Open Banking In Play – Latest Research

Open banking is one of the hot topics in the FinTech sector. We’ve run several pieces on the topic, and opine regularly on it to trade publications. Today sees our friends at The Fintech Times showcase some open banking research from Tenemos:

Temenos has released a new white paper to discuss the evolution and future of open banking and Banking-as-a-Service post-pandemic.

Since its inception in 2018 in Europe through regulatory initiatives like PSD2 and Open Banking Standard in the UK, open banking has spread to over 50 countries globally. Open APIs have become the standard of collaboration in an increasingly busy financial ecosystem where banks, neobanks, fintechs, payment disruptors and the e-commerce and technology giants strive for dominance in different parts of the banking value chain. Banks are exploiting open banking to experiment with new business models to break into new markets, to consolidate market share in mature markets, or to defend against aggressive new entrants in others.

We are also now seeing the rise of embedded finance, with increasing demand for a unified customer-centric digital platform to deliver both financial and non-financial products and services. As embedded finance is spreading to consumer-facing brands and includes all financial products, such as mortgages, loans, pensions and insurance, Banking-as-a-service (BaaS) has risen from open banking framework. BaaS offers a different approach to financial services, deconstructing the traditional model and places the building blocks in the hands of a wider range of stakeholders.

In order to succeed in this new, BaaS world, all players in the open banking ecosystem require a cloud-native technology platform that is API first. This whitepaper discusses the rise of banking as a service, delving into the evolution and future of BaaS in the post-pandemic era.

Key insights from the whitepaper include:

  • How Open Banking is evolving across the globe changing the industry, forever
  • What are the new business models to collaborate and co-evolve in the wider financial ecosystem
  • How to deliver tangible customer value for Retail and SME banking
  • What embedded finance is and how it is crucial to your BaaS success
  • The technology implications of Open Banking and BaaS

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.


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Disclaimer: Money&Co.™ is the trading name of Denmark Square Limited, Company Number 08561817, registered in England & Wales, authorised and regulated by the Financial Conduct Authority (FCA). The company is identified on the Financial Services Register under Reference Number 727325. The registered office is 58 Glentham Road, Barnes, London, SW13 9JJ where the register of Directors may be inspected. Denmark Square Limited (ISA manager reference number Z1932) manages the Money&Co. Innovative Finance ISA.