Open Banking – And Open Season For IFISA Investors

It’s Individual Savings Account (ISA) season. The main preoccupation of peer-to-peer (P2P) lenders such as Money&Co. is to make individual investors aware of the benefits and risks of P2P loans ahead of the end of the tax year on 4th April.

As we saw in yesterday’s News story, the P2P asset class is not necessarily correlated with stocks and shares. But P2P, as a sub-division of alternative finance, is not divorced from the mainstream. As such, P2P stood to benefit from the year-old open banking initiative. This, as our friends at P2PFN point out, “mirrors the EU’s Revised Payment Services Directive [which] mandates high street banks to share anonymised customer data with approved third parties (subject to customers providing their approval)”.

Take-up (like the slow start for Innovative Finance Individual Savings Accounts) has been fairly low. As P2PFN puts it: “While the project has the potential to create significant growth opportunities for peer-to-peer lenders, things got off to a slow start. When the new regulations were introduced on 13 January 2018, only four out of the UK’s nine largest banks were able to meet the deadline.

“Imran Gulamhuseinwala, Open Banking implementation trustee, recently said that the initial Open Banking launch made “a tremendous step forward” but “was not as good as it should have been” as “the customer journey was not great”.

“It worked but it was a little bit hairy,” he said at the Open Banking Expo in London.

“But actually my work with the government and the banks means that we’re actually going to fix that.”

Let’s hope so. Meanwhile, anyone looking to take advantage of a 7 per cent, net of charges and free-of-tax IFISA should look below at the process – and be sure to understand the risks as well as the potential benefits of investing.

Money&Co. lenders have achieved an average gross return of over 8 per cent across the loans available on site. There have been no bad debts amongst the nearly £15 million facilitated so far.

A Process Guide To Innovative Finance ISA Investment

All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (ISA), 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 2018/19 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.