How Useful Is 'FinTech' Label? Plus IFISA Process Guide
The alternative finance sector is growing fast. This is especially true of the financial technology (FinTech) sub-sector.With rapid growth comes rapid change – so much so that the language we use to describe our industry often struggles to keep up. We've often reported here on the need for an established taxonomy for alternative finance.So we notice with interest a debate at CityA.M. which examines the question f whether the descriptor "financial technology" itself is becoming redundant. At Money&Co., our view is that FinTech is a useful label for our sub-sector.We agree with this side of the debate, articulated by a senior lawyer:
Since their inception, fintechs have been shaking up the industry status quo. By ingraining technology in their operations from day one, fintechs have set themselves apart from the traditional market players – offering customers a better, more innovative, user-friendly service. In doing so, they have captured the imagination of customers, changing perceptions of what the world of finance could be.As a result, there is now a healthy level of competition in what was a traditionally slow market. Larger institutions are no longer able to rest on their laurels. They need to reimagine how they can match the services and processes of fintechs. Advances in technology and legal changes are encouraging new businesses offering more innovative products. It would be a disservice to fintechs to put them in the same category as financial institutions.
A Process Guide To Innovative Finance ISA Investment
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 almost £15 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.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.