to understand and many loans are secured on underlying assets,” she

said. “While there is capacity for capital loss, the investor can limit their exposure by diversifying their investment across asset classes or over a number of loans. “Compare this to spreadbetting, where the investment is leveraged and the investor can have unlimited exposure to loss and we see a very different story.” P2P lending platforms have questioned how the FCA sector review document was written. “The way it is drafted, it is not clear whether >> 4

EDITOR’S LETTER

Published by Royal Crescent Publishing

WeWork, 2 Eastbourne Terrace, Paddington, London, W2 6LG info@royalcrescentpublishing.co.uk EDITORIAL Suzie Neuwirth Editor-in-Chief suzie@p2pfinancenews.co.uk +44 (0) 7966 180299 Kathryn Gaw Contributing Editor kathryn@p2pfinancenews.co.uk Marc Shoffman Senior Reporter marc@p2pfinancenews.co.uk Andrew Saunders Features Writer Hannah Smith Reporter PRODUCTION Tim Parker Art Director COMMERCIAL Ashleigh Sadler Director of Sales and Marketing ashleigh@p2pfinancenews.co.uk Tehmeena Khan Sales and Marketing Support tehmeena@p2pfinancenews.co.uk SUBSCRIPTIONS AND DISTRIBUTION info@p2pfinancenews.co.uk Find our website at www.p2pfinancenews.co.uk Printed by 4-Print Limited ©No part of this publication may be reproduced without written permission from the publishers. Peer2Peer Finance News has been prepared solely for informational purposes, and is not a solicitation of an offer to buy or sell any peer-to-peer finance product, or any other security, product, service or investment. This publication does not purport to contain all relevant information which you may need to take into account before making a decision on any finance or investment matter. The opinions expressed in this publication do not constitute investment advice and independent advice should be sought where appropriate. Neither the information in this publication, nor any opinion contained in this publication constitutes a solicitation or offer to provide any investment advice or service.

ast year, I was unable to take up a position on a panel at an industry event. On informing the organisers, I was asked if I could suggest a woman to take my place. There was an implicit understanding that this woman would need to be linked to the P2P industry, but no further requirements were given. I’ve had similar conversations with other industry event organisers who have made it clear they need to get more women on their panels when asking me to get involved. This enthusiasm seems great in theory, so why does it leave a bad taste in my mouth? Gender diversity has come to the forefront of financial services in recent years. The Women in Finance Charter and the 2020 Women on Boards initiative have highlighted the lack of female representation across the industry and at the highest echelons of the UK’s largest companies. Fintech is newer, disruptive and should, in theory, be better – yet the gender balance stays the same (if not worse). Of course, fintech is not helped in its gender-equality ambitions by the ‘tech’ – a field which typically tends to be dominated by men. I’m sure many of the people pushing for more women on panels mean well. But their efforts reduce me and other women on panels to little more than our gender which detracts from our achievements. In the aforementioned instances, I was left feeling that my inclusion was simply ticking a box and had nothing to do with the fact that I’d launched and built up a successful industry magazine. There are plenty of women doing amazing things in this space – include them because they’re successful, intelligent individuals with something to add to the debate, not just because they’re women. That’s when we might start to see some real change. SUZIE NEUWIRTH EDITOR-IN-CHIEF Have you signed up to our e-newsletters yet? You can receive P2P news straight to your inbox five days a week, or sign up for our once-a-week version that comes out on Wednesdays. Go to www.p2pfinancenews.co.uk for more information.

NEWS

cont. from page 1 loan-based crowdfunding is included in the ‘unsuitable investments’ theme or not,” said John Battersby, head of policy for RateSetter. “Either way, I expect that the FCA would be concerned about any financial promotion or marketing which was not in line with their rules. “If it was definitely included, you’d expect it to be added into the second sentence. “In the other asset classes the risks of significant losses for investors are much greater than in P2P lending – there is no reason why

P2P lending platforms cannot manage risk as well as traditional lenders, as they have access to the same information and processes.” The City regulator has outlined its concerns about how P2P is promoted to retail investors in its postimplementation review of the sector. Sources have told Peer2Peer Finance News that they are expecting an imminent crackdown given the failure of Collateral and high levels of arrears on some platforms. “The promotion of

financial products is a key focus for the FCA, as seen from the ‘Dear CEO’ letter,” said Emily Morton, associate at law firm TLT. “A policy statement on how this applies in the P2P lending sector is expected in the second quarter of this year. “This stems from the fact that these products are often seen as more accessible than those aimed at institutional, sophisticated and highnet-worth participants. “Clarification from the FCA on these matters is always welcome. The challenge for the FCA

will be to balance the need for investors and customers to be able to make an informed decision with appropriate safeguards, without unduly restricting access to the market or taking away from the innovative and competitive environment that P2P lending has created." The FCA declined to comment further on P2P promotions, only pointing to its consultation that highlighted concerns about platforms not communicating the true nature and risk of investments.

Property Pact readies to put first projects on platform PROPERTY Pact has revealed its first projects are set to be funded in the coming months after the platform adapted its borrower terms. The peer-to-peer lending platform – which lets investors back deposits for mortgage borrowers – was launched by former mortgage broker and developer Errol Woodhouse in 2017, but is yet to put any projects live. Woodhouse explained to Peer2Peer Finance News that the platform has been working offline on its first two products so they can be used as case studies.

He said the platform also had to change its terms and conditions as the first bank it was working with was concerned about how borrowers would meet affordability requirements for their mortgage and the deposit loan. As a result, borrowers will now pay 2.25 per cent

over the Bank of England base rate rather than the previously proposed six per cent. “The bank of mum and dad over the last few years has pretty much dried out,” Woodhouse said. “This has left individuals who never had that support. “There are a lot of organ-

isations who have identified the problem and are trying to create a solution. “We have definitely seen the mindset among lenders change.” Woodhouse said there were two borrowers with an application in principle from their bank who now need to raise a deposit through the platform within 60 days. He said he expects four to six investors to fund each borrower. Woodhouse said the platform is currently working with one bank that supports P2P deposit lending but is in talks with others.

NEWS

The Money Platform shifts focus to ‘underserved’ millennial borrowers THE MONEY Platform has pivoted its borrower focus to millennials, which its chief executive says are an underserved segment of the lending market. Joshua Graham told Peer2Peer Finance News that the peer-to-peer short-term lender is now lending almost exclusively to this demographic, who often struggle to get a loan from high street banks. “They might live at their parents’ home or work in the gig economy for example, which could affect their eligibility for mainstream lenders,” he said. The Money Platform has lent more than £1.5m since launching in 2016 and now boasts around 3,000 investors and

250,000 borrowers. It aims to provide an affordable alternative to costly payday lenders, offering average daily interest of £3.50 on a £500 loan. The firm is planning to launch a pooled lending product in the fourth quarter of this year, which would spread investors’ money across every single loan. This would ensure

greater diversification and has already received positive feedback from the platform’s investors, Graham said. Currently, investors’ funds are lent directly to a specific borrower. Looking ahead, The Money Platform is aiming to lend out £250,000 a month by the end of 2019. “This needs to be sustainable growth,”

Graham said. “We will grow at the maximum pace we can while delivering lender returns.” The Money Platform received full Financial Conduct Authority approval in January 2016 and was put into the regulator’s Project Innovate incubator programme, which supports innovative fintech start-ups.

Landbay steps up retail marketing in 2019 LANDBAY is renewing its focus on the retail investor in 2019 and is also looking to diversify its array of institutional funders. The buy-to-let peer-topeer lender has spent the last 18 months focused on scaling up the business, boosted by institutional investment. John Goodall, chief executive of Landbay, told Peer2Peer Finance News that institutional backing provided “a strong proposition” for retail investors due to

the reassurance their due diligence provides but recognised the importance of both types of investors for the platform. He said that Landbay is looking to achieve two or three times the level of lending this year that it did in 2018 and wants to boost its retail investor base to help achieve this. Everyday investors currently make up 10 to 20 per cent of Landbay’s investor base, depending on availability and seasonal trends.

Goodall said Landbay is also in talks with new institutional partners, including banks and funds, to expand its sources of funding. Looking ahead, Landbay is set to achieve profitability in next year’s full-year results. While Landbay is targeting a greater range of investors, it is not planning to diversify its offering as Goodall affirms there are great opportunities for specialists in the buy-to-let market.

“The big three buyto-let lenders are losing market share because the sector is professionalising and banks aren’t equipped to lend to them,” Goodall said. Tax and regulatory changes aimed at cooling the booming buy-to-let market have dissuaded many so-called ‘dinner party landlords’, with ‘portfolio landlords’ taking their place, defined as those who own over four buy-to-let properties.

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JOINT VENTURE

Savings inertia – a national missed opportunity Paul Sonabend, Relendex’s chairman, reveals the scale of the missed opportunity provided by IFISAs

LMOST THREE YEARS after it was introduced, awareness of the Innovative Finance ISA (IFISA) is surprisingly low. According to the most recent HMRC statistics, the UK’s ISA market is worth a staggering £608bn, of which approximately £270bn is held in cash ISA accounts. However, given that the average cash ISA paid out below-inflation returns of under one per cent in 2018, millions of savers across the UK have been watching the value of their savings erode. Even worse news for savers is that the £337bn being held in stocks and shares ISAs produced negative returns in a year in which the FTSE 100 fell by 12.5 per cent. So surely the appetite is there for a new type of investment class – one that continues to offer tax-free savings but with less risk than the stock market, and higher interest than a cash ISA. According to Paul Sonabend, chairman of peer-to-peer property lending platform Relendex, the

“The IFISA democratizes savings,” explains Sonabend. “You don’t need to be wealthy to get a good return in an IFISA. Everyone gets the same rate of return which means the small investor can earn the same rate as a millionaire.”

“ Everyone gets the same rate of return which

means the small investor can earn the same rate as a millionaire

”

IFISA fills this gap. Yet the IFISA market was worth a relatively paltry £366m last year, making it around a thousandth of the size of the cash ISA market.

In fact, the average investor could stand to make hundreds of pounds per year just by moving their existing ISA savings into an IFISA account. And thanks to the sheer

volume of different types of IFISAs on the marketplace, there is likely to be a product that suits everyone, regardless of their risk profile or investment experience. For instance, Relendex offers two types of ISAs – a secured portfolio IFISA with a target return of six per cent, and self-select loans paying an average of 8.5 per cent, all tax-free. Sonabend explains, “If you have the national average of £17,000 in your cash ISA, earning an average of 0.75 per cent, by switching to a secured IFISA paying an average of 5.75 per cent, you can earn an extra £850 per year.” So why aren’t more people doing this? Sonabend believes it is down to a lack of awareness and a lack of understanding around the IFISA. “The exposure and understanding about what an IFISA is is absolutely minimal,” says Sonabend. “And that is something that is a failing of the government. I mean, they introduced it because they wanted to support the P2P industry, but there is no collective body actively promoting IFISAs.” Clearly there is much more to be done to de-mystify the savings market, to give the IFISA the recognition it deserves and to provide a vital boost to personal savings. Sonabend concludes: “At Relendex, if we can achieve this, not only will we be boosting savings, but we shall also be giving the SME house-building sector a vital shot in the arm by helping provide the finance they desperately need.”

NEWS

New P2P lender to use car finance model to help renters A NEW peer-to-peer lender is set to launch, connecting investors with people looking to rent or buy property without a large deposit. BunceCrowd’s investors will respond to ‘elevator pitches’ from potential borrowers seeking cash for their dream home. The platform looks at rental values and property prices in the area in which the borrower wants to live, and pledges a certain amount of money if the borrower is approved. Investors then buy the property as a cash buyer through a special purpose vehicle limited company,

and the borrower pays rent to the company each month. Investors can expect to receive annual returns ranging between five and 10 per cent. BunceCrowd’s founder is Murray Kerr, a former Royal Navy aircraft engineer with a

background in the oil industry, who wanted to turn his interest in property into a business venture. He describes the concept as “like the PCP [personal contract purchase] of the car world but for rented property.” “People are always thinking about what they

are doing for investors but not what they are doing for borrowers," he said. "Yes, investors are key, but I want to give something back to the borrowers as well.” Investors also have the option to buy incremental shares in the properties on the platform, similar to the way shared ownership schemes work. BunceCrowd acts as property manager, charging a fee for maintenance. The platform hopes to launch under an umbrella company by April as it awaits regulatory approval within the next six to 12 months.

Should bank-style stress tests for P2P lenders reassure investors? THE RESILIENCE of the peer-to-peer lending sector in a downturn has been debated since the industry’s fruition. Trade body the Peer-toPeer Finance Association (P2PFA) requires its platform members to carry out bank-style stress tests on their loan portfolios, but how much confidence should P2P investors have in these models if the cycle turns? P2PFA member Funding Circle has claimed its loanbook would hold up in a recession, after subjecting itself to the toughest Bank of England stress tests.

The P2P business lender has said it could still deliver a three to five per cent return to investors in a downturn. “At Funding Circle, we rigorously prepare for changes in economic conditions,” said the firm’s chief risk officer Jerome Le Luel in a December 2018 update. “Part of this is to regularly stress test the loans in each of our markets. “Although every recession is different, the results show that even in severe economic conditions investors should still be expected to experience positive returns.”

Daniel Meere, managing director of consulting firm Axis Corporate, said that the stricter stress tests have been “both useful and necessary”, as they give an indication of how institutions would respond to ‘black swan’ events, and they look back over a long timescale. He said most of the questions stress tests pose are reasonable as they help assess good governance and responsible practices. He noted these tests are increasingly being applied at the consumer level, to both secured and unsecured lending. P2P ratings and research

group 4thWay, which conducts independent stress tests for P2P lenders, said the fact that platforms are making the effort to set themselves these tests should sit well with investors. “The more data they publish, the harder it is for them to lie to you,” said managing director Neil Faulkner. “P2P is a new industry, it has only been around since 2005. Some platforms don’t have the skills they need but many have employees who have come across from banks to do the exact same thing they were doing before.”

For even more peer-to-peer finance news, go to our website at www.p2pfinancenews.co.uk. With real-time news and exclusive insights, www.p2pfinancenews.co.uk is your indispensable portal into the world of peer-to-peer lending. Go online to sign up to our e-newsletters, for a comprehensive digest of the latest peer-to-peer finance news sent straight to your inbox. You can choose our weekday e-newsletter, which comes out by 7am Monday to Friday, or sign up for our once-a-week version that is sent out at noon on Wednesdays.

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JOINT VENTURE

A happy medium

Louis Schwartz, chief executive of Loanpad explains how his platform will appeal to conservative and return-chasing investors alike

ASH SAVINGS AND STOCKS and shares investments had a woeful 2018, due to low interest rates, rising inflation and extreme stock market volatility. So, this is the perfect time for Loanpad to remind investors across the UK that they have sought to create a happy medium by combining the convenience of an online account with the inflation-beating returns of an investment portfolio. “Peer-to-peer lending arose mainly because the interest rates paid by banks were exceptionally low, all the way down to zero,” explains Louis Schwartz (pictured second from left), chief executive of Loanpad. “But what no one has actually done is turn a P2P platform into a system that works operationally like a bank account, albeit with greater investment risk.” This is where Loanpad comes in. The platform has created two products which operate with similar functionality to bank accounts, albeit with greater investment risk. This makes them incredibly user friendly, even for those lenders who have never used a P2P platform before. “As a business we are obsessed with user experience,” says Schwartz. “We built our lending platform from the ground up with the aim of being not just the easiest to use but the safest. These two factors are what we feel differentiates us from other platforms. We put investor experience at the forefront of everything we do.”

Loanpad has been described as a “hybrid lending model” as it combines the most attractive features of pure P2P lending with balance sheet lending. Loanpad itself does not originate loans directly. Instead it works with lending partners who originate loans within the property sector and share a portion of these loans with Loanpad’s investors. These lending partners will fund at least 25 per cent of each loan on a first-loss basis, which acts as a buffer to protect Loanpad’s retail investors from the risk of default or de-valuation. “Even if there was a sizable correction in real estate valuations, we still feel that our investors would be protected, because the loans on our platform relative to the property values would be anywhere between 10 and 50 per cent,” explains Schwartz. Loanpad converts every loan into two different risk classes: a lower risk senior part and a higher risk/return junior part. Loanpad’s lending partners will always fund the higher risk part, while the platform’s individual investors will

only ever fund the lower-risk senior part of each loan. This effectively reduces the risk of capital loss for retail investors. “I think that investors generally are becoming more conservative due to a number of factors - with Brexit of course being one of those,” says Schwartz. “Rising defaults, platform closures and economic uncertainty have made investors take more caution with which platforms they use and what type of lending they are comfortable with. “However, Loanpad’s senior tranche model is designed to provide consistent daily returns notwithstanding changes to the wider property market or economic climate.” Over the next few months, Loanpad will continue to enhance its usability by introducing new automatic features, so investors can auto-lend or auto-withdraw their interest. By keeping user experience front and centre and focusing on consistent returns, Loanpad may have found the perfect balance for the investors of 2019.

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JOINT VENTURE

Modernising the ISA market

Brian Bartaby, chief executive of peer-to-peer property platform Proplend, explains why the time has come to modernise the ISA market by promoting the IFISA

ESPITE OFFERING inflation-beating, tax-exempt returns, Innovative Finance ISAs (IFISAs) are still widely misunderstood. And not just among the general public. Wealth managers, accountants, aggregators and independent financial advisers have all demonstrated a reluctance to recommend the IFISA, which frustrates peer-to-peer lenders such as Proplend. “I think advisors are concerned for a couple of reasons,” says Brian Bartaby, chief executive of Proplend. “One is they are still quite attached to cash ISAs, but they also struggle with the IFISA because they know the client can just go and do it themselves. So that cuts them out a bit.” However, the benefits of the IFISA are undeniable, and Bartaby believes

“ It’s something that

should be on everyone’s radar

”

that the biggest risk to the IFISA market is that existing ISA holders realise what they’re missing, and suddenly start pouring their money in. “The most dangerous thing that could happen is suddenly the world wakes up to the possibility of the IFISA,” he says. “If just 10 per cent of the cash ISA market moved into the IFISA overnight, it would drown the P2P lending market because

that's nearly 10 years’ worth of combined P2P lending in one hit.” With stock market volatility and the risks associated with Brexit, there is a concern that this could happen sooner than expected. And according to Bartaby, the industry is not ready. “I think that the aggregators struggle with it,” he says. “They just don't see enough income to warrant what they're doing. “Also, there are so many different P2P business models that it is difficult for them to compare IFISAs on a like-for-like basis, and then compare those against cash or stocks and shares ISAs on a riskadjusted basis. And that's an industry problem, not just an ISA problem.” Proplend’s IFISA offerings follow the exact same structure as its nonISA products. There is an auto-lend function on its lowest risk loans, and all of these loans come with a 50 per cent loan-to-value cap. This means that the property’s value would

have to fall by 50 per cent before the underlying investment is at risk. These loans have a target return of five per cent, although Proplend’s auto-investing lenders have earned an average of 6.61 per cent. Unlike many other P2P lenders, Proplend offers a flexible IFISA, so investors can make withdrawals and repay that withdrawal without affecting their annual ISA allowance. These investors can also transfer existing ISA holdings into the Proplend IFISA within days, depending on the ceding provider. “I think we're regarded as one of the quickest and most efficient at doing that transfer process,” says Bartaby. “Other providers take three or four weeks to complete their transfers.” To date, Proplend has lent more than £55m and returned approximately £5m in interest to its investors. Bartaby estimates that around 25 per cent of the platform’s investments have been made through its ISA, underlining its huge potential. But modernising the 20-yearold ISA market presents a singular challenge. When it comes to promoting the benefits of the IFISA, Bartaby believes that the onus should be on everyone – not just the P2P platforms or the adviser community. “It's a financial product that the public should know about,” he says. “It’s something that should be on everyone’s radar.”

IFISA

Plenty to play for

The Innovative Finance ISA has been boosted by the ‘big three’ lenders unveiling their tax-free products, but are they now helping or hindering the competition? By Marc Shoffman

HE MAJORITY OF peer-to-peer lenders now offer tax-free earnings through the Innovative Finance ISA (IFISA) but the early days of the tax wrapper were not so easy due to the absence of many of the industry’s big brands. The ‘big three’ of Funding Circle, Zopa and RateSetter had not yet entered the IFISA market in the product’s first tax year and uptake showed just how much

they were missed. The IFISA attracted just £36m of subscriptions across 5,000 accounts for the 2016/2017 tax year, a relatively low amount that was attributed to a lack of mainstream awareness of the products on offer. This was not through want of trying among the biggest platforms. Zopa and RateSetter previewed details of their IFISA products in February 2016, ahead of the April 2016 IFISA launch date.

But they were unable to bring those products to market due to an unexpectedly long regulatory process. Zopa was the first of the ‘big three’ to gain full authorisation from the Financial Conduct Authority (FCA) in May 2017, followed by Funding Circle later that month and RateSetter in October that year. Platforms subsequently had to gain ISA manager status from HMRC, although this was a simpler process.

IFISA

The difference was clear once these players launched their IFISAs for the 2017/2018 tax year when £290m of subscriptions in the IFISA were recorded across 31,000 accounts, a 705.5 per cent increase on the previous year. Much of the intake is thought to have come from the ‘big three,’ although those platforms have only released data that covers the 2017/2018 and 2018/2019 tax years combined, so it is difficult to make a clear comparison. In August 2018, when the official ISA statistics for 2017/2018 were released, Zopa said that it had attracted more than £150m since launching its IFISA in June 2017, while Funding Circle said that it had taken more than £120m since November 2017. RateSetter revealed last month that its IFISA has attracted £170m since it went live in February 2018. The big players insist they are helping everyone and that the competition is against cash and stocks and shares ISAs rather than with each other. “The initial success of the IFISA proves there’s clearly plenty of demand amongst investors for an alternative to the lower-yielding cash ISA and the highly volatile stocks and shares ISA,” Natasha

“ The initial success of the IFISA proves there’s

clearly plenty of demand amongst investors for an alternative to the lower-yielding cash ISA Wear, head of investment products for Zopa, said. “As the popularity of the IFISA continues to grow and elevate the P2P asset class into the mainstream, even more customers will rightly demand a simple experience without the disappointment of introductoryonly rates that disappear or hidden fees – making it even easier for customers to make their money work harder.” Mario Lupori, chief investments officer at RateSetter, suggests the entry of the ‘big three’ adds authenticity to the product. “If there was going to be a new football league that had the major clubs in it, that would add validation,” he explains. “If you only had the championship players it wouldn’t be taken quite as seriously. “It helps that RateSetter, Funding Circle and Zopa are performing strongly and are in the market helping everyone.” Neil Faulkner, founder of P2P

”

analysis firm 4th Way, supports this sentiment, claiming the entry of the ‘big three’ boosted overall investor confidence in the market. “There were just a couple of IFISAs from providers available for a long time and we received queries from many investors asking when other IFISAs from large providers were finally going to arrive,” he explains. “They were all waiting and they had to wait, since they couldn't squash all their cash into a few small IFISAs. “I sensed the beginnings of some suspicion in the final few months before larger IFISAs started to arrive, so the eventual release of many more IFISAs from bigger brands was a boost to investor confidence.” There is also some agreement among the so-called ‘championship platforms’ that the big brands have helped the product grow in popularity. “The entry of Zopa, Funding Circle and RateSetter definitely

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IFISA

helps raise awareness,” Frazer Fearnhead, founder of P2P property lender The House Crowd, says. “The IFISA definitely got off to a slower start than people were anticipating. “The general level of awareness will be helped as more companies start to offer it but it will just take a while for people to get used to it.” However, there are concerns that more could be done among the main players to use their weight to help boost knowledge and wider take-up of the IFISA. “The sector needs to do more to promote the benefits of ISA investors diversifying into P2P and crowdfunding assets,” Bruce Davis, managing director of renewables crowd bonds platform Abundance, says. “The big P2P lenders have been cautious in their roll-out of the IFISA, focusing on existing customers first, so we will see whether they have a positive impact by investing in spreading the word about the IFISA when the main ISA

“ It helps that

RateSetter, Funding Circle and Zopa are performing strongly

”

marketing season begins in earnest in February and March.” Brian Bartaby, chief executive of P2P property platform Proplend, agrees that larger platforms are too focused on their existing users and need to help raise awareness among the unconverted. “The larger providers are not doing much beyond upselling to their existing lenders, i.e. an already converted audience so no real growth in the market,” he explains. “Its almost as if we are still a dirty secret and not a real ISA, primarily as capital is at risk. “Capital is at risk across the stocks and shares ISA and I think that the market will see a lot of volatility in

2019. With cash ISAs, investors will not lose ‘physical cash’ but the value of their cash is eroding in real terms due to inflation. This should also have a capital at risk notification.” Bartaby urges regulators and the government to help the industry in the same way they have supported reforms in the pensions market. “The IFISA needs wider exposure from regulators, HMRC and the whole industry rather every platform doing their own little bit of marketing,” he says. “Most existing lenders are just waiting to see which platform puts out the best cashback offer and then they will join up to that. “Think back to the exposure that the industry and regulator put towards Pension Wise and pension freedoms.” There are of course things smaller players can do to set themselves apart and help promote the IFISA brand. Faulkner says genuine differentiation is key for smaller players to stand out.

IFISA

“Every platform we speak to says ‘we are different and not like the rest,’ but the fact is that a growing proportion of them are very similar,” he explains. “Newer and smaller players should do their research to ensure that they genuinely have something different to offer so that they can sustain this difference until they have reached critical mass. “They might do this by looking for unexplored borrower segments, which will be easier than looking at new technology or new credit-enhancement ideas such as reserve funds, first loss and insurance.” Another area where small players could set themselves apart is the financial adviser market, which even the ‘big three’ has struggled to crack. Sam Handfield-Jones, chief product officer at Octopus Choice,

“

The big P2P lenders have been cautious in their roll-out of the IFISA

”

said the property P2P lending platform does not see the likes of Zopa as competition, as the advisers recommending its product are not looking at those types of providers. “It doesn’t impact our business model, but more traffic and press coverage is good for everyone,” he adds. Meanwhile, other platforms such as asset-backed lenders Ablrate and JustUs are utilising blockchain technology within their offerings, which could be a differentiating factor to attract investors. Ablrate is in the process of

building a blockchain-powered secondary market, while JustUs is using its P2P platform’s technology to launch a crypto-token to help facilitate faster global payments. The token will be underpinned by purchases of assets such as property and loans on the JustUs platform, which will help maintain its value. However platforms set themselves apart, RateSetter’s Lupori argues there are plenty of funds to go around, especially as the whole ISA market is worth £608bn. “There is more than enough for all of us to go after,” he says. “The amount already in the IFISA is a drop in the ocean compared with what is already out there.” As we approach the first ISA season where all of the ‘big three’ will have had a product on offer from the start of the tax year, it seems there is still plenty to play for across the whole IFISA market.

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PROPERTY-BACKED IFISA GUIDE

IFISA guide: Property loans This month, we provide details on some of the property-focused IFISAs on the market CapitalRise CapitalRise provides loans for development projects, mostly in Prime Central London. Investors self-select their loans and projects and can earn average interest rates of 10 per cent tax-free. There is a minimum investment of £1,000 and you can withdraw and invest during the same year without impacting your allowance. There is a secondary market to sell loans. Kuflink Kuflink offers tax-free returns ranging between five and seven per cent per year, depending on the investment term. There is a minimum investment of just £100 in its IFISA. There are no investment or withdrawal fees and you can either self-select or have your loans automatically chosen. Landbay Landbay offers buy-to-let mortgages. Investors’ funds are automatically allocated and diversified so you cannot select individual loans.

There is a minimum investment of £5,000 and IFISA investors can target a fixed rate of 3.54 per cent, assuming you reinvest all interest. There is also a tracker rate that follows LIBOR, priced at 3.25 per cent as of 23 January. The IFISA is flexible and Landbay also offers a secondary market. LandlordInvest LandlordInvest enables investors to fund buy-to-let mortgages and bridging loans, offering annual returns ranging between five and 12 per cent. This flexible IFISA has a minimum investment of £100 and there are no fees. Octopus Choice Octopus Choice launched its IFISA in August 2017, targeting returns of four per cent per year. Octopus Choice offers propertybacked loans to investors, which are underwritten another lender under the Octopus umbrella, Octopus Property. The minimum investment is £10. It is not a flexible ISA, meaning

Supported by

that any money you withdraw will still count towards your annual ISA allowance. Proplend Proplend provides commercial property loans. Investors can manually select their loans or choose the auto-invest option, with interest rates ranging between five and 12 per cent. The tax wrapper is flexible and the minimum investment is £1,000, with no management or transfer fees. Relendex Relendex provides funding for commercial property investments, developments and bridging loans, offering returns of up to 10 per cent. Investors can opt for the selfselect or auto-invest option, with a minimum investment of £500 or £2,500 respectively. It is not a flexible wrapper, which Relendex says helps them to keep the product cost-free. There is a secondary market where you can sell loans if needed.

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JOINT VENTURE

Brexit-proof lending Not all peer-to-peer lenders are worried about the dreaded Brexit effect, as Huddle Capital’s marketing director Neil Scaife reveals…

REXIT HAS LOOMED large over the peer-to-peer lending community over the past few years. But while many lenders have spoken out about the dreaded Brexit effect, Huddle Capital remains unconcerned. “In the small local niches that we deal with – whether that's smalland medium-sized enterprises (SMEs), or small local property developers – we don’t believe that Brexit or any of these other events will have a material impact on our ability to source these deals or our borrowers’ ability to pay them,” says Huddle Capital’s marketing director Neil Scaife. “We very firmly believe that, for the amount of capital that we're looking to deploy, we will always have a quality pipeline of businesses run by competent management teams with adequate security, with a sensible business model, that have got the ability to repay us.” He points out that, as a smaller lender, Huddle Capital has the flexibility to deal with smaller SMEs. By contrast, larger platforms who have much more capital to deploy may feel more pressure to lend to international companies which are involved with currency exchange or the import/export market. “Brexit matters for them,” he says. “But we believe that if you're a smaller UK business and you've got a decent business model, and a strong management team, you'll always be able to run a business and make a profit despite what's going in

the rest of the world.” Huddle Capital was founded in 2017, during a turbulent time for UK-based businesses. In the aftermath of the EU referendum, economic growth was slowing and uncertainty prevailed among SME owners. But Huddle Capital’s founders had enough experience in business to know that – Brexit or no Brexit – SMEs will always need access to fairly-priced funding. And by hand-picking the most stable businesses, it can provide that service without exposing its lenders to undue risk. All of Huddle Capital’s borrowers come to the company through its introducer network. Then, the platform’s in-house team will run

their own credit searches and liquidity ratios on each potential borrower. After this, all deals are passed to the underwriting team for manual validation. If everything checks out, the team will arrange a personal conversation with the borrower, so that they can “get underneath the logic of the management team, understand what they need to do with the money and how they think they're going to pay it back.” As a result, Scaife describes Huddle Capital as being “sector agnostic” when it comes to choosing borrowers. “We're prepared to look at each individual business on its merits,” he adds. Huddle Capital’s own management team is made up of experienced business people from multiple business sectors, which gives it an advantage when it comes to business lending. “We understand a lot of the pitfalls that our customers suffer,” says Scaife. “And we also understand where borrowers can attempt to pull the wool over our eyes. This makes us much better placed than some of our peers. Our business model isn't just about the underwriting and the lending – it's our understanding of how to collect.” These core traits have allowed Huddle Capital to create a lending model which is effectively Brexitproof. No matter what the year ahead brings, Huddle Capital is ready for it.

TAX

Navigating the tax landscape The maze of UK tax legislation can be tricky for peer-to-peer investors to navigate, but Andrew Saunders is here to guide you

T’S UNLIKELY THAT Benjamin Franklin – 18th century polymath and one of the founding fathers of the USA had ISA season in mind when he wrote “In this world nothing can be said to be certain, except death and taxes” way back in 1789. But all the same, the question of how certain peer-to-peer investors are about their taxes remains a pertinent one, especially as we head towards the end of the tax year in April.

Tax – especially the labyrinthine UK tax code – is renowned for its complexity, which can lead to anxiety and inertia amongst smaller investors, for fear of breaking the rules. It’s a reputation which derives, says Jake Wombwell-Povey, chief executive of direct lending investment manager Goji, from the way in which the government uses tax not only to raise revenue for public spending, but also to influence the way taxpayers act.

“Tax is used by the government to incentivise and to change behaviours,” he asserts. “That’s completely understandable but when you start doing that, it does add complexity.” Wombwell-Povey, who is also a committee chair for industry body the Tax Incentivised Savings Association, would like to see the system simplified but appreciates the conflicting agendas involved. “It would be great to remove

TAX

complexity but we also recognise that tax is a key means of implementing government policy,” he adds. But despite the reputation, investors shouldn’t let tax concerns put them off. The good(ish) news is that, for tax purposes, HMRC treats P2P in a broadly similar way to more conventional savings and investment products. Just as with those other products, the general principle is that – whatever its source - any interest earned is regarded as income and taxed at the income tax rate paid by the individual. So if you are a basic rate taxpayer earning between £11,861 and £46,350 this year, you pay tax on interest at 20 per cent. If you are a higher rate taxpayer earning between £46,351 and £150,000 it’s 40 per cent, and for those earning over £150,000 it’s 45 per cent. (If you earn less than £11,860 then you pay no income tax at all, but there can’t be many P2P investors in this bracket). However, one of the ways that the government uses tax to incentivise is by encouraging citizens to save and invest, so those tax rates don’t kick in until you have used up your Personal Savings Allowance. Introduced by HMRC in 2016, the Personal Savings Allowance is an amount of interest that can be earned tax free from savings and investments – including P2P holdings. Basic rate taxpayers can earn up to £1,000 in interest per year, tax-free, while for higher rate taxpayers it’s £500 and if you are on the additional rate, bad luck – your Personal Savings Allowance is zero. As Neil Faulkner, founder of P2P analysis firm 4th Way points out, that allowance means many small investors’ P2P earnings are tax free - even without special instruments such as the

Innovative Finance ISA (IFISA), of which more later. “As a basic rate tax payer, your personal allowance equates to £20,000 to £30,000 of P2P investments – more than most basic rate payers have to invest anyway,” Faulkner explains. However, it is up to the individual to declare their interest and pay any

the usual online self-assessment taxreturn process so drearily familiar to many of us. Losses and defaults can be offset against gains, too – a positive change to the tax rules which was introduced in 2016. But watch out, says Faulkner, for platforms which still use the term ‘direct lending fees’ for any charges they levy on

“ It would be great to remove complexity but we also recognise that tax is a key means of implementing government policy

tax that falls due. For those who are used to having their income tax deducted at source by their employer, this is probably the most important thing to remember. Fortunately, P2P platforms typically provide annual statements of interest earned which can be sent to HMRC - if the total earned is less than £3,000, often all that is required is an adjustment of an individual’s tax code to add the tax due to the regular monthly PAYE deductions. Or it can be done via

”

investors – these are taxable. “It’s just lazy, because if [the platforms] did them in a slightly different way and just called them loan service fees instead they would not be taxable,” he says. However, the biggest tax incentive that applies to P2P investment is of course the IFISA. Just like the established cash and stocks and shares ISAs, the IFISA is a tax-free vehicle for debt-based securities such as P2P loans. Individual investors can invest up

TAX

to £20,000 annually in an ISA, but only one ISA – whether IF, cash or stocks and shares – can be opened in any given tax year. Although on one level, the IFISA can be seen as adding another level of complexity to the tax position, in practical terms it actually makes life simpler for the majority, says John Goodall, chief executive and founder of buy-to-let mortgage platform Landbay. “The ISA makes it clear – it’s a tax-free wrapper that everyone understands,” he explains. “Our product is split into the taxfree ISA and our regular account – which we call classic – that is subject to tax.” But although that clarity is welcome, it’s not the main reason why demand from holders of existing cash ISAs wishing to transfer is on the rise, he says. “There are hundreds of billions sitting in cash ISAs paying very low rates. People are switching to IFISAs to get better rates at slightly more risk.” The latest data from HMRC certainly shows that take-up is accelerating. After a slow start – a modest £36m was invested in IFISAs in the 2016/17 tax year – IFISA subscriptions rose 700 per cent year-on-year to over £290m in 2017/18, while the sum invested in cash ISAs fell by 10 per cent over the same period. But while accessing the tax advantages of a new IFISA – or transferring old cash ISAs into one - is relatively straightforward, the situation for those wishing to transfer existing taxable P2P holdings is not so simple. These must be realised as cash first, which

generally means finding buyers on the secondary market, where demand – and prices – are not guaranteed. If it sounds like a hassle, it is – but there is a good reason for it, says Bruce Davis, chief executive and founder of renewables crowd bonds platform Abundance. “It’s to ensure fair market valuation at the time you subscribe, and is the same for stock and shares too,” he explains. Changing those rules would create a lot of admin and potential uncertainty around valuations which would add cost for platforms and be

“ The ISA makes it clear – it’s a tax-free wrapper that everyone understands ”

more likely to confuse investors than encourage them, he claims. In theory, selling loans on the secondary market can also attract Capital Gains Tax (CGT), says 4th Way’s Faulkner, although in practice this is usually something that only those who do a lot of secondary trading need to worry about. Should the CGT position be made clearer? “The liability is a bit ambiguous, but I don’t like the clearest solution,” he comments. “HMRC would probably want to fix it by charging CGT on all gains.” One small but nonetheless incongruous hold up – especially in a sector known from providing a slick online customer experience – is the distinctly low-tech ISA transfer process inherited from

TAX

P2P risk more widely. “It would make sense to be able to diversify across different ISAs and different loan products,” he states. Stocks and shares ISAs, he adds, are diversified across different shares, but IFISAs, by and large, comprise loans from only one platform. Some investors looking to boost

which were classed as standard through an exemption for corporate bonds which disappeared abruptly in 2015. “It was an unintended consequence, and we have asked them [HMRC] to reinstate it,” he comments. “The SIPP is a good vehicle for pensions and people should not be stopped from using it

“ It would make sense to be able to diversify

”

across different ISAs and different loan products

the traditional banking system. It requires wet signatures and closing balances are often remitted by cheque – surely an unnecessary relic of a bygone age in the era of BACS and CHAPs transfers. “The system is paper based and takes a couple of weeks – it is a bit clunky,” says Landbay’s Goodall. “Streamlining it would be a good thing, but I can think of several banks who would not want that.” Another, more significant change that is gaining support – it’s been mooted by the Office of Tax Simplification amongst others – is the proposal to relax the rules so that more than one of each type of ISA may he held and opened in a year. As Goodall points out, it could encourage investors to spread their

their retirement funds choose to include P2P holdings in a SelfInvested Personal Pension (SIPP). But in the case of P2P assets the tax advantages of a SIPP are more than eroded by increased costs for all but the wealthiest investors. Why? Because when it comes to SIPPs, “P2P loans are classed as nonstandard assets. It means that SIPP managers have to hold additional capital if they want to invest in them, and also that there is a lot of due diligence involved,” says Goji’s Wombwell-Povey. The non-standard SIPP classification arises from pensions regulations which require ‘standard’ assets to be realisable within a 30-day cycle, so that if a provider fails, those assets can be readily transferred to another provider. Wombwell-Povey would like to see it changed. “It’s a bit of an anomaly and we hope to encourage the Treasury to classify P2P loans as standard assets,” he says. “Commercial property is considered a standard asset, but there is no way you could put a warehouse on the market tomorrow and have sold it in 30 days’ time.” Abundance’s Davis would also like to see changes on the SIPP classification front – his business invests through debt instruments,

in this way.” He also raises the interesting question of whether shares in some kinds of companies should be made eligible for inclusion in IFISAs. “There are companies – mine included – whose eligibility for the Enterprise Investment Scheme [a tax break for investors in earlystage businesses] is coming to an end, but aren’t eligible for stocks and shares ISAs because they are not listed on Aim. There’s a funding gap for these companies and I think that will be revisited.” So despite the relative novelty of the sector, the overall tax position for P2P investments is not substantially more complicated than it is for most comparable retail investments. But that generally benign overall picture does hide a few anomalies with the potential to generate confusion and unexpected liabilities. So, as usual when it comes to tax, the best policy is that if you are at all uncertain, get professional help and make sure you pay what is due. As that more recent but much less celebrated American, the disgraced former President Richard Nixon, noted, “Make sure you pay your taxes; otherwise you can get into a lot of trouble.”

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JOINT VENTURE

Staying power

Narinder Khattoare, chief executive of Kuflink, explains the importance of platform longevity

HAT GIVES A peer-to-peer platform longevity? It is a question that many investors have been asking after a series of platform issues and loan book defaults rattled the lending community. But as competition heats up in the P2P property lending space, Kuflink’s chief executive Narinder Khattoare is confident that the Kuflink platform will maintain its reputation for attractive loans with no losses. And it all comes down to the quality of the team. Earlier this year, Kuflink expanded its underwriting team in an effort to keep up with growing demand for its products. Khattoare expects further new hires to follow, helping the platform to achieve its long-term ambitions, and prove its staying power. “The P2P sector had some scares at the back end of last year,” he says. “And that was down to lending to individuals with very high loan-tovalues, or to businesses which had very aggressive plans that never came to fruition. “But not all platforms are like that.” For Khattoare, the quality of the team behind each loan is the key to the platform’s longevity. An experienced underwriting team can anticipate risks and draw on past experience to avoid any potentially toxic deals. “You want to ask if the team has been in a scenario which is similar

to this,” he says. “Have they been running businesses or been part of a business that has gone through a downturn? Or have most of these people come out of the City when there was an upturn, but have never experienced running a business during the downturn? “At Kuflink, we all come from a financial services or property background. We all have experience in credit risk management, and we’ve been active in the lending market since before the last crash in 2007/8.” Khattoare predicts that there will be some consolidation in the P2P and alternative lending sectors over the coming months and years, as weaker platforms fall victim to their own over-ambitious plans,

and the top platforms build up a strong track record. The challenge for investors will be choosing to place their money with the right operator. “Before parting with any money, investors should look at their platform and ask: how have they evolved; where have they come from; what are their values; what is the background of the individuals that are running the business,” says Khattoare. “All of these questions are key.” He adds that would-be investors should take their time to do their own research on the market, always remembering that they should examine the reliability and quality of the platform itself, as well as the loans that are on offer. However, Khattoare warns that investor due diligence should bear in mind one potentially disruptive issue: Brexit. Prime London real estate has already seen a correction in pricing, which will filter out into other parts of the UK, he says, while EU-facing businesses could face delays in their supply chain which could impact their ability to make repayments. “We're going into this marketplace with a lot of uncertainty in the moment,” he says. “But with the right experience and planning, responsible platforms will see consistent performance even if the market does dip.”

We’re building the world’s best investment platform for entrepreneurs. Join us. We are a new breed of P2P platform, with a sophisticated proposition and backed by revolutionary technology that is fundamentally different from our competitors. Crowd2Fund has grown at least 317% year-onyear for the past 3 years, and aims to lend £40 million over the next 12 months to maintain this trajectory. Approximately £4 million has been invested into the growth of the platform thus far, while costs have remained reasonably consistent. In order to continue this rapid growth, investment is required. Pre register your investment at: investment.crowd2fund.com Investment is EIS eligible.

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PROFILE

New wave of innovation

Crowd2Fund founder and chief executive Chris Hancock has grand ambitions for his SME lending platform. He talks to Andrew Saunders about how he’s helping entrepreneurs while disrupting the disruptors…

NLY FIVE YEARS OLD and with a modest £25m in loans under its belt so far, Crowd2Fund is not the oldest or largest peer-to-peer lending platform. But far from feeling disheartened by the successes of larger, more established rivals, founder and chief executive Chris Hancock is more than happy to follow in their footsteps – and use their experience to beat them at their own game as he goes. “I think it is amazing what the likes of Funding Circle, Zopa and CrowdCube have done,” he asserts confidently. “They were the pioneers who paved the way, but there is still plenty of work to be done on tech innovation and improving the user experience.” Such is the pace of technological change these days, he reckons, that

implemented and it’s because as a company you can learn from what the first wave has done and improve on it.” With an oversubscribed round

“ I started my first business when I was 16…It’s always been in my blood ”

the disruptors themselves soon become ripe for disruption by the next generation of start-ups. “If you look at the trend of big success stories in tech, from Google to Facebook to Apple, it’s not the first wave that really make it, it’s the second,” he comments. “Why is that? It’s because the market has caught up and been educated, it’s because regulations have been formulated and

of crowdfunding last spring and a current annual growth rate of 317 per cent, Hancock’s small- and medium-sized enterprise (SME) lending platform seems to be doing something right. In fact, Hancock is so confident of the company’s potential that he has set the audacious goal of a £1bn exit by 2022. Is that a real target or something to aspire to? “If you look at the

UK market alone, there’s currently £2bn being transacted in non-bank SME lending, mostly by one main player,” he states. “The market is increasing by 46 per cent compound annual growth rate (CAGR) so the forecast market size by 2022 in £8bn. Of course the market and the competitive circumstances can change, but you would only need 10 per cent of that market to have a £1bn valuation.” The structure of the economy and of work itself is changing in favour of SMEs, he says – many of which will of course need funding at some point. “The number of small businesses started has doubled since 2010, we’re going through a huge transition in the way we organise for productivity,” Hancock says. “The infrastructure required for individuals to be productive

PROFILE

that used to be provided by large inefficient corporations is now provided by the internet.” So whether it’s marketing, hiring, technology or access to finance, the advantages that once accrued only to giant firms are now available to all, says Hancock – who provides a living example in the fact that he met his director of technology, Bucharest-based Liviu Dragulin, on gig economy hiring site PeoplePerHour. Not the kind of cross-border serendipity that could be relied on in the old offline world. That’s the big picture. But what are the real-world USPs that might help Crowd2Fund beat the rest and get to that £1bn unicorn status? Firstly, he says, the business is aimed at attracting a community of entrepreneur investors – successful business people who can offer borrowers much more than simply money. “We are aimed exclusively at entrepreneurs, private individuals,” Hancock explains. “When a business

borrows from private individuals they build a community which is there to help support their business. They can go back to them to raise further rounds of funding, and they can also turn them into customers and brand advocates. “We’ve got 7,500 active investors, we’ve got 300 active loans, have lent £25m and we’re looking to increase volume threefold and lend £40m this year. So if you are a business and you could take £150,000 from Funding Circle, or take £150,000 from us and get access to those sophisticated investors as well – that’s why you should come to us.” Crowd2Fund is a genuine P2P operator designed to appeal to those sophisticated investors, he says, because of another of its stand-out characteristics – it is a manualpick platform in a world which is increasingly dominated by autoinvest offerings. It also provides an active secondary market via its Exchange facility, providing some liquidity in a typically illiquid sector.

So far, Crowd2Fund’s investors have enjoyed some pretty strong returns – figures from last September showed that 80 per cent of them received more than 8.45 per cent APR after fees and bad debts. Crowd2Fund was one of the first platforms to launch an Innovative Finance ISA (IFISA) and Hancock is optimistic that there are big potential gains to be made across the whole sector as the IFISA grows in popularity. “The IFISA demonstrates that the government has put its stamp of approval on the market,” says Hancock. “It really opens things up – there’s a vast amount of liquidity there.” With a total market value of £608bn as of August last year, the UK's total ISA pot clearly represents a major opportunity – even a small uptick in market share for the IFISA could make a huge difference to Crowd2Fund. But mindful of the potential for trickier economic times ahead, an opt-in contingency fund has just

PROFILE

been launched for those who are happy to sacrifice some of that return for a degree of bad-debt protection. Hancock and his team have also been working hard on improving the recovery process. “We see there is a big opportunity to get investors more involved in recoveries, potentially allowing them to vote on the next steps in a recovery, and get more transparency on delinquencies,” he comments. “It could really enhance the investor experience and turn something that is seen as a negative experience for investors into a positive one.” The business uses AI software provider Indebted to help manage delinquent loans more effectively, and will be applying for Open Banking regulatory approval this year too. “The benefit [of Open Banking] for us is that being able to access our clients’ bank transactions will enable us to conduct better risk assessments, and also to maintain repayments more easily,” Hancock explains. “On the investor side, people won’t have to log in to their online banking to make a transaction,

Matt Hancock. “I started my first business when I was 16, building websites in the dotcom boom,” he says. “It’s always been in my blood.” But it was his experience of working in digital marketing with big banks during and after the financial crash that provided the ultimate impetus. “I was doing a big project with Barclay’s stockbrokers and when we had finished I just thought ‘There has got to be a better way’,” he recounts. “My insight was that there were hundreds of billions of pounds in term accounts and savings and that money was not working hard enough. Crowd2Fund was about allowing that money to really be put to work.” Hancock is proud of the successful borrowers that Crowd2Fund has had a hand in – businesses like high-end ski helmet brand Ruroc, industrial equipment supplier Genpower and reusable bamboo coffee cup business Tosh Products. “I can genuinely say that there have been some amazing entrepreneurs who wouldn’t have the multimillion pound businesses they do now if they hadn’t been

they will be able to add funds with one click which is a much better experience.” Hancock says his own background in tech and small businesses played a big part in his motivation to start Crowd2Fund in the first place. He comes from a family of entrepreneurs and high achievers – his father and sister both run their own businesses, and his brother is health secretary (and former business and enterprise minister)

through the platform. That is deeply satisfying.” Never one to let the grass grow under his feet, the energetic Hancock is full of ideas for the next year or so. Plans to set up shop in Australia are already underway, and Hancock is planning to launch a platform to facilitate buying and selling shares in private companies later this year. It will use securitised tokens on a private blockchain and is likely to appeal once again to Crowd2Fund’s

“ It is important to make sure that growth is managed effectively ”

entrepreneurial investment base, many of whom will have struggled first-hand to get cash out of equity in an unlisted business. But surely setting up a stock exchanges presents huge regulatory hurdles? Ah, but it won’t be a stock exchange, more of a bulletin board, says Hancock. “There are some exemptions in place, so long as it’s a relatively simple transaction from one investor to another – a one-to-one relationship, not oneto-many. We will make sure the transaction is carefully designed so that the platform isn’t seen as a stock exchange.” What are the biggest challenges to achieving his many goals? Given his substantial ambitions for Crowd2Fund it comes as something of a surprise to find that alongside maintaining returns for investors and keeping on the right side of the regulator, he also puts not growing too quickly on the list. “It is important to make sure that growth is managed effectively – fintechs are not like unregulated tech companies,” he says. “[Unregulated tech companies] arguably have quicker growth and can sustain it for longer periods.” But unlike all those social media platforms, streaming services or routefinding apps (however enormously successful they may be) even the smallest regulated fintech plays a part in the vital financial infrastructure that underpins national and global commerce. The consequences of business failure are inherently greater. So Crowd2Fund may be young, but its founder doesn’t lack maturity. “Controlled growth in fintech is important,” Hancock concludes thoughtfully. “Because the market is more sensitive and more intrinsic to our whole system.”

Your capital is at risk and interest payments are not guaranteed. Investment is not covered by the Financial Services Compensation Scheme. The information contained in this advert which relates to Wellesley Property Mini-Bonds, issued by Wellesley Finance Plc has been approved as a ﬁnancial promotion for UK publication by BDO LLP, 55 Baker Street, London W1U 7EU (FRN: 229378) which is authorised by the Financial Conduct Authority to conduct investment business. * If you invest £3,000 or more for a minimum period of 2 years you will receive £100 cashback, if you invest £7,000 or more for a minimum period of 2 years you will receive £250 cashback, which will be credited to your holding account within 72 hours of committing funds. T & Cs apply.

JOINT VENTURE

Untapped potential

Five years after the Northern Powerhouse was announced, Jay Patel, relationship officer at Wellesley Finance, asks if it has delivered for investors

HEN THE NORTHERN Powerhouse initiative was announced five years ago, it was widely viewed as an effort to rebalance the UK economy away from London and the South East. Yet Wellesley has been ahead of the game and has been working with local developers and construction companies for years, as part of its plan to rebalance its own portfolio and realise the huge potential of the North. “Manchester’s potential is great at the moment,” says Jay Patel, relationship manager at Wellesley Finance. Last year, Wellesley funded a high-profile development of flats in Manchester and before construction had even been finished, around 90 per cent of the units had been sold to both onshore investors and offshore investors.

“ There's a strong

market there to serve a need

”

“I think that really demonstrates that there is a need for property in Manchester and there is certainly a demand there,” Patel adds. “And Manchester is a global brand. You recognise it overseas – partly because of the football club and partly because of the government drive to incentivise overseas investment into the Northern Powerhouse.” Of course, there have been some

critics who say that the Northern Powerhouse initiative has not gone far enough. “Some experts believe that the Northern Powerhouse isn’t quite firing on all cylinders, particularly now that HS2 could be shelved as it battles Crossrail,” says Patel. “It is quite possible that the path the Northern Powerhouse has taken today isn’t exactly what George Osborne had in mind. However, given that the North of England has spent much of its history in the shadow of the South, reversing this does not have a quick fix.” Despite its challenges, there are some areas where the North is flourishing. The creation of Transport for the North (TFN) in 2015 was granted statutory powers

in April this year and can now be regarded as the Powerhouse project’s civil service. Meanwhile, investment into blossoming industries such as tech, media and digital means there are more career opportunities in the region than ever before. In fact, by 2016, 25 per cent of the working age population were 16 to 24 year olds with a degree or equivalent from a Northern institution. This in turn, has helped bolster the property market. “The universities in the North have a very good standing, and there are now more people willing to stay in those universities and those university towns,” says Patel. “So, you’re getting and retaining a higher percentage of graduates and young professionals. Those people are obviously needing places to live, be that to rent or purchase, and that feeds through to the property market.” Since the announcement of the Northern Powerhouse initiative, Manchester has undergone 9,127 building projects and cities including Leeds, Salford, Liverpool and Wigan have seen considerable residential growth too. And this growth is reflected in Wellesley’s own loanbook, which is bursting with opportunities for investors who want to be a part of the Northern regeneration. “Investment wise and homeowner wise there's a strong market there to serve a need,” says Patel. “And Wellesley is well placed to do this.”