The following views are the personal opinions of Martin Baker, Money&Co's head of communications and content. They do not necessarily represent the views of Money&Co.
Here's the future (a pleasingly bright one, too) as I see it.
No doubt about it. April will change everything. The long-awaited, much-predicted, over-hyped transition of peer-to-peer (P2P) lending to the mainstream of financial services will finally come about. The catalyst will be the introduction of the Innovative Finance Individual Savings Account (IFISA), which was ratified in the Chancellor's mini-Budget announcement last July.
Our cousins in equity crowdfunding address a different, riskier market, and an investor base that by definition has a greater appetite for risk.
The jury is out as to how much of the Isa savings market P2P providers will take, and how quickly it will take what it gets. I quote a recent news story.
"Here are some excerpts from an article in Money Marketing.
"Intelligent Partnership research director Daniel Kiernan says: 'It's estimated that there is £500bn in Isas, split 50:50 between cash and stocks and shares. If peer-to-peer lenders can capture just a small percentage of this market, it would provide a huge boost to their volumes, and signal mainstream acceptance for this new industry.'
"The research found advisers are aware of the crowdfunding and P2P space, with two-thirds having heard of P2P lending and 60 per cent having heard about equity crowdfunding."
Whatever the extent and rate of take-up, be sure that P2P will benefit from the publicity that comes with offering mainstream savings products. Of course, the levels of transparency and probity will have to be very high (see Regulatory Pressures below). But this time next year, we will not be talking about P2P entering he mainstream – because it will already be there.
The savings market is on its way, and the institutions have already landed. Family offices, banks, insurers are all putting money up and backing P2P platforms by providing working capital and money to lend. As the platforms mature and gain in credibility (and competence) volumes will rocket. See this excerpt from a recent news story on an industry-commissioned report.
"SME lending should total more than £6 billion in 2016 if current trends hold. The same report drew a contrast to traditional banks. Four in ten businesses' first-time loan applications are rejected by banks, and only 55% of businesses see loan applications accepted, according to data by BRDC SME Finance Monitor."
The most credible source of data in my opinion is the Cambridge Judge Business School. There will be a meticulously produced report in the second quarter of 2106 – that will be the best guide to investment trends and growth.
There will probably be some failures in P2P. We saw TrustBuddy go under in 2015. In 2016, we'll see some operations either fold or "merge" (this often means getting bought at a cheap price).
As I write this article there is speculation surrounding a prominent executive departure at a major player in the P2P space, and the potential knock-on effects for several operators (Money&Co. is not involved). We are a young industry. The future should be good, not as black as the pessimists argue...
They go and they come... Hargreaves Lansdown has announced its intention to occupy a place in P2P. Expect this major advice and execution outfit to announce itself loudly and launch something big – probably a fund - in the first quarter, ahead of the scramble for funds for IFISAs.
We have benefited in the UK from light-touch regulation for P2P crowdfunders. Not all countries follow this approach. See this excerpt from a recent news article.
"In the United Kingdom, the UK FCA is responsible for the prudential and conduct regulation of peer-to-peer lending between individuals or between individuals and businesses.
"Conversely, in jurisdictions that have adopted a twin-peaks regulatory model, where one authority is responsible for prudential supervision and a second authority is responsible for business conduct supervision, the two regulators usually share responsibility for the oversight of peer-to-peer lending, each within its own remit...
"According to the survey responses, under these various supervisory models, peer-to-peer lending is typically under the purview of the prudential or the banking regulator."
I expect that, in the event of a P2P failure – which is far from certain, but possible – there will be howls from cash Isa providers calling for the regulators to clamp down on us. That may be because they think such a course of action prudent. Or again, it's possible that cash ISA providers are aware of their highly unattractive yields and see fear as a marketing tool.
I'm doubling up my bet on this one. Last year, I predicted two quarter-point rises from the Bank of England's monetary committee - but nothing materialised. But I do expect rises this year.
The unruffled market reaction to the minor hike in US rates in the third week of December is a definite green light for rises. This will give cash ISA providers something to market – much more positive than using consumer scare tactics, and so good news all round.
So a Happy New Year once more to all our readers, users, lenders and borrowers, our friends in crowdfunding and in alternative finance. Here's to a productive, prosperous 2016.