Recently the smartwatch maker Pebble shattered Kickstarter’s crowdfunding records, raising more than $5.7 million in just six hours. With an increasing number of companies and individuals turning to this creative medium to launch portable party drinks coolers or long awaited movies, the appetite for alternative ways to raise money is clear. Peer-to-peer lending (P2P) is another source of innovative investment that is also expected to grow even more rapidly when it becomes eligible for inclusion in the ISA later this year or in early 2016.
This boost for P2P was announced in the Autumn Statement last year. The Government is permitting individuals who are lending through P2P platforms to be able to offset any losses from loans which go bad against other P2P income. There is also possibilities of extending the consultation to debt securities, meaning that P2P investors will also be able to add debentures and bonds into their ISAs. As it stands, the industry is awaiting the Treasury’s decision on whether P2P loans should be included in existing cash or stocks and shares ISAs, or whether they are better suited to a new type of loan-based ISA.
Either way, this is a market which has been growing at a rate of more than 100 per cent year-on-year, with over £1.6bn loaned by around 100,000 lenders, to people or small businesses, according to figures from The Peer-to-Peer Finance Association (P2PFA). Most recently, Hargreaves Lansdown announced its intention to set up its own P2P lending platform, looking initially to its existing customers as both borrowers and lenders. The company aims to launch its own platform within 18 to 24 months and later branch out into lending to non-Hargreaves customers and small businesses.
As regulatory reforms prompt platform providers to develop more high-margin products and increase the range of product options they offer investors and customers, P2P momentum is coming to a head. As far back as 2011, the P2PFA was launched by the UK’s largest P2P operators, Zopa, FundingCircle and RateSetter, to promote high standards of conduct and consumer protection in the sector. And over the last two years the Government has given £95 million in taxpayer funds to P2P platforms to distribute.
As more companies are seeking to use online platforms and data-driven technology to connect borrowers and lenders, the next few years could see P2P move to the mainstream. P2P has the potential to be a viable source of funding both in the UK and worldwide. Platform providers with the right technology will be the conduit that brings it to the masses. There are of course plenty of technical details to iron out, including HMRC reporting and ISA transfers.
Bravura Solutions is working in support of overcoming these issues through its involvement with TISA. Without a doubt, traditional banks could see increased competition from this budding alternative finance sector over the course of the year.