News Briefing - Crowdfunding, SME And Alternative Finance

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The essentials are here and will be regularly updated. If you want to be well-informed about the investment crowdfunding scene, and you're short of time, this is the place to visit.

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Today's Briefing

1. UK – P2P

The Innovative Finance ISA may have got off to a slow start, but its potential for the peer-to-peer lending industry is immense. Peer2Peer Finance News delves into the past, present and future of the tax wrapper, reports P2P Finance News.

"THE Innovative Finance ISA (IFISA) has been heralded as the peer-to-peer lending sector’s passport into the mainstream.

Savers and investors may not get the various levels of Financial Services Compensation Scheme protection afforded to traditional products, but the tax wrapper provides an air of respectability to a sector often painted as niche and risky.

But the IFISA got off to a slow start due to the lengthy authorisation process of many major platforms, so what does the future look like for the product and its providers?

The IFISA was first mentioned by George Osborne in his July 2015 Budget. Much fanfare followed, with the sector’s biggest platforms such as Zopa even going as far as detailing the tax-free rates they would offer ahead of the wrapper’s eventual launch in April 2016.

However, regulation of P2P was at the same time being transferred from the Office of Fair Trading to the Financial Conduct Authority (FCA) and no-one could have predicted the arduous authorisation process that followed. This left established players such as Zopa and Funding Circle waiting in the wings as the regulator assessed their hefty business models, meaning that only a handful of platforms were able to launch their IFISAs in April 2016.

Bigger P2P players were therefore absent in the IFISA’s first year and the product garnered just £17m subscriptions and 2,000 accounts in the 2016-17 tax year, a tiny intake compared with 8m cash ISAs and 2.5m stocks and shares ISAs opened in the same year, valued at £39bn and £22bn respectively.”

 

2. UK – P2P

 What Peer-to-Peer Lending is Not - according to Relendex

 

“The peer-to-peer lending industry has been going from strength to strength since its start in 2005. Last year, cumulative lending volumes throughout the industry pushed past the £7 billion mark. The rapid growth of the industry brings in a rapid increase of Lenders looking for higher returns on their cash in this low interest rate environment.

There is still some misperception of what peer-to-peer lending is as at first glance, it bears some resemblance to other financial products.

NOT a savings product

Despite the returns of a peer-to-peer platform being quoted as XX% per annum, it is NOT a savings account. While a return of 8% p.a. is much more attractive than a savings account of 1% p.a., peer-to-peer platforms do not benefit from the same Financial Services Compensation Scheme (FSCS) that banking institution do.

This is why at Relendex we have risk warnings to remind lenders that funds lent through the platform are loans and not deposits. That means your capital is at risk. While all our loans are secured against the property, there will always exist the risk of capital loss which is why a diversified portfolio can help mitigate risks.

NOT equity crowdfunding

While peer-to-peer lending is in the similar alternative finance space as equity crowdfunding, in that both rely on groups of people coming together to fund a project or business; what lenders/investors receive in return are different. Especially in regards to the property space, peer-to-peer property lending platforms (like ourselves) have a different value proposition when compare to property equity crowdfunding sites.

In peer-to-peer lending, there is a specified loan and interest amount that the borrower must repay at the end of the loan term. Equity crowdfunding on the other hand, investors are more akin to shareholders who will be rewarded if the company is successful in the future. With regards to property equity crowdfunding, investors would need to see capital growth to see a positive return on their investment.

So despite that, what is peer-to-peer lending?

A way to receive fixed returns

With peer-to-peer lending, lenders’ will typically receive a fixed interest rate on the loans that they have chosen to participate in. Here at Relendex we pay out interest on Loan Parts quarterly, giving lenders the opportunity to reinvest it.

Another way to diversify your portfolio

As any investor should know not to put all your eggs into the same basket. By dividing loans into multiple parts, peer-to-peer lending allows smaller investors to receive exposure to other asset classes. For example here at Relendex we specialise in commercial property loans that give investors exposure to the property market without a need for large starting capital.

 

3. UK – SMEs

 

P2P Finance News reports:

 

“MORE THAN half of small business owners want the UK to join the European Free Trade Agreement (EFTA) once Brexit is complete, Funding Circle research has found.

A survey of 1,254 borrowers on the peer-to-peer lending platform found 57 per cent would support EFTA, also known as the ‘Norway option,’ as it provides a regional free trade area comprising of Iceland, Liechtenstein, Norway, and Switzerland.

By joining EFTA the UK could retain access to the European single market , Funding Circle said on Wednesday.

Small business owners highlighted a number of benefits of EFTA, with 59 per cent backing the ease of exporting and importing and 46 per cent citing the accessible customer base, while 42 per cent highlighted the lower tariffs.

Only 15 per cent said they do not want to join EFTA.”

  

4. UK – AltFi

 

P2P Finance News carries pre-Budget comment, including a wish for a higher ISA limit from Money&Co.

5. UK – FinTech

City A.M. reports:

 

“The biggest banks and smallest startups must work together to keep the UK ahead when it comes to its world leading position in fintech, according to a new report.

Sandboxes, hackathons and entrepreneurs in residence are just some of the ways of collaborating identified in a new report from TheCityUK, Santander and Shearman & Sterling, through to more formal relationships such as joint ventures and even going as far as acquisitions.

“Fintech is already transforming the industry, and giving customers easier access to a greater choice of financial services, but more can be done," said the business group's operating chief Marcus Scott.

"Fintech startups and incumbents need to share expertise more effectively and work together more collaboratively to create new, innovative products and services. The key to success is choosing the right collaboration model and being clear upfront about each development stage."

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The Daily News Briefing is sponsored by Money&Co. and edited by Martin Baker, Director of Content and Communications at Money&Co and Editorial Director of Another Crowd.

It is provided as a free information service, based upon fair use. Nothing in the Daily Briefing is privileged, confidential or investment advice.

If you would like to know more about Money&Co., we recommend you read their news section, and their pages for borrowers and lenders.