Funding Circle IPO – What does this mean for the IFISA?

In September 2018, the Funding Circle IPO launched, creating headlines across the UK and bringing peer-to-peer (P2P) finance into the financial mainstream.

For P2P investors, this was seen as a validation of their investment choices. With Funding Circle now a recognisable, FTSE-listed brand, surely this would lead to higher interest rates, better loan options and increased uptake of the platform’s IFISA?

But it hasn’t all been plain sailing. Widely viewed as a test case for the P2P sector, many investors were disappointed when analysts downgraded Funding Circle’s share price from an initial price range of 420p to 530p, to 440p to 460p. On the day that the listing went public, the share price fell to a low of 334p.

Since then, the Funding Circle IPO has been widely dissected in the financial press, and rumours of forthcoming IPOs from the likes of Zopa and RateSetter have all but disappeared.  Some analysts have warned that Funding Circle’s stock performance is evidence of the low investor interest in P2P finance. Others simply believe that the platform went public too soon, and at a time of investor caution.

John Cronin, analyst at Goodbody, said: “While Funding Circle is clearly in a high-growth phase, the company has yet to deliver net profit and it is difficult to see the stock get back to the 440p IPO level without evidence of profitability build.”

For Funding Circle’s shareholders, this may be a time for concern. But how does the IPO news impact the platform’s tens of thousands of P2P lenders?

The IFISA impact

Before the launch of the IPO, Funding Circle was adamant that “there will be no impact on [users’] existing relationship with Funding Circle.”

“Additionally, we anticipate that you will have the opportunity to apply to participate in the IPO and become a shareholder in Funding Circle via an intermediaries offer,” the company statement added.

However, active lenders should be aware that the IPO represents a major expansion of the P2P brand’s business model.

The firm has been rolling out a series of changes recently. It has reduced the minimum loan amount from £20 to £10, and issued a guarantee that any new investor who adds £2,000 or more to the platform will have their money distributed across at least 200 different businesses.

Furthermore, the platform has announced that it has added a record number of new loans to its platform, with new loan originations growing by a massive 45 per cent in the third quarter of this year globally.

This is arguably good news for investors and would-be investors, who can now access one of the most diversified pools of P2P loans in Europe – and they can do it while earning tax-free returns through the Funding Circle IFISA.

Furthermore, a heightened brand profile means more scrutiny, both in the media and in the world of finance. As a newly-listed company, Funding Circle can expect an array of analysts to pore over its every trading statement and annual report, generating a huge amount of information that investors can access at the touch of a button. This is likely to put pressure on the firm to increase transparency and exercise more caution than usual when it comes to new loan opportunities and rate setting for investors.

Ultimately, Funding Circle’s IFISA investors have little to fear from the company’s IPO. The firm has a proven track record of being able to deliver good returns with a stable rate of defaults. Projected annualised returns for the first nine months of 2018 are a healthy 5.5 per cent to 6.5 per cent – higher than some of its competitors, and well above the current rate of inflation.

The only real difference is that Funding Circle super-fans can now invest in the company through two tax-free avenues: not only can they invest via the IFISA, but they can also invest in the company itself via a Stocks and Shares ISA.  This makes Funding Circle unique among its peers, in more than one way.

Originally Published: Wednesday, November 7th, 2018
Updated: Friday, November 2nd, 2018

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