The Democratisation Of Finance Hits A New Level
The leading asset class so far this year? Irony, apparently… AltFi runs a leader that’s both pithy and witty. We have our own views on the democratisation of finance – specifically as manifested in tokens and digital currencies – and we’ll be bringing these to you in a series of blogs shortly. Meanwhile, read and enjoy the view from our friends at AltFi:
The power of the crowd, helped by lower barriers to entry to invest in the stock market and the giddying power of social media brought about a huge rise in the price of GameStop as well as a number of other stonks (stocks). It also pushed some formerly powerful hedge funds to hurry out of short positions in these companies and away with a bloody nose. It would be short-sighted to expect this to be the end of the story.
Robinhood, the biggest, most deep-pocketed and most well-known name in the digital wealth sub-sector of fintech, acted for unknown reasons when irritating its users, half of whom had piled into GameStop, but no doubt it did so because it had to.
The contagion was not just felt in the US. Freetrade in the UK, which provides a similar level of market access for UK-based investors had to put in a weekend of hard graft to work to off-set issues it had with providing US market access to its customers owing to its FX partner bank.
If there is a long term trend of greater and greater dominance of the retail investor in markets underway this is both a good thing in terms of fulfilling fintech’s promise to ‘democratise’ financial services but also carries the risk of uncharted ‘populism’ that might well end in Trumpian catastrophe, not least for those investors bidding up the share price of a failing company that will ultimately crash.
Principally this is the kind of un-checked animal spirits that encourages people to bet using money they can’t afford to lose. Decades of regulation have been driven by a belief in the need to protect the retail market and encourage sensible practices. But in the age of the Reddit forum, much of it clearly needs updating.
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.