The note also argues that Former FSA chair Turner was wrong in the recent criticisms he levelled at P2P finance.
Turner argued that "the losses which will emerge from peer-to-peer lending over the next five to 10 years will make the bankers look like lending geniuses", and that "you cannot lend money to small and medium sized enterprises without someone doing good credit underwriting".
However Bruce Davis believes that the IFISA will be a true high street challenger.
In his memo to Turner, Davis said:
"Peer to peer investing creates jobs and growth, not in the financial sector but in the real economy. And we use money, not credit, to deliver that growth. Money that is gathering dust as cash in bank accounts earning less than the price of a pint of beer let alone keeping pace with the cost of living. Yes the path to delivering that growth will have mistakes along the way, we aren’t claiming to have a perfect model, but we are always upfront about the concept of risk. My main beef with Lord Turner was that his criticism seemed predicated on the idea that you can have a completely safe financial system. That is just not the way money works. But you can earn a return if you are prepared to take some risk on your money."
He said that although "the big three (Zopa, Ratesetter and Funding Circle) are stuck in the starting gate at the moment... they are all working hard to sort their full authorisation from the FCA and join Abundance and others in offering this new product for their investors".
An Abundance survey showed that almost £3bn of new money is poised to fund the new IFISA with a further £11bn in transfers from existing ISAs.
Davis continued:
"If all that money arrives and is lent out across the many different platforms which make up the IFISA (from A-bundance to Z-opa) then it will be the equivalent of creating a whole new bank on the high street with the financial clout of one of the so-called Big 6, but crucially not one that relies on the good will of the tax payer to bail it out in the bad times.
"That is because P2P lending and investing is not banking. It is a challenger that doesn’t try to replicate the existing business models but fundamentally disrupt them. Show me a bank that can lend £13bn without leverage, where the vast percentage of the profits from that lending are returned to investors, where those investors are prepared to take a risk for a real return and not sponge off any implicit state guarantees or insurance schemes (such as FSCS). Far from being shy of the fact we don’t rely on FSCS, as an industry we should be proud of it. Leave the moral hazard to the old world of finance."
"So I would ask Lord Turner to look again at his analysis. Who will be the real challengers for lending in the real economy? Those who offer digital, slimmer and more agile versions of the existing banking model or those who challenge the very notion that banking is the only way to get money moving between investors and businesses, between individuals who have surplus capital and those who need capital to invest. Eight years on we are finally starting to see the fruit of the financial crisis – the emergence of new businesses that challenge the old order on equal terms. The neoliberals call it creative destruction. I prefer to say we are making the markets we deserve."
