Peer-to-peer investment model appeals to younger generation
Millennials are four times more likely to invest in UK startups through peer-to-peer platforms than people aged 55 and over, as new research suggests that alternative finance could be creating a new generation of investors. The study, undertaken by peer-to-peer lending platform ThinCats, found that four per cent of people aged 18 to 34 had invested through the model, compared to just one per cent of the higher age bracket. The most popular reason for investment, cited by a third of respondents aged 18 to 34, was the ability to bypass banks and lend to businesses directly. The difference between peer-to-peer and traditional lending is that peer-to-peer investments are not protected by the government?s Financial Services Compensation Scheme (FSCS). There is no guarantee that investors will receive any repayments, but in return, investors have access to better interest rates. This high risk versus high return factor could be the key difference between the demographic split. Over half of over-55s stated that investment depended on stable returns, compared to just a quarter of young people. The findings come alongside new figures from the final quarter of 2016 that showed continued growth in the peer-to-peer sector. According to the Peer-to-Peer Finance Association (P2PFA), ?544m was invested in UK businesses through peer-to-peer platforms in that period. Commenting on the research, ThinCats founder Kevin Caley, suggested that the popularity of the peer-to-peer model may have been generated from excitement in a new form of lending. ?The peer-to-peer sector has been growing in popularity since it first arrived in the UK a decade ago, but many people still consider it to be something of a novel investment. That perceived novelty is perhaps why it has proved so popular with younger investors,? he said in a statement. Caley added that the emergence of the new Innovative Finance ISA (IFISA) could drive even further investment through peer-to-peer. The IFISA, introduced in April 2016, allows UK investors to receive tax-free interest on investments made through peer-to-peer platforms. ?With the arrival of the IFISA, we expect to see many more seasoned investors branch out from their traditional ISA holdings, including those nearing retirement,?for whom the fixed income nature of these investments is well suited to their income needs,? Caley said. Crowdstacker was one of the first platforms to receive government approval for IFISA accounts in 2016, and at the start of 2017 revealed that the tax-free scheme had attracted ?1m each month since arriving. Keep reading to find out how small firms could be earning millions more from interest rates
Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.