FinTechs Jockey For Favourable Consumer Credit Position
The wait-and-see period continues. As we deal with the second Covid-19 wave and wait for vaccine rollout there’s much belt-tightening and general preparation for the battle to come in a world that reverts to the new version of “normal”.
London-based Zilch has today become one of the first home-grown buy-now-pay-later (BNPL) fintechs to gain consumer credit authorisation from the Financial Conduct Authority (FCA).
Zilch uses open banking, in partnership with fellow London-based fintech Credit Kudos, as well as soft credit checks to assess a customer’s creditworthiness and affordability.
Speaking with AltFi last week, CEO and founder Philip Belamant, teased the upcoming announcement: “The FCA gave us our initial authorisation five months ago and we are looking forward to some pretty big news on that, which we believe we will be getting soon.”
“We really feel like between out open banking integration, the way we’re doing affordability and interacting with the regulator, we really feel like we are providing the most responsible way to pay over time,” Belamant added.
Unlike traditional BNPL fintech, such as the likes of Klarna and Clearpay, Zilch allows customers to pay in interest-free instalments at any online retailer where Mastercard is accepted, not just the ones supported by its platform.
Through the use of open banking, the fintech ensures that customers can afford to repay their deferred purchases by using real-time insights into a consumer’s financial wellbeing and current expenditure.
Ahead of its authorisation from the FCA, Zilch was part of the regulator’s sandbox programme.
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.