Why has the IFISA taken so long to catch on?

Since its launch in 2016, the Innovative Finance ISA (IFISA) has kept a low profile, but it’s slowly making its way into mainstream awareness thanks to a growing number of providers and a couple of years of solid performance.

The government announced the IFISA in March 2015 and launched it in April 2016. Designed to enable investors to use their tax-free ISA allowance to invest in peer-to-peer (P2P) lending and crowd bonds. For investors happy to take higher risks, IFISAs offered a groundbreaking alternative to Stocks and Shares ISAs.

Unfortunately, there was one flaw with the plan. When the IFISA launched in April 2016, there were only 11 platforms who had obtained permissions to provide it. A delay in finalising legislation around the IFISA meant that the number of providers were limited, and none of them were the big P2P names consumers already knew. At the time of launch, the FCA still had more than 80 applications to process[1].

This meant that the IFISA received something of a lackluster launch, with many investors unfamiliar with both the product and the providers available. All this against the backdrop of the run up to the EU Referendum, which was announced February 2016. By the time the first of those 80 remaining providers started to achieve their permissions to provider IFISA products, voters were well on the way to the polls and June’s shock Referendum result meant that public and press interest in everything else – including the IFISA – was limited.

In the tax year 2016/2017 (it’s first) 5,000 people opened an IFISA, depositing an average of £7,200 each. By the following year, the number of subscriptions had jumped to 31,000 but were still a far cry away from the 2.835m Stocks and Shares ISAs accounts opened that year[2].

But the IFISA is fast gaining momentum, with many of the P2P industry’s big names successfully launching their own IFISAs. This helped to drive total deposits in the IFISA to £764m by May 2019, with over £50m deposited at the start of this the current tax year[3] and saw it breach £1bn in deposits by September 2019[4]. But there’s still plenty of room from growth.

Many established platforms, Cogress included, chose to market their new IFISAs to an existing investor community. Meaning that investment in marketing IFISAs to the wider public have been minimal, and the growth to date relatively organic.

With the average return across all IFISAs on the market currently sitting around 5.75% p.a[5] tax-free, it’s easy to see why the IFISA has managed to grow into a nearly £1bn investment product while maintaining its relatively unheard of status. With more providers gaining authorisation and bringing with them a greater range of assets to invest in, the IFISA is certainly here to stay.

To find out more about the Cogress property backed IFISA, offering up to 7.5% p.a. tax-free, please click here.

References

[1]2019, Kathryn Denham, The Innovative Finance ISA didn’t get off to a flying start – so how’s it doing now? City AM. Published March 2019.

[2] 2019, HM Revenue & Customs. Individual savings account (ISA) statistics [Online]. Published April 2019.

[3] 2019, Marc Shoffman. IFISA inflows set to hit £1bn milestone. Peer2Peer Finance News. Published July 2019.

[4]2019, Kathryn Gaw. IFISA market breaks £1bn barrier after Funding Circle confirms intake. Peer2Peer Finance News. Published September 2019.

[5] 2019, Daniel Flynn, How to use an ISA to invest in peer-to-peer loans. City AM. Published March 2019. Based on research by Relendex. Also quoted in P2PFinance News, Feb 1 2019.