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The Damp Squib Of The Innovative Finance ISA – Forbes

The IFISA has not got off to the most exciting of starts (Shutterstock)

The idea of the Innovative Finance ISA (IFISA) – if not necessarily the name – garnered excitement among investors from the moment it was announced.

Peer-to-peer investing had been growing steadily in reputation over the preceding couple of years, with the returns on offer particularly eye-catching in a low interest rate environment. The prospect of enjoying those returns within a tax-free wrapper made peer-to-peer platforms even more enticing.

Little wonder that at the time of the announcement of the IFISA back in 2015, Giles Andrews, co-founder of Zopa, described it as a “game changer”, suggesting that it signalled that “peer-to-peer has become a mainstream way for people to invest for their futures”.

However, it’s fair to say that things haven’t exactly run smoothly since then.

The rise of peer-to-peer

The idea is incredibly simple. Investors can choose to lend their cash directly to other individuals or businesses via peer-to-peer platforms, and in so doing enjoy a great rate of return.

In peer-to-peer’s early years, it was often presented as an alternative to savings accounts, no doubt because this comparison made the returns on offer from peer-to-peer platforms even more impressive.

But in truth, this is a misleading comparison – peer-to-peer should be viewed as an investment; arrears and defaults are an ongoing concern, while your money is not protected as it is by the Financial Services Compensation Scheme when putting money into a savings account.

Nonetheless, it’s clear that plenty of people were more than happy to accept the extra risk involved with peer-to-peer in order to secure those returns. Lending by platforms which are members of the Peer-to-Peer Finance Association passed the £7bn mark at the end of last year, having increased from £4.3bn at the end of 2015.

The Damp Squib Of The Innovative Finance ISA – Forbes}

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