The FinTech sector’s start-ups will need to raise £825m to see out the Covid-19 pandemic, according to KPMG’s new research report. KPMG takes a look at the leeway – the cash safety belt – it believes companies will need in times of low activity. Our friends at P2P Finance News take up the story.
The new report, entitled Fintech Focus, estimated that fintech start-ups in the UK face around £1.5bn in annual losses, with six per cent of fintechs breaking even and 84 per cent of businesses reporting increasing losses in their last financial year.
Because of these ongoing losses, and the need for regular fundraising, almost half the sector had less than 18 months of a so-called funding runway at the time the pandemic hit, KPMG said.
For all of the fintechs in the report to achieve that 18 months of runway, the sector would need to raise approximately £825m.
The pandemic will also push out the time at which fintechs might be able to break even, creating more pressure to refine business models and adjust strategies to reduce the need for more financing, KPMG said.
“Covid-19 is sharpening the minds of the entire fintech ecosystem when thinking about what makes a thriving and sustainable sector,” said Anton Ruddenklau, global co-head of KPMG Fintech.”
Historical Performance And IFISA Process Guide
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.
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:
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.