Digital banks, challenger banks (not quite the same thing) and the open banking initiative are individually and collectively ringing changes in the alternative-finance sector. Our friends at Altfi report the latest:
UK Open Banking is undergoing its biggest shakeup in years. The body established by the CMA’s Retail Banking Market Investigation Order in 2017 to deliver open banking – the UK Open Banking Implementation Entity (OBIE) – is being phased out and a replacement will be needed.
Under the OBIE, the Open Banking system has flourished. It has accumulated over 700 market participants, and other industries have come to eye the space with envy. What comes after the OBIE, therefore, matters for UK financial services as well as other industries and countries looking on.
However, the successor organisation’s precise nature is up in the air. As the CMA notes: “Although the core elements of open banking are now in place… it is not inevitable that it will continue on the same trajectory.” Industry, lobby groups and government all have a view.
Meanwhile, the pandemic has transformed consumers’ finances and spending behaviours. Open Banking is experiencing a resultant surge in interest, investment and innovation – monthly active user rates doubled during 2020 according to the OBIE. The appetite for Open Banking products and services has never been greater.
The second tranche of the Fleetwood Legal £250,000 loan offering is now 24 per cent filled. The loan offering is rated A with a yield of 8 per cent and a 12-month term. Please note that ‘Fleetwood Legal’ is a code name for commercial reasons.
Money&Co. lenders have been funding legal claims since May 2019. Over that period, and despite the issues that affected the courts at the start of the pandemic, all of the money lent has been returned to our lenders with an average rate of interest of 7.85% before fees.Fleetwood Legal (FL) has an A rating from our credit committee and offers a yield of eight per cent over its one-year term. Below we offer an extract from our credit analysis. Readers wishing to see the full note and to subscribe to this offer must log in (or register if you are a first-time lender).
Historical Performance And IFISA Process Guide
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.
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 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.