Convergence Latest: New Challenger Bank To Target Top End
- One of the ways in which the alternative-finance sector is converging with the mainstream is the pursuit of banking licences by new, challenger banks. The Times carries a tale of a new would-be bank that has its sights set on a wealthy client base.
A former chief executive of the Co-operative Bank, has become chairman of a start-up digital lender seeking to shake up the market for wealthy customers.
Niall Booker, 61, who also held senior roles at HSBC during a 30-year career there, joins several other industry veterans at Monument, which has applied for a banking licence and aims to capture some of the 3.5 million people it believes have the means to use its services.
The new bank will lend up to £2 million to customers through an internet-only application, which it believes it can do because of superior technology for credit checking.
It’s estimated that roughly 3.5m people fall into Monument’s target audience, most of which will bank at private banks like Coutts or C. Hoare & Co.
The new digital bank is directing its services towards individuals with assets worth between £250,000 and £5m, with a specific focus on professionals like as doctors, lawyers and accountants.
To open an account, customers will need to have at least £25,000, which is around half what is needed to open a premier account with other private banks.
Mintoo Bhandari, a former managing director at private equity house Apollo Global Management who is setting up Monument alongside Booker, told The Times: “Before [coronavirus], we thought 90 per cent of transactions would be digital and 10 per cent face-to-face. Now we think 98 to 99 per cent will be digital.”
Monument is reportedly in an advanced stage of the process and hopes to be fully operational within the next six months.
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 £21 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.