Kalifa Report Adds Weight To Argument For FinTech Asset Fund Acceptance

We’ve long argues that Fintech needs to be seen as a legitimate, investable asset by the likes of institutional investment and pension-fund managers. Following last week’s publication of the Kalifa report on FinTech there’s plenty of support for this argument. AltFi makes its own case here:

To put it mildly, fintech companies haven’t struggled for funding in recent years. True, the pandemic may have prompted a dip, but billions have flowed into the sector in the past five years. The UK alone saw $4.1bn flow in 2020, second only to the US where an admittedly far larger $22bn was invested last year.

Most of the cash, especially that from UK investors, came from venture capital funds. But very little came from some of the deepest pools of potential capital, pension funds.

There is a staggering £6trn in UK private pension schemes at present, much of it low yielding ‘safe investments’ such as corporate bonds owing to complicated rules around liability-driven investment. As a partial consequence, the UK pension shortfall has reached approximately £5trn. 

Put more simply; pensions are in dire need to grow their capital base to be able to make future payments of pensions. 

Step in fintech and other high-growth sectors that make up the world of technology-focused start-ups.

Kalifa, or rather the report he has authored, says a small portion of the UK’s pension cash could be diverted to high-growth technology opportunities like fintech.

It notes: “at present, investment into the UK fintech sector has been led by international sources of capital. An analysis of investment into UK fintech companies demonstrates that the majority of investment over the past five years has come from non-domestic capital. And these foreign investors are enjoying the proceed”.

Fintech investment has seen a 270 per cent return on average, over the past 10 years, with the largest 10 fintech companies achieving returns of 420 per cent. In comparison, the FTSE 100 is up 62 per cent over the same period.

Encouraging domestic investment and institutional capital would allow us to retain these proceeds and could go some way towards plugging the gap.

Historical Performance And IFISA Process Guide

  • Money&Co. lenders have achieved an average return of more than 8 per cent gross (before we deduct our one per cent fee). 

That figure is the result of over £20 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders’ capital is at risk. Read warnings on site before committing capital.

  • Money&Co. has been lending for over 5 years and has only had two bad debts so far, representing a bad debt rate of 0.03 per cent per annum.

All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.

So here’s our guide to the process:

  • Step 1: Register as a lender. Go to the login page, and go through the process that the law requires us to effect. This means we have to do basic checks on you to comply with money-laundering and other security requirements.
  • Step 2: Put money into your account. This is best done by electronic transfer. We can also process paper cheques drawn in favour of Denmark Square Limited, the parent company of Money&Co.
  • Step 3: Buy loans in the loan market. Once you’ve put cash in your account it will sit there – and it won’t earn interest until you’ve bought a piece of a loan. It’s this final step that requires lenders and IFISA investors to be pro-active. Just choose some loans – all loans on the Money&Co. site can be held in an IFISA – and your money will start earning tax-free interest.

The ISA allowance for 2019/20 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We’re assuming a 7 per cent return, net of charges and free of tax here.

Once you have made your initial commitment, you might then consider diversifying – buying a spread of loans. To do this, you can go into the “loans for sale” market. All loans bought in this market also qualify for IFISA tax benefits.

Risk: Security, Access, Yield

Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.


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Disclaimer: Money&Co.™ is the trading name of Denmark Square Limited, Company Number 08561817, registered in England & Wales, authorised and regulated by the Financial Conduct Authority (FCA). The company is identified on the Financial Services Register under Reference Number 727325. The registered office is 58 Glentham Road, Barnes, London, SW13 9JJ where the register of Directors may be inspected. Denmark Square Limited (ISA manager reference number Z1932) manages the Money&Co. Innovative Finance ISA.