Out With The Old, In With The New In FinTech


January is a time of looking both backwards and forwards. We're keeping our powder largely dry on the positive aspects of 2020 for Money&Co. – new loan tranches, the incursion into banking – and indulge in a further moment of retrospection.Our view on the problems created for the platform lending sector by investment bankers solely interested in their bonuses should be pretty clear by now (see earlier Money Matters blogs, for example).Our friends at AltFi do a little reporting on some things that have gone wrong in the FinTech sector. We reprise a small excerpt from a recent article.

There was lots of positive news in the fintech world in 2019, but a number of digital challengers endured a rocky 2019. Here AltFi charts five that will be relieved 2019 is over, including...

Funding Circle

The peer-to-peer lender Funding Circle endured a difficult 12 months, with a plundering share price amid a number of challenges.The P2P lender conducted an internal review after it was discovered investors were having to wait more than 16 weeks to withdraw cash. Funding Circle said it was "exploring a range of options" to tackle the problem delaying investors from selling their loans in its secondary market.Funding Circle also fell out of the FTSE 250, marking a further blow. In August. Funding Circle, which had a disappointing float in 2018, reported a pre-tax loss of £31m over the last six months, compared to a £27m loss the year previous. Its share price is now 90p, compared to the 440p float price.P2P sites have come under intense regulatory scrutiny since Lendy, which focused on property development loans, collapsed last year. The Financial Conduct Authority has clamped down on the sector, including limiting the amount individuals can invest.However, there was good news in October when Funding Circle's shares climbed over 10 percent after its loans under management soared 31 percent to £3.7bn, but the company cautioned of "an uncertain economic outlook".

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 £19 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 one bad debt 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.