Politicians usually make decisions knowing that they can’t please all of the people all of the time. The Peer-to-Peer Finance Association’s recent survey of over 4,500 peer-to-peer (P2P) lending customers comes close to disproving that. Over 95 per cent of respondents support the chancellor’s commitment to include P2P lending within the Isa wrapper. It’s a vindication of our call to include P2P within the wrapper, helping savers and investors choose how they make the most of their funds.
We called for a separate “Lending Isa”, however, because we want consumers to have clarity. Placing money in a P2P loan is not the same as saving it in a Cash Isa, or purchasing the sort of equity assets that go into a Stocks and Shares Isa. P2P lending is a distinctive asset class that has its own risk and reward characteristics, and it’s important that consumers understand this. P2P lending can also have different liquidity properties from other more traditional financial services products. Shoe-horning P2P lending into either a Cash or a Stocks and Shares Isa would risk confusing consumers. And with a new Lending Isa, consumers would still be able to choose how they invested their savings each year, allocating up to their £15,000 annual limit across the three available types of Isa.
Those consumers who participated in our survey would agree, with 74 per cent saying they favoured a separate Lending Isa and 80 per cent stating that the introduction of a Lending Isa would increase choice in the investments market. Further, 62 per cent of existing P2P consumers said they would “definitely” invest in a Lending Isa, and an additional 23 per cent said it was “probable” they would do so. Overall, only 2 per cent said they wouldn’t invest in one, which is exactly the same percentage as those who opposed the government’s decision last year to include P2P lending within the Isa wrapper at all.
We expect the government to announce its policy on including P2P lending within the Isa wrapper later this month, and for it to make the technical regulations to enable this to happen later in 2015. P2P platforms are already making the necessary system changes to prepare for this, and most anticipate becoming Isa managers themselves.
Eligibility for the Isa wrapper is a key step in the development of the P2P lending sector as it continues to grow and becomes a more mainstream choice for consumers. P2P lending isn’t a traditional financial product, and members of the Peer-to-Peer Finance Association work daily to provide more transparent, better value products for retail financial services consumers, and to bring much-needed competition to challenge incumbents.
The product may not be traditional, but our insistence on good standards and honest dealing very much is. There should be no doubt: consumers wouldn’t benefit from the complex financial engineering that some have suggested should be used to include P2P loans within Cash or Stocks and Shares Isas. Such an approach would fly in the face of our philosophy, which is all about simplicity, clarity and transparency for consumers.
The UK is ahead of the world on alternative finance and innovation: including P2P lending within the Isa wrapper, as a dedicated Lending Isa, will benefit consumers and help this exciting new market grow even more strongly. This will be an important year for us.