Peer2Peer Finance News March 2022 by Alternative Credit Investor

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WELLESLEY CVA PROCESS NEARS END

Final dividend payment made

OVERARCHING PRINCIPLES

IFISA special report Supported by

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ArchOver’s Charlotte March on longevity and retail

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ISSUE 66 | MARCH 2022

Viva la IFISA! Returns outperform FTSE over four years

NNOVATIVE Finance ISAs (IFISAs) have outperformed the UK stock market over the four years from 2018 to 2021, exclusive Peer2Peer Finance News research has shown. The tax wrapper around peer-to-peer investments has not only outperformed the FTSE All-Share Index but has also demonstrated far more stable returns in recent years, of approximately eight to nine per cent per annum. Peer2Peer Finance News analysis found that IFISAs returned an average of 7.8 per cent across the calendar year 2021, compared to nine per cent in both 2020 and 2019, and 8.73 per cent in 2018, demonstrating the stability of the asset class over a medium-term investment horizon. By contrast, the FTSE All-Share returned 18.3 per cent in 2021, -9.8 per cent in 2020, 19.2 per cent in 2019 and -9.5 per cent in 2018. This means that £20,000 invested in a FTSE AllShare tracker fund in January 2018 would have been worth £23,022.16 by

£20,000 INVESTED IN AN IFISA VS FTSE ALL-SHARE (JANUARY 2018 TO FEBRUARY 2022) £30,000 £25,000 £20,000 £15,000 £10,000 £5,000 0

n IFISA

n FTSE All-Share

(Source: Peer2Peer Finance News)

(Source: FTSE Russell)

February 2022. If that same £20,000 had been invested in an IFISA it would have been worth £27,851.66 by February of this year. "The performance of the IFISA is perhaps the best kept secret in financial services,” said Bruce Davis, director of industry trade body the UK Crowdfunding Association. “For investors who have an appetite for risk, and are making investments for longer term financial needs, the wide range of products now available in both the P2P and crowdfunding sectors means that it is possible to make investments which are uncorrelated with mainstream public markets. “We need to make sure

there is a more balanced and accurate set of messages out there in the market about the potential rewards and risk of our sector so that ordinary investors don't lose out on an investment option that has shown it can perform well over the long term – even through a crisis such as the pandemic.” The attractiveness of IFISA returns has been further highlighted by the low yields seen on cash ISAs. The best rate on a three-year fixed cash ISA is currently 1.46 per cent, according to Moneyfacts, as of 17 February. UK inflation hit 5.5 per cent in January, meaning that money held in cash ISAs is eroding in value in real terms.

Furthermore, the vast majority of IFISA providers have been able to maintain a track record of zero losses to investors, while continuing to offer inflation-beating returns despite an unprecedented period of economic instability. However, it should be noted that historic data is not a guarantee of future performance, as investments are never risk-free. There is a variety of options on the market for investors considering putting money into an IFISA this tax year. As of February 2022, there were 39 IFISA accounts open to retail investors. By the end of February 2022, these 39 IFISAs were >> 4

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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.

t continues to frustrate me that peer-to-peer lending – and by proxy, Innovative Finance ISAs (IFISAs) – get a bad rep in the mainstream press. As I have written before, the industry has shrugged off the inarguably poor conduct of a couple of bad actors and has consolidated into a leaner, more mature, more responsible and resilient sector. Our exclusive IFISA research, shared with you in this edition of the magazine, shows how consistent returns have been from the P2P tax wrapper over the past four years and how well they have performed in comparison to the stock market. Aside from running Peer2Peer Finance News, I am currently writing a series of articles on ISAs for London business newspaper City AM. The key thing that has stood out to me is how important it is to invest your money, if you have some to spare. Soaring inflation means that money in a cash ISA is no longer ‘safe’ in real terms. And as our research shows, there is an overwhelmingly strong case to make an IFISA part of your diversified portfolio.

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 ANNUALISED RETURNS SINCE 2018 20 15 10

% return

targeting average returns of 7.75 per cent for the 2021/22 financial year. When taking into consideration the minimum and maximum returns on offer on some platforms, Peer2Peer Finance News calculated that the minimum average return being targeted by IFISAs is 6.38 per cent – still comfortably beating the current rate of inflation of 5.5 per cent. Meanwhile the maximum average target is 8.7 per cent. Some platforms have been advertising target returns of up to 16 per cent, depending on the amount of money invested and the type of investment shown. “We have seen huge stability in rates earned but that isn’t a particular surprise to us,” says Stuart Law, chief executive of the Assetz Group. “We have in the past expressed the IFISA with its lending assets from our type of platform as having the potential to offer higher rates than bank savings and lower volatility of returns than the stock market, effectively a third type of asset class. That theory now seems well proven.” Narinder Khattoare, chief executive of Kuflink, predicted that 2021/22 would be one of the biggest ISA seasons to date, thanks

5 0 -5 -10

2018

IFISA

2019 2020 FTSE All Share

Cash ISA

2021

(Sources: Peer2Peer Finance News, FTSE Russell, Moneyfacts)

to growing familiarity with the product, and the long track record of inflationbeating returns. “I can see this ISA season being one of the biggest so far,” says Khattoare. “A lot more people know about the IFISA and with bank rates going up and inflation rising it is inevitable people need to look wider afield to get a better return on their hard earnt money. “I think new investors will enter the P2P IFISA market due to the attractive returns some of their friends and family have seen over the past 18 months. I'm surprised at the overall average return but think that will be slightly lower over time.” The most recent figures released by HMRC reported that £438m was invested into IFISAs during the 2019/20 tax year. This

brought the cumulative amount put into IFISAs to £1.07bn by April 2020. However, since then the IFISA market has experienced unprecedented upheaval. In the wake of the Covid-19 pandemic many platforms opted to pause their retail investment offerings. Several major IFISA providers such as Funding Circle and LendingCrowd have yet to reopen to retail lenders. Several other IFISA providers have exited the market altogether. Zopa announced its P2P exit in December 2021, and Lending Works confirmed its exit soon after. Meanwhile 2021 saw the collapse of former IFISA providers such as The House Crowd. As a result, there is less choice in the IFISA market for the 2021/22 financial year. Among the

39 IFISA providers which are open to investment this year, 14 have a minimum investment threshold of £1,000 or more, placing them out of reach of the average retail investor. This has sparked calls for more independent financial advisers (IFAs) to consider IFISAs for their high-networth and sophisticated investor clients. “IFAs have a duty to consider the asset class but for some unknown reason they don’t do the research, neither do online stocks and shares ISA platforms which is a poor reflection on the IFA community and direct online investment platforms,” says Lee Birkett, chief executive and cofounder of JustUs. “The IFISA P2P secured lending asset class, when distributed via credible platforms and advised accordingly, is hard to match.”

NEWS

Simple Crowdfunding resumes P2P lending SIMPLE Crowdfunding has resumed peer-to-peer lending, with changes to its business model and a live project for housebuilder Acorn Property Group on its website. In November 2020, the property investment platform paused its P2P lending activities to focus on equity crowdfunding and credit broking, while conducting an extensive business review. Atuksha Poonwassie (pictured), managing director of Simple Crowdfunding, said the project with Acorn Property Group is for an initial raise of just over £2m to fund the development of 45 houses. She said she expects at

least half of that amount to be funded within three weeks and for the fundraise to close by the end of March, if not sooner. Simple Crowdfunding has changed its business model slightly following the review, updating its bridging product and streamlining its onboarding process for international investors. Poonwassie said the platform will launch new products soon and will consider taking second charges on assets rather than just the first charge. It will also consider lending at loan-to-values of up to 85 per cent, a rise from its traditional 70 per cent. She said Simple

Crowdfunding had “engaging and responsive” conversations with the City watchdog when discussing the changes. The platform has “quite a few” loans in the pipeline, Poonwassie said, with two set to launch soon. It is also planning to expand into commercial lending and is currently reviewing three opportunities in that space.

“It’s really wonderful to be back,” Poonwassie said. “We’ve switched back on and changed our business model. We have more products coming and we didn’t make any rate changes. We had a bridging product we didn’t really utilise and just tidied it up in terms of what we’re doing. “We’ve just started taking investments into P2P loans. We haven’t seen much movement in terms of investors leaving, we’ve seen people asking when we will be providing more P2P loans, which is good. “We have some very ambitious goals in terms of the business and we think they are very achievable.”

Rebuildingsociety eyes more council partnerships REBUILDINGSOCIETY is planning to partner with more local councils this year, after securing a funding agreement with Basildon Borough Council last month. The Essex-based council is providing the peer-topeer lending platform with up to £10,000 for each suitable loan that supports small- and medium-sized businesses in the region that meet its green agenda, while earning over five per cent in interest.

“We will do some advertising for business in Basildon and we’re hoping to find the first couple of businesses in the first quarter of this year and to do the first loan in March,” said Daniel Rajkumar, managing director of Rebuildingsociety. “I think it does show councils recognise the efficiency that P2P lending platforms can bring in delivering financial support. They don’t need to worry about the cost of setting up a

fund and doing credit risk and overseeing the management that they can entrust on a lean platform.” Rajkumar revealed that his platform will pitch to additional councils this year. As well as its recent partnership with Basildon Borough Council, the platform has worked with Leeds City Council for years. Rebuildingsociety is going to create a dedicated page on its website to promote its work with

local councils and include it in the procurement documents it uses to bid for more council partnerships. It will also provide statistics on the platform’s performance. “We will present quite a bit of information to give informed decisions about partnering up with us, our aim is to meet with a number of different procurement managers from councils in the year to try and get more people on board,” said Rajkumar.

NEWS

Honeycomb exit leaves just one alternative lending trust HONEYCOMB Investment Trust is set to become a commercial company, raising questions about the future of the dwindling alternative lending-focused investment trust sector. Last month, it emerged that London-listed Honeycomb will buy Pollen Street in an allshare deal that values the investment manager at £285m. The new entity will move from being an investment trust to a commercial company. However, it will continue to invest in direct

lending opportunities, said Honeycomb’s announcement on the London Stock Exchange. The departure of Honeycomb means that Victory Park Capital Specialty Lending (VSL) will be the only alternative lending-focused investment trust left on the market. Just a few years ago, investors were spoiled for choice with a range of listed investment trusts focusing on peer-to-peer lending and other alternative investments. The first P2P-linked

investment trust – P2P Global Investments (P2PGI) – was launched in 2014. It went on to rebrand as Pollen Street Secured Lending (PSSL), before being bought out by Waterfall Asset Management and wound down. Funding Circle – one of the largest P2P platforms – had its own dedicated investment trust, called the Funding Circle SME Income Fund. However, it announced plans to wind the trust down in 2019, having been hit by hedging costs and the impact of new IFRS

Nester prepares for public launch THE FIRST directly authorised Shariahcompliant peer-to-peer lending platform Nester is preparing for a ‘hard’ launch at the end of this quarter, alongside an investor app. The Islamic finance firm provides buy-to-let, refurbishment and bridge financing for corporates and offers investors returns of up to nine per cent, secured on UK property. The platform received direct approval from the Financial Conduct Authority (FCA) in February last year and did its first deal as part of a soft launch to in April.

It then tested its systems and processes before embarking upon a soft launch to investors in December on a restricted basis with a referral code system. Founder and chief executive Youness Abidou said he hopes to launch the platform to the public alongside the introduction

of an investor app, that will allow lenders to do the same things as using a desktop version, such as investing and viewing their balance, by April. The Nester team has already closed nearly £4m in finance across six transactions, with another £9m in the pipeline to close over the

accountancy reporting requirements. And Ranger Direct Lending announced its plans to wind down in 2018, following poor performance and an ongoing dispute with its Princeton holding, which subsequently went bankrupt. However, it should be noted that VSL is still going strong after reporting returns of 15.21 per cent for the first half of 2021, thanks to new investments, risk mitigation, and the resilience of its existing investment portfolio. next six weeks. Abidou said these deals have been pre-funded by third-party investors and take-up has been “very good” so far. “We wanted to come to market slowly and introduce the product in a controlled way so we can see people investing and earning a return, ensuring returns are being paid and ironing out any glitches before coming out towards the end of March, April with the hard launch to open the doors to everyone,” said Abidou. “We’re showing there are innovations in the marketplace and we’re looking to be that innovative change of the Islamic finance sector.”

NEWS

How to do your due diligence on a P2P platform PEER-TO-PEER lending platforms have been reporting record inflows in recent months, which is no surprise. Inflation is eroding away the value of cash savings, while stock market volatility has wreaked havoc on stocks and shares portfolios over the past few years. Meanwhile, P2P platforms have a long track record of offering inflation-beating returns with minimal volatility. But that does not mean that P2P lending is risk free. Would-be investors must do their own due diligence before making a new investment in a P2P platform, to minimise the risk of losing money through a bad investment. The company website Due diligence begins with a look at the company’s

store front – their website. Most P2P platforms will include key information such as when the company was founded, whether or not it is regulated by the Financial Conduct Authority (FCA), what sort of investment opportunities are being offered, and who the management team are. If the platform specialises in a particular sector – for instance, property development loans – it is important to check for relevant experience among

the company’s senior executives. Many platforms will also include a ‘statistics’ or ‘outcomes report’ page which will detail the past performance of different loans, along with actual annualised returns and historical default rates. While past performance is no indication of future success, investors can get a good sense of the platform’s track record by checking these figures. External reviews User reviews can be a valuable resource for newer P2P investors, as they offer some insight into the platform’s customer service. TrustPilot reviews can be parsed for comments on company performance and responsivity, while more detailed information

Wellesley CVA process nears end PROPERTY lender Wellesley is nearing the end of its company voluntary arrangement (CVA) process, while the final instalment of its loanbook sale payments has been scheduled. The company announced in September 2020 that it was restructuring due to liquidity issues amid the pandemic and a challenging regulatory environment.

Earlier this year, Wellesley’s investors complained that the December 2021 dividend had not been paid as planned. However, Andrew Turnbull, director and co-founder of Wellesley Finance, told Peer2Peer Finance News that all dividend payments had been scheduled. “We are pleased to have completed all CVA payments and we

completed the preference share issuance before Christmas, therefore expect the CVA process to be formally confirmed as being completed in the near term,” Turnbull said. “Separate from the CVA, we have made the majority of our loanbook sale payments with the final instalment expected at the end of February.” Wellesley launched

on individual loans tends to be discussed in online forums such as the P2P Independent Forum. Meanwhile third-party analysis and ratings from the likes of 4thWay and Defaqto can offer a deeper dive into platform performance. Official records Finally, the FCA’s financial services register and Companies House records can help show investors if there are any issues with the company or its directors. The FCA keeps a record of any investigations and regulatory queries lodged against the company. Meanwhile Companies House filings will show the past financial performance of the company, which may shine a light on the platform’s longevity. as a peer-to-peer lender in 2013 and later moved into minibonds. However, in 2019 the City regulator introduced a ban on the mass marketing of speculative mini-bonds. This led to Wellesley’s decision to restructure its business via a CVA. Turnbull confirmed that following the CVA, Wellesley will focus on unregulated syndicated property lending with institutional funding.

So many reasons to feel good Invest in property that provides homes to some of the most vulnerable groups in society and build a diversified portfolio on our investment platform. • • • • •

Long term, stable, monthly income Capital return Inflation linked IFISA Yields typically over 5%

assetzexchange.co.uk info@assetzexchange.co.uk

This is an investment in peer-to-peer loans and is not a direct property investment or a savings account. Your investment is not protected by the Financial Services Compensation Scheme (FSCS). Your capital is at risk. Past returns should not be used as a guide to future performance. Assetz Exchange Limited is authorised and regulated by the Financial Conduct Authority under firm registration number 668931. Registered in England (Co. No. 09285310) with registered office at Assetz Exchange Limited, Assetz House, Manchester Green, 335 Styal Road, Manchester, M22 5LW.

JOINT VENTURE

Assetz investors make a ‘double’ return

NVESTORS IN ASSETZ Capital and Assetz Exchange can make a “double return”, by earning attractive rates of interest while also doing social good. Stuart Law (pictured), chief executive of the Assetz group of companies, which includes Assetz Capital and its sister company Assetz Exchange, believes that peer-to-peer investing is one of the easiest ways for investors to make an impact – and has been for quite some time. Since it was founded in 1999, Assetz Group as a whole has funded around £2.5bn of new housing. In 2018, the platform added supported living homes and eco housing to its focus and it has since set a target of ensuring that 95 per cent of all new homes funded this year will have an EPC rating of B or higher. This represents a significant environmental benefit for investors. Meanwhile, through Assetz Exchange, investors can back supported housing for many client groups including adults with learning difficulties, or charityowned accommodation for former prisoners, allowing lenders to do social good while also earning competitive returns. “Our investors are effectively getting a double return from their capital,” says Law. “And I suppose that's another way of describing impact investing. It's a way of producing perfectly sensible returns, so you're not necessarily turning away a normal level of financial return. “You're just choosing to put the money into something that has additional benefits, additional impact, and an additional return, in this case for society.”

Assetz has recently released its first impact report which outlines some of the positive social and environmental good that the company has been doing since it was founded in 1999 at assetz.com. The report shows how Assetz has been leading a grassroots impact investing culture even before impact investing was a concern for investors. “We've always brought lots more homes to market, funded care homes within Assetz Capital, but we've escalated all of that over recent years,” Law says. “And Assetz Exchange has significantly focused on the supported living sector.” The investment strategy of Assetz Exchange is to generate “specific benefits to society in addition to financial gains,” Law explains. Currently, investors in Assetz Exchange are receiving returns of more than five per cent, but Law believes that many of their investors are also very interested in the “ethical” return. “Assetz Exchange funds properties that look after several sub-sectors of care,” Law explains. “And Assetz Capital is funding an increasing number of eco homes as well

as traditional housing. We’re beginning to move the dial on the environmental impact of new homes. “We deliver great investment returns, and we do all this amazing stuff as well so our investors can get two returns for the same pound.” Since 2013, Assetz Capital investors have earned more than £173m in gross interest and delivered £1.5bn of new housing but it is only just getting started. In the future, Assetz intends to grow its focus on the wider care sector, with the aim of becoming one of the biggest funders of care in the country for both development and long-term mortgages. This means that investors will be able to continue to receive double returns as long as they remain invested in the platform. “More than 90 per cent of all investments on the platform from day one have been impact investments,” says Law. “We've even turned some existing properties into impact investments.” By offering competitive returns which come with tangible social and environmental benefits, Assetz investors can be at the forefront of a new impactful movement.

IFISA

The golden ticket

IFISAs represent a golden opportunity for retail investors to earn inflation-busting returns. But is the tax wrapper moving away from its retail roots? Michael Lloyd investigates…

SA SEASON IS COMING, and investors are looking at their options. Used wisely, ISA investments have the power to combat the effects of rising inflation. In fact, even the notoriously conservative City regulator has been encouraging savers to invest their money to avoid losing value in real terms. Cash ISAs are producing nearrecord low returns with the average return during the 2020/2021 tax year coming in at 0.63 per cent, according to Moneyfacts. Meanwhile, inflation is at 5.5 per cent and rising, which means that £1,000 placed into a cash ISA paying 0.63 per cent would have a spending power of just £950.95 within a year. Stocks and shares ISAs are known for their volatility, with returns dependent on a strong economy. After two years of a global pandemic, disrupted supply chains, and multiple lockdowns, stock market returns have been even more unpredictable than usual. So, usher in the Innovative Finance ISA (IFISA), an alternative investment option that has provided inflation-beating returns since its

2016 launch and is not showing signs of slowing down. Exclusive research by Peer2Peer Finance News has found that IFISAs returned more than nine per cent per annum in both 2019 and 2020. In 2018 the average return was 8.73 per cent. While it is too soon to calculate average returns for the current tax year, our research showed that target returns have stayed largely on track. Across every IFISA which is open to investors for the 2021/22 financial year, we found that the average target return ranges from a minimum of 6.38 per cent to a maximum average of 8.7 per cent. These figures demonstrate the remarkable resilience and consistency of the peer-to-peer lending sector, particularly when P2P investments are held inside an

IFISA wrapper. “P2P lending has provided much more reliable net returns than the stock market after investing costs every single year, whereas the stock market has lost investors’ money after costs in one out of every three years,” says Neil Faulkner, managing director of P2P ratings and research firm 4thWay. Against this backdrop of stagnating cash ISA returns and stocks and shares volatility, it is not

“ The uptake of lower ticket investments is

diminishing. The days of someone just putting £100 a month away on a P2P platform are probably gone

”

IFISA

surprising that IFISA providers are reporting a rise in inflows in the current tax year as investors flock towards those investment options that have continued to perform during the pandemic. As expected, IFISA providers saw a drop in inflows during the 2020/2021 tax year as many

consumers panicked and withdrew their money during Covid. But since then, the IFISA market has been booming, and many P2P lending platforms have reported a rise during the current tax year, with some even reporting recordbreaking figures. “New IFISAs opened in the

current tax year have surpassed all IFISAs opened in the previous tax year,” says Lauren Renda, operations finance manager at ArchOver. “There has been a substantial decrease of ISAs being opened since the beginning of the pandemic, but I think the fact we have two months left in the current tax year and we have beaten 2020/21 figures shows that the impact of coronavirus is starting to wane.” Innovation is rife among fintechs and IFISA providers have been quick to adapt to emerging trends and to anticipate future client needs. Several providers are planning changes in some form, or simply ramping up their marketing this ISA season. P2P property lending platform Invest & Fund says that it is opening up its IFISA to new customers for the first time. “Given the high demand for our IFISA we have been passive in promoting it to date and have kept it exclusively for existing clients,” a spokesperson says. “We are now offering our IFISA to new Invest & Fund platform lenders and have opened it up to lenders seeking transfers from other platforms. We are making it clear we are delighted to welcome new customers looking to transfer their investments.”

IFISA

Bruce Davis, managing director of Abundance, says the crowd bonds platform launched its first municipal investment available as an IFISA in October 2021, and plans to introduce more this year. “It’s a low-risk option for people investing in an IFISA,” he says. “There should be two more launching in the next two months.” Simple Crowdfunding has added some new products to its ISAeligible investment opportunities, while Crowdstacker has recently launched property development loans which are available to invest in using the ISA wrapper. Kuflink has made changes to its select invest IFISA, which launched in April 2021, and introduced a wallet system which allows transfers between a lender’s general wallet, previous ISA wallet and current ISA wallet. “Our newly launched select invest IFISA product will also be able to pay monthly interest in the coming weeks and can now be sold on the secondary market,” says Narinder Khattoare, chief executive of the P2P property platform. This innovation is a sign that IFISA managers are optimistic about the future. But what does that future look like for the retail investors for whom the IFISA was created? Peer2Peer Finance News analysis

Average IFISA returns 2018

8.73%

2019

2020 9% 2021

7.8%

(Source: Peer2Peer Finance News)

has found that as well as delivering consistent, inflation-beating returns, another trend is emerging in the world of the IFISA. Several platforms have begun to increase their minimum investment threshold, and millions of retail investors risk being priced out of the market. In 2020, Brits saved more money

Of the 39 IFISAs open to retail investors this year, 14 have a minimum investment threshold of £1,000 or higher, making them out of reach to a first-time retail investor. There are concerns that some IFISA managers may be exclusively targeting HNWIs

“ We’re not talking as we did last year about

bans on specific products, we’re talking about increasing checks and balances in the process than usual, with Finder.com estimating that the average person was able to set aside £6,756.81 over the course of the year. In December 2019, the Financial Conduct Authority (FCA) introduced tougher investor marketing restrictions on the P2P sector. Under the new rules, investors had to be categorised as high-net-worth individuals (HNWIs), sophisticated investors, those receiving certified financial advice or restricted retail investors. Restricted retail investors were told to put no more than 10 per cent of their investment portfolio into P2P. With this in mind, the average Brit could have invested no more than £675.68 into an IFISA during the 2020/21 tax year.

”

and leaving yield-starved retail investors out in the cold. Lee Birkett, chief executive of JustUs, is just one industry stakeholder who has noticed this trend. He reveals that 90 per cent of lender capital at his platform comes from the top 10 per cent of investors. “It’d be the same with anyone else,” he says. “The uptake of lower ticket investments is diminishing. The days of someone just putting £100 a month away on a P2P platform are probably gone. “It’s now an asset class for the affluent which is a shame. The average retail investor can invest in the sector but would have to go hunting for it.” Relendex has stopped marketing its IFISA to retail investors, blaming the 2019 post-implementation review for making it too expensive. “Competing for ISA funds in ISA season was always costly as every ISA provider is competing for advertising space,” says Paul Sonabend, executive chairman at Relendex. “However, since December 2019 it has been far more costly as one pays for clicks/eyeballs/readers and

IFISA

if a large proportion of the audience is restricted from investing then that makes it far more expensive to acquire the proportion that can invest. This is not financially viable.” Yet, others dispute this and point out it is still possible to market to retail investors within the current rules. “I don’t understand why someone will say that,” says Ben Shaw, chief executive of HNW Lending. “You use virtually the same marketing and different picture but ultimately in the same format, the regulatory guys look at it once.” According to Birkett, the move to HNWIs goes hand in hand with proposed regulatory changes. He says JustUs will not target retail money this year as it will potentially not be cost effective under new proposed regulations. In January 2022, the FCA published a consultation paper on strengthening financial promotion rules for high-risk investments, including P2P lending. The regulator is planning to ban the promotion of investor incentives, such as new joiner or refer-a-friend bonuses, to improve risk warnings on ads and to strengthen appropriateness tests by, for example, removing the ease of retakes, which would make it more difficult for providers to market to

IFISAs by sector

Property

Consumer and business

4 1

Consumer

(Source: Peer2Peer Finance News)

Business, property and consumer

restricted retail investors. This is coupled with a Treasury consultation on the financial promotion exemptions for certified HNWIs, sophisticated investors and self-certified sophisticated investors in December 2021. It proposed amending the criteria for self-certification, suggesting alternative tests and placing a greater degree of responsibility on firms to ensure individuals meet the criteria to be deemed a HNWI or sophisticated investor.

Business

Business and property

Birkett points out that the time and effort to onboard a customer that invests £100 is the same as that for a lender investing £500,000 so it is not a cost-effective use of resources and thus the platform will not market to retail investors. Despite this, he adds that the platform will remain open to retail money, retaining its £100 minimum investment threshold. “We all had a big meeting and won’t target retail money this year at the moment, the reason

IFISA

being the government is being so negative about the IFISA and P2P in general and in this environment it’s a counter-productive use of resources,” Birkett says. “The new proposals (from the FCA) basically kill the marketing of the retail IFISA. We’re not shutting off to retail, we just won’t be allocating resources and spending money on marketing.” However, Abundance’s Davis says the FCA’s proposals are “workable”, and he is not seeing it as a step change that will stop providers being able to market their IFISA. “Besides one or two very specific ideas from the FCA, most proposals are workable and we’re not seeing it as a step change, but we look forward to working with the regulator to make sure what’s implemented is possible,” he says. “It’s a tightening of the rules but not a massive change. These changes don’t increase those restrictions they

“ We have seen a 10 times (plus) increase in ISA transfer-ins this tax year already”

just make sure the people that do invest understand the risks. We’re not talking as we did last year about bans on specific products, we’re talking about increasing checks and balances in the process.” Besides new regulations and the trend towards HNWIs, several platforms have exited the P2P sector and closed to retail investment, leaving fewer IFISA options for the everyday investor. Over the last year, Zopa and Lending Works have announced their P2P exits, The House Crowd went into administration and Funding Circle’s IFISA currently remains closed to retail investment. However, as well as closures there have been new entrants. Sourced Capital is resuming its IFISA offering again after becoming

Minimum investment required

Minimum IFISA investment threshold £1

£5

£10

£50

£100

£500

£1,000

£5,000

£10,000

£20,000

Number of platforms

(Source: Peer2Peer Finance News)

directly authorised by the FCA and acquiring Peer Funding, and Lendwise launched its educationbacked IFISA in January. Peer2Peer Finance News is aware of at least two other IFISA launches planned for this year. Seasoned IFISA investors seem keen to keep using the tax wrapper, even if it means shopping around for a new provider. Many P2P platforms have reported transferins from the likes of Zopa and RateSetter, alongside the usual transfers from stocks and shares and cash ISAs. “We have seen a 10 times (plus) increase in ISA transfer-ins this tax year already,” says Atuksha Poonwassie, managing director of Simple Crowdfunding. “Investors are looking for a good home for their ISA and we are fortunate to be in a position to provide a viable alternative.” During the 2019/20 tax year, IFISA deposits officially hit £1bn, with 126,000 accounts across the UK. When the next dataset is released by HMRC, the IFISA market is expected to have grown even larger, with an increasing number of high-value accounts. When it was launched in 2016, the IFISA was hailed as a solution for jaded savers and investors who wanted to invest in British properties, businesses and consumer loans while making inflation-beating returns. Six years later, the IFISA has done exactly that. As platforms finesse their offerings and target more HNWIs, lets hope that retail investors aren’t left behind.

JOINT VENTURE

“You have impacted my life permanently”

ONE PROPERLY, peer-to-peer lending offers more than just inflationbeating returns. It can be used to finance new homes, new businesses, new developments, and – in the case of Lendwise – new lives. The P2P lending platform offers loans to post-graduate students seeking a fixed rate loan to fund their studies. In the three years since Lendwise launched, it has helped to launch or re-ignite a number of careers, and as a result the platform regularly receives some poignant emails and messages from its borrowers. “I have secured an offer with the Infrastructure Bank and am expecting to start in the investments role by 15 February 2022,” one Lendwise borrower wrote. “I once again wanted to share my heartfelt thanks to you for extending me the credit facility and paving the way to moving to the UK. “Beyond the commercial metrics and considerations, I believe you have impacted my life permanently and helped me get to where I wanted to – for this you shall always have my gratitude and affection.” Another borrower who has graduated from one of the world’s top business schools wrote to say that he had been able to expand his earnings significantly as a global leader for a consumer technology firm, and that he would not have been able to do this without his Lendwise loan. “Had the leaders at Lendwise not put this company together – I’m not sure I’d have been able to easily realise my career and personal ambitions,” he said. “The experience I had…was simply phenomenal and

I’m grateful all your support.” “I stumbled across the Lendwise website on a Google search and decided that it suited my needs,” said another borrower – a law student. “Following my graduation, I continue to work with the same law firm as a fully qualified solicitor and am now an employment law specialist, a job which I absolutely love. None of which would have been possible without the funding from Lendwise. “At a most significant of crossroads in my life, Lendwise provided me with the means to make certain decisions, take certain chances and achieve the career of my dreams.” A glance at TrustPilot tells a similar story, of UK-based and some international students using Lendwise loans to jump start their careers and make a real difference. Rishi Zaveri, the lender’s chief executive and co-founder, says that this is what the platform is all about. “At Lendwise, we truly believe that

as a proposition, we are incomplete without ambitious and talented individuals to finance and this is where our process is designed to identify such borrowers,” says Zaveri. “We exist because good education can be expensive but it leads to positive outcomes in terms of career progression and salary enhancement. “Our goal is to bridge the funding gap that exists so that we can enable access to education through an affordable and flexible financing solution. “I’m really glad that we are recognised as a leading education finance provider and that we can finance the studies for individuals studying for a range of degrees and disciplines at universities and business schools around the world. This in turn provides a way for our investors to earn a real inflationbeating commercial return whilst making a real difference, which can be evidenced from our reviews and borrower case studies.” Lendwise’s impact is clear to see.

IFISA GUIDE

All IFISAs open to retail investors as of February 2022 Name Abundance Investment

Minimum investment

Average interest rate 2021

Target return February 2022

£5

1.2 to 10 per cent*

1.5 to 10 per cent*

£1,000

8 per cent

Up to 10 per cent*

Assetz Exchange

£1

N/A

5 to 5.5 per cent*

Assetz SME Capital

£1

6.5 per cent

3.7 to 4.1*

Aviation and Tech Capital T/A Ablrate

£1

13.4 per cent

9 to 15 per cent*

Bramdean Asset Management T/A Money&Co

£1,000

7 per cent

Crowd for Angels

£100

5 to 10 per cent*

Up to 7 per cent

Crowd Property

£500

7.89 per cent

7 to 8 per cent*

Crowd2Fund

£100

9.84 per cent

6 to 15 per cent*

Crowdstacker

£100

9 per cent

4 to 12 per cent*

Cyan Finance

£100

3.5 per cent

£1,000

7 per cent

Downing Crowd

£500

5.33 per cent

2.25 to 7 per cent*

Elfin Market

£100

8.5 per cent

3.8 to 5.8 per cent*

E-Money u Capital T/A EasyMoney

£100

N/A

3.08 to 6.01 per cent*

Emoneyhub T/A JustUs

£100

8.08 per cent

1.2 to 9.61 per cent*

Ethex/Energise Africa

£50

5 per cent

4 to 6 per cent*

Focus 2020 T/A Simple Crowdfunding

£500

N/A

8 per cent

ArchOver

Denmark Square T/A Money&Co

IFISA GUIDE

Name

Minimum investment

Folk2Folk

Average interest rate 2021

Target return February 2022

£20,000

6.5 per cent

Fund Ourselves

£1,000

11.24 per cent

up to 15 per cent

Growth Capital Ventures via Carlton Bonds

£1,000

4.75 to 7.75 per cent*

£10,000

10 per cent

6 to 12 per cent*

Invest and Fund

£100

7 per cent

Kuflink

£100

6.76 per cent

5 to 7 per cent*

LandlordInvest

£1,000

9.77 per cent

5 to 12 per cent*

Lendwise

£1,000

N/A

9 per cent

£10

3 to 4 per cent*

£5

9 per cent

Up to 10 per cent

£1,000

6.91 per cent

5 to 12 per cent*

£10

14.36 per cent

Over 6.6 per cent

£500

6.5 to 7.5 per cent*

£10,000

7 to 10 per cent*

8 to 10 per cent*

£10

7.79 per cent

Up to 16 per cent

£5,000

12 per cent

10 to 15 per cent*

£50

5.09 per cent

Up to 5 per cent

£1,000

11.92 per cent

10 per cent

£500

5 to 8 per cent*

Up to 8 per cent*

£50

4 to 6 per cent*

4 to 7 per cent*

£1,000

5 to 6.17 per cent*

4.5 to 5.5 per cent*

HNW Lending

Loanpad Open Access Finance T/A Unbolted Proplend Rebuildingsociety Relendex Rockpool Investments Share Credit Shojin Property Partners Signia Money T/A Leap Lending Sourced Capital Tifosy Triodos Bank Triple Point Income Service *depending on chosen investment option

PROFILE

Overarching principles

ArchOver’s managing director Charlotte Marsh tells Marc Shoffman how the platform has become one of the most established players in the market while staying loyal to its retail investors

RCHOVER MAY NOT be the largest of the peerto-peer lending platforms but it is one of the most established and experienced, having stuck to its retail roots since its launch in 2014. The P2P business lender has built up a loanbook of more than £150m and despite just 14 full-time staff, has become a major player in the sector. Its former head of credit Charlotte Marsh took over as managing director of ArchOver in 2020 after founder Angus Dent stepped back from the chief executive role. Marsh comes from a retail background, having held senior accountancy roles at Giorgio Armani and Harrods. She explains how she has used her experience to steer ArchOver through the pandemic and beyond. Marc Shoffman (MS): How has your experience with Harrods and Giorgio Armani helped with running ArchOver? Charlotte Marsh (CM): A large part of my retail experience, even though it was in head of finance roles, has been in e-commerce. There are similarities between P2P and online retail. You never see the audience and you don’t have footfall through a shop. You are always online and present and there is an expectation from customers that they can always contact you. You have sight of your audience

at all times – that transfer of experience was key at the early stage to look at the data and see the profile of borrowers and investors, the type of loans they like and their risk profiles. MS: How has ArchOver changed since its launch in 2014? CM: ArchOver hasn’t really changed since the early days. We are hands on with lenders and borrowers, and each deal still passes everyone’s desk. Our technology is developing constantly like every other platform but we still like the human touch, you can get a better sense of your borrowers by picking up the phone. That means speaking with business owners to see their plans as it helps you get a better insight of who you are dealing with. That face-to-face interaction kept going during the pandemic and we had technology to support us during lockdown scenarios. It’s very much a mixed pool of lenders with different appetites and we always manage borrowers for the appetite of the time. That hasn’t really changed, we have just managed a different amount in that pool and kept the same momentum going. MS: Where do you see yourself in P2P lending market now that some large players have left? CM: We never measure ourselves by the bigger players. It does

provide more opportunities to fund borrowers though. There may be different risk appetites and it will depend on the rates on offer for an investor and borrower at the time. The terms of the loan are also important. We ask for a first charge, which may deter borrowers. Others ask for a personal guarantee. MS: How has ArchOver managed to maintain its retail P2P lending roots? CM: It boils down to the expectation of what you are trying to achieve with your business. We have set out to bring quality borrowers to our lenders that are sophisticated with their portfolio. We met that expectation early on and have managed to keep the momentum going. Our services have developed but our approach is the same. We focused on account receivables and credit assured lending a few years ago. We still manage that but the market has moved away due to the

PROFILE

government-backed loans. Cashflow lending and management buyouts are now the focus instead. We have developed our services over the years but our expectation and approach has stayed the same. I think others may have changed in ways that haven’t suited the market. Our parent company, Hampden Holdings, also give us massive support. We feel like we are part of a bigger group. We have met the expectations of what they want to achieve without pushing the boundaries too far. MS: How has ArchOver coped during the pandemic? CM: We talk to all our borrowers on a monthly basis regardless of the pandemic. Being head of credit for some years I know a large proportion of our borrowers. Our team kept in contact with them from the start to discuss

working, we had no need for furlough, everyone was kept busy. Many of our staff have been with us since the early days, they know the sector inside out. One tool we use is AccountScore. It uses open banking to keep an eye on a business and their finances. Other than the borrower reporting to us monthly, we do not bother them too much but we can see how they are doing. You need real-time information for lending. Open banking is not a requirement for businesses now but it will probably become one over the next few years. It is a good way of spotting issues, maybe even before a business does. MS: What was the impact of the pandemic on your investors? CM: All of our loans are in for a term, so lenders can’t remove funds. We don’t have a secondary market so we just reminded lenders of

“ Following our initial pause on the platform [during the pandemic], our lenders were incredible

what plans businesses had to put in place. Some of our borrowers took out government-backed loans as top-ups to help them during the crisis. Following our initial pause on the platform, our lenders were incredible, they continued to lend, there was no hesitancy. Some other platforms froze the ability to take money in and there was probably a bit of an uplift for us as we were open and available, plus we have a small team so didn’t need to adjust too much. Everybody stayed at home

”

the terms and conditions and they understood. Lenders were sent regular updates to let them know how we were dealing with borrowers and to provide some reassurance. MS: Did ArchOver apply to take part in the government’s Covid loan schemes? CM: We looked into it but then the tick boxes were to have institutional funding and that didn’t meet the criteria as we are purely retail P2P. There were a lot of unknowns at the time. Everyone was putting in

applications but it was a step aside from our strategy. It is hard to answer if we would have done it if retail funding were allowed. There are now predictions of rising defaults from the state-backed loan schemes, meaning lenders would stand to lose some of their money if we’d participated. That doesn’t fit our service that we have spent a long time building. MS: Are you concerned about new rules on appropriateness tests and marketing restrictions? CM: ArchOver has always been regulated and always adhered to regulation. Compliance signs off all marketing regardless of whether its retail or business promotions. I believe all investors pass our appropriateness tests first time and are regularly retested. MS: What is ArchOver’s outlook for 2022? CM: It would be good to get the team back together in the office. We have missed the team bonding. I don’t know if we will go back to five days yet, it would be good to give some balance to the team. Largely, we are looking for more quality borrowers to meet our lenders’ expectations and our demands. It would be great to get out and see new and current borrowers face-to-face for the first time in a while as well. Joining the 36H Group is something that is definitely on the agenda. We tried to meet them in 2020 but then the pandemic happened. Other projects include measuring environmental, social and governance factors on borrowers but we just need to find the right partner for that.

JOINT VENTURE

How P2P can help solve the housing crisis

EER-TO-PEER LENDING platforms can help solve the ongoing housing crisis by financing good quality loans and supporting small- and medium-sized enterprise (SME) housebuilders. P2P property lender Kuflink has been successfully funding SME housebuilding projects for many years now, while maintaining its track record of zero losses for its investors. This is thanks to its welloiled credit checking process and engaged team of underwriters, which is led by Hiran Patel (pictured). “The fintech lending space can help to bridge the gap to meet the housing shortage, which has been created partly by more traditional lenders pulling back with their lending,” Patel says. “And it's P2P lending platforms like ours that can be a part of the solution. “We're able and willing to lend to SMEs to support the national housebuilding effort and play our part in supporting the UK economy, and obviously help deliver the prime minister's vision to build the homes that the country needs.” The UK government has pledged to build 300,000 new homes every year. However, in the 2020/21 financial year just 216,000 new homes were delivered. Kuflink continued to lend to SME housebuilders throughout the various lockdowns of 2020 and 2021. At the height of the lockdown last year, the platform did £50m in development lending, while many other lenders were scaling back. “SME housebuilders and developers are consistently efficient in the way that they deliver their projects and build new homes,” Patel explains.

“But it's these small housebuilders who often struggle to obtain the funding needed. Obviously the pandemic had a massive impact on the industry. A lot of the traditional lenders were busy trying to administer government-backed lending schemes, so this provided an opportunity for Kuflink as an alternative fintech lender and other alternative lenders to show value. And we continue to lend to SME housebuilders.” Kuflink’s underwriting team works very closely with borrowers throughout the loan process cycle, even undertaking site visits. As a result, Kuflink sees a lot of return borrowers, allowing the platform to build long-term trusted relationships with SME housebuilders over time. Much of the platform’s success can be attributed to its strong due diligence process. A key part of the platform’s underwriting process is to ensure that there's a strong team behind the developer at every step along the way. “We're flexible and individual in

our approach to lending, so we're often happy to fund quirky deals that traditional lenders won't typically fund,” says Patel. “We don't go for a tick-box exercise, we work as a team. We make the decisions. When the enquiry comes in and the underwriting process begins, we collaborate further. “Once that loan is live, we continue to monitor. If it's a development loan, we will continue to collaborate internally and externally with the borrower and their professional team, especially if they haven't got as much experience as a mainstream lender would like.” Patel has worked at Kuflink for more than three years, and over the next 12 to 18 months, he hopes to add to his team as the Kuflink platform enters a growth phase. If Kuflink can repeat its past success at a larger scale, it could play a significant role in helping the UK government to meet its annual housebuilding targets, while showing the world the power of P2P property lending.

Our magazine is read by peer-to-peer lending professionals, investors and more. If you'd like to be included in our directory, please email Tehmeena Khan on tehmeena@p2pfinancenews.co.uk for details and pricing.