Platform Lenders Find Dash For Growth Comes At High Price

Growth comes at a price. There are two ways to build a platform lending business – a dash for growth, or a more conservative, organic build.

At Money&Co., we have opted for the second approach, using a conservative risk-analysis model. As a consequence, we have facilitated a relatively low volume of loans at under $20 million in five years. But the attrition rate – the annualised percentage of bad debts – is just 0.03 per cent. And our lenders have achieved an average gross return of over 8 per cent per annum – see below for detail.

The problems of the dash for growth are well illustrated by a high default rate, according to a recent report from our friends at P2P Finance News. See the extract from a recent story, below.

PEER-TO-PEER lending hit a record high of £3bn in the first half of the year but losses are also increasing, a report warns.

The latest Marketplace Lending Index from the Link Group, found that marketplace – or P2P – platforms are collectively lending £16m a day.

The index estimates that the value of lending could total £6.2bn for the entirety of 2019.

Property lenders, including Landbay and LendInvest, accounted for three-fifths of the additional lending in the first half of the year at £848m, up by 54.5 per cent compared with 2018.

Business lending totalled £1.1bn in the first six months of 2019, a rise of 14.5 per cent annually, while new consumer lending was up 9.4 per cent to £990m.

Despite an increase in lending, returns have fallen to the lowest on record, according to the research.

Investors are receiving 3.8 per cent on average, down from the peak of 6.3 per cent in 2016.

This was attributed to rising loss rates, which the report blamed on a move away from contingency funds.

Loans Latest

Mar-Key 6, rated A+, is 30 per cent filled at the time of writing. The yield on offer is 7 percent. Platform lending of the kind we facilitate here at Money&Co. can be a lucrative activity. The average yield achieved by our registered lenders over more than five years of loan facilitation on this platform is more than 8 per cent, before we deduct our one per cent charge. That return has handsomely outperformed retail price inflation, which has averaged around two per cent over this time.

  • Of course, there’s no profit without risk. We vet potential borrowers extremely carefully, but there is a bad debt rate, albeit a small one, of an annualised 0.04 per cent across five years and some £19 million of loans. We make a point of highlighting the risk that comes with P2P – see the foot of this article for a full examination of risk, access and yield provisions,  the risk warnings on the Home Page, in FAQs and elsewhere on site.

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 £19 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 one bad debt 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.


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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.