There is little doubt that 2015 was a momentous year for peer-to-peer lending and alternative finance in general. More than £1 billion was channelled to consumers through P2P platforms, with an even greater volume of loans being advanced to businesses, according to figures from analyst AltFi Data.
A strong 2015
On the consumer side, Zopa alone generated loans worth £532 million including, in August, the billionth pound lent through the platform.
The rate of growth in popularity of P2P lending is extremely impressive at the moment, and the signs are that 2016 will see a continuation of the current trend.
Looking forward to 2016
Looking at prospects for the coming year, AltFi has suggested that Zopa could in fact lend its two-billionth pound at some point over the next 12 months, on its way to generating almost £1 billion in loans during the whole of 2016. The firm also predicts that origination volumes across the whole of the industry could increase by 53% when compared with 2015, with Zopa’s lending set to rise by a staggering 81%.
There is clearly a lot of momentum in P2P at the moment. But the one factor that could really drive interest this year is the launch in April of the Innovative Finance ISA (IFISA). For the first time, this will allow P2P loans – of up to £15,240 in the 2016-17 financial year – to be held tax-free within an ISA wrapper.
Benefits of the IFISA
The fact that the interest paid to lenders will be exempt from income tax is obviously the most significant benefit of the new ISA. But the IFISA also sends a signal to the wider public that P2P lending and other forms of alternative finance are moving into the mainstream – and that the government recognises this and is happy to encourage people to move their money into the sector.
Recent economic events mean the stable returns offered by P2P could look even more attractive to investors: global stock markets have crashed this week, with the FTSE entering official “bear market” territory, falling to 20% below the high point recorded last spring.
At the same time, the slump in the oil price and the prospect of weaker UK growth have led Bank of England governor Mark Carney to push the prospect of a base-rate increase even further into the future. Against this background, an IFISA is likely to look much more appealing than the equity or cash alternatives.
What else in 2016?
What else could happen to alternative finance in 2016? An increase in popularity could see pressure on regulators such as the Financial Conduct Authority (FCA) to keep a closer eye on the sector. Zopa has long been an advocate of high levels of transparency, not least because it helps increase consumer confidence in P2P lending.
This year, members of the trade body the P2P Finance Association have all committed to publish details of their loan books, something that Zopa has been doing since the start of 2015. As the AltFi figures at the start of this article suggest, this openness certainly does not appear to have done the business any harm.
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