Innovate Finance: A Force For Good ?

Trading screen filled with numbers.

This month sees the launch of a new finance-industry body. Innovate Finance (IF) is an “organisation that will accelerate the UK's leading position in the global financial services sector, by directly supporting the next era of technology-led financial services innovators, whether they be a young start-up or an established industry player.”

IF is a generalist body, and covers high-tech developments in payments as well as innovative developments in financial engineering, such as crowdfunding.

IF has already hosted its first talking shop – or round–table discussion, if you prefer. There are few signs of the new body getting to grips with the big issue that the crowdfunding industry is talking about - the consultation process to allow assets on crowdfunding platforms to be included in New Individual Savings Accounts (NISAs), with their generous £15,000 limit. The Treasury has initiated a consultation process. If the outcome favours the inclusion of crowd-funded equity and debt, the sector will get a turbo-charged boost.

The most prominent senior member of IF from crowdfunding is Rhydian Lewis, chief executive of Ratesetter. Lews is clearly at home in the committee room. Ratesetter got a £10 million injection of funds from the government-owned British Business Bank in July.

Lewis is certainly a good advocate for the modern UK finance sector. He enthuses in the financial commentary site CityAM, that London “has long led the way in one major area of fintech: peer-to-peer (P2P) lending. P2P was born here and the capital’s pioneering platforms are forging a new industry. UK intellectual property is now being exported to other markets keen to embrace this modern form of finance. Funding Circle has launched in the US, while RateSetter is launching in Australia. Continued innovation from UK platforms has resulted in exponential growth.”

The Peer-to-Peer Finance Association (P2PFA) announced that cumulative lending stood at £1.48 billion in June 2014, with lending doubling in just six months. “Our most recent industry figures show business and personal lending is growing with the aggregate flow of funds lent doubling over the last six months,” said Christine Farrish, chair of the P2PFA this Spring, at the time of the promulgation of the The Small Business Bill, which she saw as “an important step towards ensuring our innovative industry plays a vital part in bringing more choice and competition to the UK financial sector as well as helping create jobs and growth.”

Boutique finance house Liberum has predicted that UK P2P will grow to £45 billion within the next decade. I can see that figure being higher, especially once P2P is available through ISAs, therefore opening it up to a broader base.”

Lewis argues that the UK model is superior to that of the US, where P2P lending has been dominated by institutional capital such as hedge funds. The key difference, he argues, is that, in the UK, P2P is designed with the retail customer in mind – which represents a much more fundamental shift.

Lewis finishes by stating that more needs to be done to strengthen the UK’s position “in this important growth industry. The sector can’t afford to rest on its laurels.”

And industry bodies like IF need to keep the pressure on government – we’re thinking of issues such as the inclusion of crowdfunded assets in the New Individual Savings Account (NISA) – to make sure that progress continues.