Peer2Peer Finance News March 2021 by Alternative Credit Investor

A NEW HOME FOR RATESETTER INVESTORS

>> 5

Assetz sees rise in transfers-in

REGULATION ROUNDTABLE

>> 8

Do retail investors have a future in P2P?

Mintos chief Martins Sulte reveals his plans for 2021 >> 14

ISSUE 54 | MARCH 2021

60pc of IFISA providers closed to retail investors this tax year EXCLUSIVE 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 37 are accepting retail money for the 2020/21 tax year. Of these 37 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, invest-

ing 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 almost 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 >> 4

It has never been more important to keep up to date with the latest peer-to-peer lending news. These are extraordinary times and our team is working hard to keep you informed about how the UK’s P2P sector is responding and what new trends are starting to emerge. If you want to be the first to learn about the latest developments in the world of P2P, please purchase a subscription today. We offer a range of subscription options, starting at just £1.95 a week. Please go to www.p2pfinancenews.co.uk/subscribe to buy a subscription today, so that you can enjoy unlimited digital access to P2PFN, with the option of a monthly print magazine. For more information on subscriptions, including overseas queries, please email tehmeena@p2pfinancenews.co.uk.

EDITOR’S LETTER

Published by Royal Crescent Publishing

Green Park House, 15 Stratton St, Mayfair, London W1J 8LQ info@royalcrescentpublishing.co.uk EDITORIAL Suzie Neuwirth Editor-in-Chief suzie@p2pfinancenews.co.uk Kathryn Gaw Contributing Editor kathryn@p2pfinancenews.co.uk Marc Shoffman Senior Reporter marc@p2pfinancenews.co.uk Michael Lloyd Senior Reporter michael@p2pfinancenews.co.uk PRODUCTION Tim Parker Art Director COMMERCIAL Tehmeena Khan Sales and Marketing Manager tehmeena@p2pfinancenews.co.uk SUBSCRIPTIONS AND DISTRIBUTION tehmeena@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.

his is the 54th issue of Peer2Peer Finance News and I’m particularly happy with it. Our magazine is filled with 100 per cent exclusive content as usual but this month we also have fresh Innovative Finance ISA (IFISA) data and thought-provoking coverage from our latest roundtable event. The stellar P2PFN team has conducted extensive research into the sometimes-opaque world of IFISAs. Our front page story and our IFISA feature on page 10 will give all industry stakeholders an exclusive insight into the tax wrapper which cannot be found elsewhere in the market. The findings aren’t all positive – they show a decline in the number of offerings for retail investors and anecdotal evidence of a drop in the volume of inflows this tax year. However, I believe this is valuable research for the industry and I hope it will galvanize change, as retail investors should be able to access a wide range of peer-to-peer loans with tax-free benefits. Our roundtable event (see page 8) also examined the future of retail investors in P2P – this time, from a regulatory standpoint. Held in association with the UK Crowdfunding Association, this discussion raised lots of interesting points about the Financial Conduct Authority’s relationship with the industry and what stakeholders would like to see differently in the future. As I said in last month’s editor’s letter, the future of retail investors in P2P is a key topic that we will be exploring deeply over the coming months. The industry is undoubtedly changing and it’s important that they don’t get left behind.

SUZIE NEUWIRTH EDITOR-IN-CHIEF We hope you’re enjoying the latest edition of Peer2Peer Finance News! We have now moved to a paid-for subscription model. If you would like to continue reading the magazine, please go to www.p2pfinancenews. co.uk/subscribe/ to find out about subscription options.

NEWS

cont. from page 1 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. 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.

New academic study into Lendy and LCF failures A PROFESSOR who lost money in both the Lendy and London Capital & Finance (LCF) collapses is using her experience to launch a study that will analyse trust in financial services. Renata Kosova, associate professor of economics at Imperial College’s Business School, is seeking other investors who have lost money as part of a research piece analysing the consequences for the wider economy. The research focuses on three major failures: LCF, Lendy and the Woodford Equity Income Fund. "These cases involved a lot of investors in terms of the numbers and money,” Kosova said. "Investors were motivated to invest the

money to get a return and grow the economy. "Previous research has focused on trust in banks after the financial crisis but it has never looked at the victims. "We are focusing on the victims, how it affects investor trust and to what extent is it recoverable as well as whether people would be willing to invest the money again.” The research will also look at whether people

who were not directly impacted by the collapses would invest based on news reports of the events, to contrast direct and indirect experiences. "It has huge consequences for the economy, as if people lose trust then there is less investment and fewer funding sources for businesses,” she added. "We as academics have high reach and can share our results

with the media and pressure government and policymakers with our findings.” Kosova has also admitted she would be more wary about where she invests in the future. "I would now invest only where I specifically know it is directly protected by the Financial Services Compensation Scheme and written clearly on the documents,” she said. "I have learned a lot of lessons." Affected investors or those who would like to respond can complete the Imperial College survey until the end of March. The survey can be accessed at https:// imperial.eu.qualtrics. com/jfe/form/ SV_2nMdo59J6OL6mtE.

NEWS

Assetz Capital reports spike in IFISA transfers from RateSetter investors ASSETZ Capital has seen a huge spike in Innovative Finance ISA (IFISA) transferins from RateSetter investors, having recently announced that it is ready to welcome another £100m into its tax wrapper. The peer-to-peer lending platform told Peer2Peer Finance News that as of 10 February, RateSetter transfer-ins had risen to 46 per cent of total transfers-in, up from 14 per cent of total transfers-in 20 days previously. Last month, the platform said it had seen £9.95m in inflows since the start of the 2020/2021 tax year and had £98.1m in its IFISA accounts in total, as of 15 February.

Stuart Law (pictured), chief executive of Assetz Capital, highlighted that the platform can only currently accept another

£100m in IFISA inflows, so it will be able to process many transfer-ins from RateSetter investors but not all of them.

He said the platform may have to shut its doors to new retail investment and implement a queuing system, to prevent lenders transferring funds that the platform would not be able to deploy immediately. “We’ll definitely be promoting our IFISA and have a big open door for RateSetter investors, we have limited capability but it’s a big number,” he said. “We can’t accept them all overnight, it’s first come first served, a reasonable investment from lenders who can immediately invest their cash but not all of them. “The savvy ones reading Peer2Peer Finance News will get in there first rather than join a queue like Zopa has. At some point we will have to shut the door to new sign-ups.”

…and sees surge in CBILS applications ahead of deadline ASSETZ Capital has seen a surge in applications for loans under the coronavirus business interruption loan scheme (CBILS) ahead of the 31 March deadline. The peer-to-peer lending platform, which in December promised “significant CBILS funding” to support businesses before the scheme ends, told Peer2Peer Finance News

it is processing over half a billion in active loan enquiries. "We've seen a significant surge in CBILS applications ahead of the March deadline as businesses look to take advantage of the government guarantees,” said Stuart Law, chief executive at Assetz Capital. “Active loan enquiries being processed are well

over half a billion. "From our perspective it's been a very successful initiative in getting finance to small- and medium-sized enterprises in need, and we will be eager to play a role in any successor scheme too." Funding Circle is also thought to be seeing plenty of demand for CBILS loans as the deadline approaches. The listed firm has not

disclosed recent data on CBILS. However, a November trading update revealed that it had approved around £1.85bn and originated around £1.35bn of CBILS loans, representing 24 per cent of the overall CBILS market. Like Assetz Capital, Funding Circle has expressed interest in taking part in a CBILS successor scheme.

NEWS

Ethical investment platform sets sights on Q2 launch into P2P ETHICAL investment lending platform Charm Impact hopes to launch into the regulated peerto-peer lending space in the second quarter after being onboarded as an appointed representative (AR) of Rebuildingsociety. The platform, which provides peer-tobusiness loans to clean energy entrepreneurs in developing economies, is going through the process of passing Rebuildingsociety’s due diligence before being submitted, and then waiting approval for, authorisation from the Financial Conduct Authority (FCA).

Charm Impact has been using the £273,520 it raised in a Crowdcube campaign in November to prepare for its launch by spending funds on onboarding as an AR and to pass the FCA’s capital adequacy test. Gavriel Landau, co-founder and chief executive of Charm Impact, said the platform will launch between the middle and end of the second quarter and plans to launch an Innovative Finance ISA (IFISA) later in the year. “Impact investing in the P2P lending space is a big opportunity,” he said.

“Having impact investments in the P2P lending space can demonstrate anyone can make a meaningful impact with their money, seeing where it is going, who it is helping, how much carbon dioxide emissions are being dropped and helping entrepreneurs in developing markets grow business, all at the same time as earning a financial return. “There’s an increasing amount of excitement around impact investment and it’s a very exciting time to be formally launching in a regulated

capacity and to see how becoming regulated will help the company grow from strength to strength. “An IFISA is something we’ll look into later this year. We know it’s definitely an appealing option to offer to P2P investors so we’re looking to see how we can have that set up once we’re regulated.” “We’re excited about working with them,” said Daniel Rajkumar, managing director of Rebuildingsociety. “There’s a new impetus for the industry to collaborate in ways that help to choose better outcomes for customers.”

Platforms call for support for businesses in the Budget THE INDUSTRY has called for Chancellor Rishi Sunak (pictured) to provide additional support for businesses in his March Budget. David Turner, cofounder and chief executive of peer-to-peer lending platform Invest & Fund, said that businesses require continued support and consumers need a clear roadmap for the future to be able to play a key role in the recovery. “Should the lockdown continue, we’d like to see the government to continue to provide assistance to businesses, such as through the

furlough scheme which a lot of businesses are using and has been incredibly helpful,” he said. “We also really want a roadmap of how things are going to look over the next 12 to 18 months. Confidence in the consumer market will be key in the recovery and we need a roadmap to see how that looks going forward and once we have that consumers will have confidence and can unlock their spending power. “I also think an extension of the stamp duty holiday for potentially six weeks

would be good to see.” David Bradley-Ward, chief executive of assetbacked P2P lender Ablrate, has urged Sunak

to increase rates for the Enterprise Investment Scheme (EIS). “I think they can’t do anything too bold, he’s a little constrained on what he can do,” he said. “However, it would be nice if the government increased rates on EIS. “It’d be a fantastic way to get money into the marketplace. It’s a job creation machine and would add so much money to businesses which would be absolutely amazing. “The government could also extend the dates of the loan guarantee schemes, that’d be great.”

NEWS

Platforms hope for better FCA engagement following Gloster review PEER-TO-PEER lending and crowdfunding platforms hope that the Gloster report on the regulatory failings at London Capital & Finance (LCF) will lead to better relations between the alternative lending community and the Financial Conduct Authority (FCA). LCF went into administration in January 2019, with 11,600 investors having invested in bonds worth £237m. In late 2020, Dame Elizabeth Gloster published her report of the independent investigation into the FCA’s regulation of LCF. The report highlighted a number of regulatory

failings which may have contributed to the LCF crisis, including a lack of engagement between the FCA and regulated entities. “The Gloster report has stated very clearly that LCF was a failure of the regulator's systems and controls, and a failure of enforcement of

the existing rules,” said Bruce Davis, director of the UK Crowdfunding Association (UKCFA). “One of the nine recommendations of the report was for regular communication between the regulator and regulated businesses on market issues. “In the past there has

been opportunity for frank and constructive dialogue between the industry and the regulator and we hope that this will continue in the future.” Atuksha Poonwassie, managing director of Simple Crowdfunding, said that the Gloster review “will have a positive impact on supervision of firms such as more interaction, something that we are seeing already.” “This is an opportunity for the regulators and P2P business owners to work together to implement some of the learnings from this report in order to further improve this marketplace,” she added.

P2P lenders raise more than £4.3m from future fund PEER-TO-PEER lending platforms have raised at least £4,346,470 from the government’s future fund, Peer2Peer Finance News can reveal. The future fund was launched last May to support innovative and growing companies amid the pandemic. It closed to new applications on 31 January 2021, with all successful bids set to be funded by 31 March 2021. The government has earmarked more than £1bn to be delivered to 1,055 companies

under the scheme, including six P2P lenders: CapitalRise, Crowd2Fund, Assetz Capital, JustUs, FutureBricks and Propio. Prime property lender CapitalRise was one of the first platforms to take advantage of the fund, launching a Seedrs campaign in May 2020, which raised £1.15m from private investors. This was matched with another £1.15m from the government fund. According to the Crowd2Fund website, its Reboot Britain campaign

has raised £1.47m from private investors, which will be matched by the future fund. Meanwhile, Assetz Capital has raised more than £750,000 via the future fund, after an oversubscribed Seedrs crowdfunding round. And JustUs founder Lee Birkett said that his platform expects to receive £600,000 from the future fund by the beginning of March, to match a £600,000 investor fundraising round. Property lenders

FutureBricks and Propio have raised £237,470 and £139,000 from the future fund, respectively, following their own private funding rounds. The future fund offers convertible loans ranging from £125,000 to £5m from the government, subject to at least equal match funding from private investors. Firms must have previously raised at least £250,000 in equity investment from thirdparty investors in the past five years.

REGULATION ROUNDTABLE

Rules and retail investors

Do retail investors have a future in P2P and crowdfunding? A group of influential industry stakeholders met (virtually) last month to explore the regulatory direction of travel. Kathryn Gaw reports

T IS NO SECRET THAT peer-to-peer lending and crowdfunding platforms have been on the receiving end of some bad press recently. The continuing fallout from Lendy’s failure and the high-profile collapse of mini-bond provider London Capital & Finance (LCF) have impacted the entire alternative lending community and the Financial Conduct Authority (FCA) has been quick to respond. Marketing bans, investment restrictions and a series of consultations have all been introduced over the past two years. As a result, several big players have left the regulated space, while others have adapted their business models to reflect the changing regulatory environment. Peer2Peer Finance News, in partnership with the UK Crowdfunding Association, gathered together a group of industry stakeholders – including platform bosses, legal representatives, lobbyists and government representatives – to discuss the key issues in P2P and crowdfunding regulation, and the future of retail investment. The event, which was held under Chatham House Rules, resulted in a lively 90-minute discussion. Conversation ranged from the risk/ protection balance, to the future of retail investment and the lack of qualitative data in the P2P space. Roundtable participants noted that many retail investors only

ever hear about P2P lending in the context of platform failures, which obviously presents a negative view of the industry. This is not helped by the fact that the FCA frequently lumps P2P lending products in with higher-risk investment options such as cryptocurrencies. This may be a reflection of the FCA’s limited understanding of P2P and crowdfunding, our panellists suggested. Traditionally, the regulator has approached this sector from a retail protection perspective, meaning that P2P is often described in terms of risk, rather than as a balanced, medium-risk product that can aid diversification. However, our panellists all agreed that over the past year or so, the FCA has shown a willingness to learn and they are starting to see more collaboration between the regulator and sector participants. “That is a stark contrast to what we’ve seen before,” said one panellist. “They’re more knowledgeable and more collaborative now.” But this has been a long time coming. In November 2020, Dame Elizabeth Gloster released her report on the LCF collapse, which was highly critical of the FCA’s regulation of the mini-bond provider. As a result of this, the regulator is implementing a number of changes, one of which involves bringing the supervision and policy teams closer together.

“In some respects they are starting to get it right from an investor’s perspective,” said one panellist. “But the regulation can encourage fintechs to go elsewhere. ThinCats and Landbay handed back their licences to go institutional. It is possible that more people will move into the unregulated space.” ThinCats and Landbay are just two examples of platforms that have chosen to stop accepting retail money. There are some concerns that more will follow, thereby eroding the options that are currently available to yield-seeking retail lenders. This begs the question: in trying to protect retail investors from unnecessary risk, is the FCA preventing them from accessing the risk-balanced inflation-beating returns that the sector offers? “The FCA is conflating risk with losing money,” one panellist said. “People will lose money – that’s what investments are about. As long as people understand what they’re getting involved with then surely that will continue.” But investors want a return, and if they can’t get that return from their savings accounts, they will look elsewhere – even it if means that they will be taking on more risk. Some stakeholders at the event suggested that P2P lending could represent a medium-risk option for these investors. However, it is becoming harder and harder for P2P platforms to get

REGULATION ROUNDTABLE

that message across. The regulator will always have the loudest voice in the room, and when it brands P2P as a ‘high risk’ product that needs to be closely monitored, that’s what people will hear. “The rules are all based on interpretation which is the beauty of what regulation is about. But the more you tighten that up, the more platforms will leave,” said one platform owner. “They aren’t necessarily going to change their business models.” The good news is that the regulator appears to be learning and is open to working more closely with industry members. Not too long ago, the FCA didn’t understand the difference between P2P lending and equity crowdfunding, for instance. Through years of collaboration with P2P stakeholders, this understanding has improved. But our panellists pointed out that staff turnover is high at the FCA, and every time a new team is put in place, platform executives feel that they have to start from square one again. This was also one of the key takeaways from the Gloster Report, and the regulator has already committed to taking a more joinedup approach to its operations.

One panellist said that the FCA has begun to start asking the right questions and has shown a willingness to engage with the sector. “P2P should be a regulated sector and regulation should be a balance between protection and innovation,” said another panellist. However, a few blind spots still remain when it comes to P2P regulation. Our panel of experts described the FCA as being overly reactive. Rather than anticipating potential problems and working with platforms to avoid them, the regulator has tended to take a knee-jerk approach to the scandal of the day. After the Lendy debacle, P2P platforms were mandated to effectively screen new investors, by asking them to self-certify and pass a quiz before being allowed to access lending opportunities. In response to the LCF collapse, the regulator issued a temporary ban on the marketing of minibonds, which has now been made permanent. Our panellists noted that over the past year, the FCA has understandably been preoccupied with Covid, pushing regulatory reform and industry awareness further down its list of priorities.

Post-Covid, P2P platforms will have their hands full, dealing with the end of forbearance schemes, the return of small investments and regional recovery plans. So our panellists believe that now is the time for the regulator to show that it has learned from the mistakes of the past and take a pro-active approach to P2P regulation, before the next crisis emerges. Each and every one of the industry stakeholders who attended the closed roundtable agreed that there is a need for more engagement between the regulator and the P2P sector – particularly when it comes to protecting retail investors. While it is not the FCA’s job to promote P2P to the public, the regulator does have a responsibility to act in the best interests of the consumer. P2P and crowdfunding stakeholders know better than anyone that what retail investors really want is to earn a return on their money. Through the sector, people can also tap into socially and environmentally beneficial investments, such as supporting local businesses and funding green projects. Roundtable participants recognised that many retail investors are increasingly tech-savvy and are comfortable managing their portfolio online. While they may benefit from more financial education, they are certainly not stupid. The P2P sector has catered for many of these types of investors for more than 15 years now. Our panellists all agreed that regulation is vital, but they want to see more evidence that the FCA has learned from the past, has a better understanding of P2P and crowdfunding, and sees what they have to offer to retail investors.

IFISA

Are retail investors being squeezed out of the IFISA market? Five years after the launch of the Innovative Finance ISA, the options for retail investors are scarce. Michael Lloyd investigates…

HEN THE Innovative Finance ISA (IFISA) launched in April 2016, it was supposed to represent a way for the average retail investor to access the inflation-beating returns of peer-to-peer lending. But five years later the tax wrapper appears to be slowly squeezing out these lenders. Exclusive research by Peer2Peer Finance News has found that only 37 (41 per cent) of all authorised IFISA providers are open to retail investment during the current tax year (see pie chart page 12). Some of these IFISA offerings are from bond providers which have IFISA accounts available for deposits, but with no loans or bonds expected to be added before 5 April, there will be no way for new investors to make use of their IFISA allowance during this financial year. Overall, the IFISA market is experiencing an underwhelming ISA season with 48 per cent of IFISA providers currently closed to retail investment, while another four platforms have opted to pause their IFISA offerings as a result of the pandemic. The four that are out of action this year include some of the biggest IFISA providers: Zopa, which has closed new IFISA signups due to a lack of new loans; Octopus Choice, which temporarily

closed to new investment last March; and Funding Circle and LendingCrowd, which have both paused retail lending while lending under the coronavirus business interruption loan scheme. Last year, RateSetter was the largest IFISA provider on the market. But this year it is closed to new retail investment, following Metro Bank’s acquisition of the

platform and its P2P portfolio. On top of fewer IFISAs being available, it’s also worrying that more than a third of the 37 available IFISAS (see graph page 11), whose providers disclosed their minimum amount, have a minimum investment of £1,000 or more. Seven require a minimum investment of £1,000, one £2,500,

IFISA

two have a £10,000 minimum and two have minimum investments of between £15,000 to £20,000. This suggests there is a disproportionate number of IFISAs aimed at high-net-worth (HNW) individuals and effectively creating a barrier to entry for retail investors. According to regulatory rules from the Financial Conduct Authority (FCA), retail P2P investors that have not received regulated advice must agree not to place more than 10 per cent of their net investible portfolio into investments in the sector. This means that in order to invest £1,000 in a P2P IFISA, the average investor would need to be working with investible assets of at least £10,000, which rules out many retail investors. The latest ISA data from HMRC found that in the 2017/18 tax year the largest proportion (44 per

cent) of taxpayers saved between £1 and £2,499 into some sort of ISA. Separately, a Finder survey from May 2020 calculated that the average Brit can afford to set aside

“ The general

confidence in P2P products is quite low now just £6,756.81 per year in savings and investments. Retail lenders with less than £1,000 to invest only have 23 IFISAs to choose from. Six require £10 or less, four providers accept £50 or less, 10 require £100, one requires at least £250 and two have a minimum of £500. This shortage of affordable IFISAs could be indicative of a

Available IFISAs by minimum investment £10 or less

£50 or less

£100

£250

£500

£1,000

£2,500

£10,000

£15,000-£20,000

Data not supplied

”

wider trend where IFISAs are no longer viewed as a product for everyday investors but as a HNW tax wrapper. “A lot of the platforms that do have an IFISA have a smaller starting point than us (our minimum investment is £1,000) and thus attract a lot more smaller investors,” says Yann Murciano, chief executive of Blend Network. “We have a lot more HNWs and family offices as investors, and even the retail ones we have are investing in their pension rather than an ISA. So, it’s not something we are considering to launch right now. Maybe in the future.” According to some retailfocused IFISA providers, confidence in the IFISA market is at a low point, and this may go some way towards explaining the dearth of retail-friendly products in the current tax year. “The general confidence in P2P products is quite low now,” says Filip Karadaghi, co-founder and chief executive of LandlordInvest. “If you sell ice cream you probably market yourself in the summer, not the winter because more people eat it then. It’s the same with the ISA product, confidence is slowing, so it’s better to wait until it picks up. “Confidence would pick up this tax year but it will not return to the levels seen prior to Covid-19 until next year.” However, it is easy to understand this lack of confidence from a retail perspective. One of the key difficulties that Peer2Peer Finance News experienced while conducting this research was the lack of easily-available information. Some IFISA providers were unclear on their website whether or not their IFISA was

IFISA

“ Confidence would

pick up this tax year but it will not return to the levels seen prior to Covid-19 until next year

”

still open to investment. Over the phone, a number of company representatives were unsure of the existence of their platform’s IFISA, and did not know the minimum investment amount. If everyday investors find it difficult to find information on a provider’s IFISA they could easily be deterred. HMRC is also unclear. The government department, which issues ISA permissions to firms that have received authorisation from the FCA, has a list of

authorised ISA managers on its website. The list, which was last updated on 22 January 2021, still contains collapsed P2P lending platforms Lendy and FundingSecure, which could concern any potential investors searching through it for suitable opportunities. “HMRC undertakes periodic reviews of the ISA manager list and if a manager is no longer approved

The number one IFISA provider for the 2020/21 tax year is Assetz Capital, with £9.95m in new inflows between April 2020 and February 2021. As at 15 February 2020, Assetz held a total of £98.1m in its IFISA accounts. to offer ISAs it will be removed from the list,” says a spokesperson from HMRC. “However, inclusion in the list is not an HMRC endorsement and potential investors may wish

IFISA overview (of 91 managers)

IFISAs unavailable for the foreseeable future 44

Expected to be available for the 2021/22 tax year 6

to take independent advice if they’re in any doubt about the suitability of the ISA manager or of a particular ISA.” However, while this is shaping up to be a disappointing season for the IFISA market, it’s not all doom and gloom. Most platforms believe that IFISA inflows will pick up after the pandemic and Peer2Peer Finance News is aware of a handful that

Temporarily paused to new investment 4

Available to new investment for the 2020/21 tax year 37

have delayed their IFISA launch solely because of Covid-19. In the meantime, some are improving their IFISA offering to stand out more and attract new lenders. JustUs plans to introduce IFISAeligible owner-occupied residential mortgages at the end of the second quarter, while its sister company Moneybrain is launching an autoinvest simplified IFISA. Simple Crowdfunding is looking to extend its product range for IFISAs, and Rebuildingsociety is looking to collaborate with firms for referrals to the platform’s IFISA. When the pandemic is behind us and the economy recovers, there will be plenty of retail money in search of a tax-friendly home. The IFISA managers which have remained open will be able to boast of their consistent track record, while the others can take note of the latest investor trends, and come back next year with a stronger, wider range of retailfriendly products.

IFISA

ALL IFISA PROVIDERS WITH HMRC AUTHORISATION, AS AT 15 FEBRUARY 2021 Highlighted names represent the IFISA providers which are offering IFISA-ready products for the 2020/21 tax year. Abundance Investment

Fund Ourselves

Access Commercial Finance

Funding Circle

ArchOver

FundingSecure

Assetz Capital

Gallium PE Depositary

Aviation and Tech Capital, trading as Ablrate

Go 2 Business Loans

Bayonet Ventures Blackfinch Investments Bramdean Asset Management Brickvest IM, trading as BV Markets British Pearl Business Loan Network, trading as ThinCats Cadogan Asset Management Copia Wealth Management Crowd for Angels (UK) CrowdProperty Crowd2Fund Crowdcube Crowdinvesting B.V. Crowdstacker Denmark Square, trading as Money&Co

Greyfriars Asset Management

Peer Funding

Growth Capital Ventures

Platform One

Haich and Associates (UK)

Price Value Partners

Hamilton Rose Wealth Management

Proplend

Hartleys Pensions Hilbert Investment Solutions HNW Lending I F Mackinnon & Company

Formax Credit (UK)

Resolution Compliance

Reyker Securities

KapSecure Asset Management

Rockpool Investments

Kuflink Landbay

Sapia Partners, trading as Revolut

LandlordInvest

Share Credit

Lending Works

ShareIn

Lendwise

Signia Money, trading as Leap Lending

London and Eastern Property

Folk2Folk

Relendex

Invest and Fund

Edinburgh Alternative, trading as LendingCrowd

Focus 2020, trading as Simple Crowdfunding

Rebuildingsociety

Retail Money Market, trading as Ratesetter

Loanpad

Fitzrovia Finance

Prosper Capital

iDealing.Com

Edaid

Emoneyhub, trading as JustUs

Octopus Co-Lend Open Access Finance, trading as Unbolted

Lendy

E-Money Capital, trading as EasyMoney

Northern Provident Investments

Goji Financial Services

Downing

Elfin Market

Northern Provident Corporate Finance

London House Exchange, trading as Property Partner

The House Crowd The Nostrum Group Tifosy Transcendent Real Estate

Madiston

Triodos Bank

Marshall Sterling Investment

Triple Point Investment Management

Match the Cash, trading as Guarantor MyLoan Monzo Bank More Lending Solutions NKK Finance, trading as Flender

UK Bond Network WiseAlpha Technologies, trading as Wise Alpha WM Thomson and Sons Zopa

PROFILE

A wider vision

Mintos chief executive Martins Sulte explains to Marc Shoffman how the European lending marketplace plans to build on its success in 2021 and beyond

INTOS HAS pioneered a new peer-topeer lending format in Europe by matching investors on the continent with loan originators from around the world. The Latvia-based lending marketplace celebrated a landmark year in 2020. It reached €6bn (£5.27bn) in funded loans and raised a record €7.2m in a crowdfunding fundraise on Crowdcube. It was also a transformative year as Mintos applied for an investment licence in Latvia that will let it expand its operations and product range. New investor protections were introduced such as an appropriateness test to ensure the risks of the product are understood. Mintos also boosted transparency on the platform by introducing a new risk score based on an originator’s loanbook quality and performance, how well it recoups bad debts, how it operates buybacks and its co-operation with Mintos. This aims to help with investor due diligence. That would be an exhausting 12 months for any company but Mintos chief executive Martins Sulte, is not sitting back just yet. Marc Shoffman: What is the key to the success of Mintos' growth? Martins Sulte: It all comes down to the product. We are offering

PROFILE

unparalleled opportunities to invest in loans – you can find a lot of different loans across different countries on one marketplace. On the other side, you have the lending companies providing a good funding source for borrowers. We then bring these two sides together in an easy-to-use product, which is the key for success. Marc Shoffman: How do you choose your originators? Martins Sulte: We have a sales partnership team that screens the loan originators at a high level to understand the product offering and market position. If that is satisfactory, there is enhanced due diligence on the loan portfolio performance, the management, the servicing. This is all considered before we decide if we are comfortable to connect. Marc Shoffman: How have investors reacted to the new platform features? Martins Sulte: Investors now get additional insight they didn’t get before. The risk score isn’t something investors would flood to praise as we had it already, it’s just an evaluation of what we had before. Marc Shoffman: Why is it important for you to be regulated? Martins Sulte: When you are dealing with finance you have to be regulated to get into the mainstream and provide services to more investors across more countries. For some investors, the first question is whether you are regulated and this will influence if they decide to invest. We are expecting to get our investment licence between the first and second quarter. Investors now have to complete

MINTOS IN NUMBERS Launched in 2015 €6bn of funded loans 12.8 per cent average return 380,208 registered investors 193 loan parts funded per investor €2,440 average investment €134,980,241 interest earned by investors

a suitability assessment as part of our plans to be regulated. There has been good feedback on it so far. It is the first experience of investing for many of them. Marc Shoffman: Will regulation create better outcomes for investors? Martins Sulte: The reason regulation exists is to protect both parties. When it comes to retail it is more to protect the interests of investors and to have safeguards in place. Regulation will help weed out obvious cases of fraud but it is not possible to weed out all cases even in a fully regulated set-up. It is never going to be. Marc Shoffman: How have you navigated the pandemic? Martins Sulte: The first wave in March 2020 was a challenging time. It came as a shock and affected investor confidence. The impact of the second wave was less so. People are getting used to the situation. We are seeing investors returning and the start of the year has been strong for us. The number of loans in recovery has increased, that’s part of investing and something which I guess investors also had to learn. The double-digit returns do come

with a risk and that affects the loan performance. Marc Shoffman: What is your focus for 2021? Martins Sulte: 2021 will be an exciting year, we have great expectations. We are looking to scale up both sides of the marketplace. It will be a year of branching out. We want to bring on lower risk loans, more investment products and a debit card. The investment products would include traditional exchange traded funds. We are forming a team to provide this, subject to getting the investment firm licence. There is, of course, competition that we keep an eye on but so far we haven’t seen anyone do anything different. Most platforms are setting up and are trying to replicate what we do but they are super small. Marc Shoffman: How did it feel to exceed your crowdfunding target with a record fundraise? Martins Sulte: The best bit was that we were able to get thousands of new investors on board. This gives them the opportunity to be part of Mintos and share in our wider vision. Obviously, the funding itself is also helpful. It gives us more confidence to invest in our growth and customer acquisition. Marc Shoffman: Can you see Mintos opening up to UK investors? Martins Sulte: It is definitely in our mind to open up for UK investors but not this year. We will see how Brexit pans out. Mintos is unlikely to fund loans in the UK though. Most investors are euro denominated so there would be limited interest in funding British pound loans.

PROPERTY

The phoenix rises

The property market may be facing challenges, but peer-to-peer property lenders are seizing on opportunities. Michael Lloyd reports

N ANCIENT GREEK folklore, the phoenix signifies new life when it rises from the ashes of what came before. Peer-to-peer property lending platforms evoke this mythical phoenix. While the UK’s property market has flamed out over the past year, P2P property lenders have swooped in to show the old guard what can be done with a little innovation and an eye for opportunity.

While property sales have flagged and prices have remained stagnant, P2P property lending has been buoyant. Buyers have been determined to make the most of the stamp duty holiday before it ends, however when it does, there will likely be another slowdown in the housing market, even if it is only in the short-term. In the meantime, there are a vast number of existing opportunities for P2P property platforms to show

what they are made of. Unlike traditional banking institutions, they can adapt to the ongoing effects of the Covid-19 crisis. This is particularly evident when it comes to distressed properties. A potential borrower can find an undervalued property at auction and use a P2P platform to buy it. While there are always opportunities for investing in distressed assets – even in good economic times – these increase

PROPERTY

during every downturn. “There’s the opportunity in P2P for investing in distressed assets, properties that are undervalued,” says Terry Pritchard, director of Charter HCP, a commercial loan brokerage which plans on launching into the P2P space. “The market will be horrible so be prepared for it, but it will come back, and investors can make money and do well out of it. “Platforms need to adapt, you can lend through any crisis, you just need to adapt your lending policies. The difference this time from the last crisis is there’s liquidity in the market, we’re not short of money to lend, it’s just finding the opportunity to lend.” Mike Bristow, chief executive of P2P property development lender CrowdProperty, says that his platform will assess these distressed assets like any other project and will support them if they match the platform’s criteria. “We’re not as a business out there hunting for distressed assets,” he says. “Our borrowers may be out there looking for distressed and non-distressed assets. “If it’s a good economic project, a site at a good price that makes the economics work, whether distressed or not, we will back it.” Similarly, there are opportunities

to continue trading, and blamed challenging high street conditions including high rents and the shift to online shopping. Several P2P platforms have already spotted an opportunity to fund the conversion of high street

suburbs possibly, but demand is somewhat restricted in city centres where you have lots of competition.” Neil Faulkner, managing director of P2P analysis firm 4th Way, warns that caution is needed. Even though there are opportunities here

“ You can lend through any crisis, you just need to adapt your lending policies”

shops into residential homes, especially given the recent easing of planning rules. From September 2020, new legislation on permitted developments removed the requirement for planning permission when demolishing unused commercial properties to build residential homes in their place. “There are platforms that specialise in funding conversions to residential,” says Filip Karadaghi, co-founder and chief executive of P2P bridging and buy-to-let lender LandlordInvest. “I think they will get more enquiries as a result of this.” However, Stuart Law, chief executive of P2P lending platform Assetz Capital, is mindful of inner city density and says that financing commercial to residential conversions in the suburbs of city

“ There is still finance available, but lenders have changed their criteria”

for platforms on the high street, where a number of shops have closed permanently due to Covid-19 and its subsequent lockdowns. For example, Mothercare entered into administration after failing to find a buyer that would allow it

centres would be more attractive. “The high street equals density and with people and the virus it won’t be the most buoyant deal converting a town centre into residential homes,” he says. “I can see in the high streets’

for P2P property platforms, many firms have failed to revive collapsed brands. “In-person shopping is far from dead,” he says. “P2P property platforms that carefully scrutinise the area, footfall and prospects, and set sensible loan-to-values (LTVs), can safely offer such loans to investors.” He goes on to say that P2P platforms can service the highquality property borrowers that are being seriously underserved due to the pandemic and Brexit concerns. At the same time, banks are becoming more cautious about conducting property lending and will likely withdraw from servicing small- and mediumsized enterprises (SMEs) once government-backed lending schemes come to an end. This all provides an opportunity for P2P property lenders to serve these borrowers. Atuksha Poonwassie, managing director of P2P and equity crowdfunding platform Simple Crowdfunding, says that the Covid-19 crisis has prompted some platforms to partner with banks to provide mezzanine finance to property borrowers. This fills a gap in the market where borrowers are being left short of the funds they require

PROPERTY

after traditional lenders have tightened their criteria. “There are lots of good things that have come out of Covid, so it’s just a case of tapping into that opportunity,” she says. “There is still finance available, but lenders have changed their criteria, so borrowers are looking elsewhere to P2P and crowdfunding for additional layers of finance.” But the prospect of a property slump after the stamp duty holiday ends has put platforms on high alert, ready to pounce when the next deal appears. Several P2P property lenders have expressed to Peer2Peer Finance News that they can adapt to any predicted slowdown as there is such a strong need for property funding away from the banks. The ongoing housing shortage means that more homebuilding needs to be financed and thus there is a place for SME developers, a group that have historically found it difficult to raise funds from mainstream lenders.

“ P2P property

lending will continue to demonstrate excellent risk-adjusted returns for quite some time

”

It also goes without saying that people still want to own their own home and the need to buy and move at different life stages will remain. In addition, given the record low base rate, now is the perfect time for these platforms to be lending. “Overall, P2P property lending will

continue to demonstrate excellent risk-adjusted returns for quite some time,” says Neil Faulkner. “The sector will continue to grow and take over market share. Potentially, at some point, the return investors receive will come down to better reflect the typically lower risks in this sector, but investors will have many years before their returns slip from being extraordinary to merely satisfactory.” There is also an opportunity for P2P property platforms to tap into one of the biggest investment trends du jour – environmental, social and governance (ESG). A number of platforms have already been supporting environmentally friendly and sustainable housebuilding and cite this as an area of growth. For years, Assetz Capital has supported good quality offsite manufacturing of homes and CrowdProperty has backed sustainable modern methods of construction, and now Relendex is joining the party. Last year, the platform partnered

with developers who were cognisant of the issues around climate change and going forward it will work with independent trustees with proven environmental credentials to find a way to incentivise its developers to adopt best practices. “In the short-term, suitable developments will be highlighted on our platform,” says Paul Sonabend, executive chair of Relendex. “We hope that our lenders will accept a lower rate of return on these loans in the knowledge that our borrowers meet the highest ESG standards which adds to their costs, and therefore merit preferential finance rates.” Despite the wider macroeconomic challenges impacting all businesses and industries, it seems certain that P2P property platforms will take every possible chance to innovate and grow. This sector is set on stoking the flames of the beleaguered property market, spotting new possibilities, and producing inflation-beating yields for investors.