Copy Brits to get a $10 billion peer-to-peer lending industry, tech conference told
New Zealand should copy Britain's blueprint to grow peer-to-peer lending, Harmoney founder Neil Roberts told the country's first ever "fintech" conference.
The reward would be a $10 billion a year non-bank lending industry with lower costs for borrowers and higher returns for investors, he said.
Speaking at the Finnotec conference in Auckland on Thursday, Roberts said Britain was focused on breaking big bank's stranglehold on small business lending.
The British government had invested tens of millions of pounds in building up peer-to-peer (P2P) lending, but it had also changed laws to put peer-to-peer lenders on a competitive par with the big banks.
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P2P involves ordinary mum and dad investors lending money to borrowers directly through lending platforms like FundingCircle and Zopa, cutting out the banks.
Investors in P2P loans take on the risk of those loans defaulting, but get a higher return than they would on bank deposits, while borrowers can get lower borrowing costs.
Since launch in 2014 investors (including a large chunk of money from Heartland Bank) have made over $350million in loans through Harmoney, making it by far this country's largest P2P business.
Roberts said Britain had passed laws and policies which had prompted an explosion of P2P lending, particularly in loans to small businesses, something that was a top-priority for a country desperate for economic growth.
These included allowing P2P investors to be able to write off losses against their tax, just as the banks were allowed to do on their loan losses.
Britain also let people invest their ISAs in P2P loans, said Roberts.
ISAs are tax-free investment allowances British people get, which like KiwiSaver were set up to encourage people to save more for their retirements.
Another area where P2P was at a disadvantage to the banks was on Resident Withholding Tax, Roberts said, and called on the government to review its application to P2P loans.
New Zealand is reviewing its tax laws, and is aware there are issues with P2P loans, with revenue minister Michael Woodhouse's Making Tax Simpler acknowledging P2P lending and saying: "Our tax system needs to be flexible enough to cope with growing levels of investment income, changing sources of investment income and new types of investment products".
"The rewards are there in terms of changing tax laws, and going that step further to enable the P2P industry," Roberts said.
"I believe we would have a globally defensible industry lending $10b per annum by 2025."
A report on alternative sources of finance for business by the University of Cambridge praised the UK's moves to grow P2P lending.
"In comparison to many markets around the world, the UK's government is known for its support of the online alternative finance market," it said. "The government has supported the growth of this market through direct investments such as the more than £60m ($104m) lent to SMEs by the British Business Bank via peer-to-peer lending platforms, to the application of tax incentives..."
There was something else fintech companies needed from New Zealand, Roberts told delegates to the conference.
That was "regulatory" and legal certainty, which translates as clear laws and predictable behaviour from regulators.
Harmoney is being taken to court by the Commerce Commission over the legality of the way it used to charge fees.
The case has left Roberts feeling bitter as both the Financial Markets Authority and the Commerce Commission had been aware of Harmoney's business model before it was granted a peer-to-peer lending licence in 2014.
The case has caused some overseas investors to withdraw their backing for Harmoney, though local businesses TradeMe and Heartland Bank remain big backers.