Open Banking’s Next Step – Plus Loan Auction Latest
It’s rare that a genuinely original idea comes along. And the essence of originality is often simplicity. We like the look of this simple, logical extension of the open-banking principle. We’ll be watching this one carefully. As reported by our friends at Altfi.
Challenger bank Shawbrook has come up with a unique proposition to encourage its customers to share their open banking data: better rates.
In return for sharing their open banking data, borrowers will qualify for a 1 per cent reduction in the APR on their personal loans.
To qualify, borrowers have to come via ClearScore, the financial marketplace that is handling the open banking data side of the deal.
The data being collected includes real-time income and expenditure, captured at the point of application and will be used as part of Shawbrook’s decisioning.
However, crucially the data collection will be a one-time event, and there will be no ongoing access to the open banking data.
“The ability for us to now have access to the same powerful data [as franchise banks] marks a significant turning point, allowing us to enhance our credit decisioning to directly benefit our customers,” said Shawbrook Bank’s consumer MD Paul Went.
- We start the new tax year with three loan auctions on site, from borrowers we have dealt with before.
All these loans can be held, up to £20,000, as Innovative Finance Individual Savings Accounts (IFISAs). IFISAs are explained in more detail below. Here’s the latest from the auction room:
- Mar-Key has a credit rating of A+, a yield of 7 per cent and a term of two years. It is currently 61 per cent filled.
- HTHL Ltd has a credit rating of A+, a yield of 7 per cent and a term of one years. It is currently 19 per cent filled.
- Harris & Co has a credit rating of A, a yield of 8 per cent and a term of one year. It is currently 12 per cent filled.
- You can see detail on each by logging in and downloading the credit note.
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 £24 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 2020/21 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.