This year in alternative finance is set to see the sustained dash for growth we’ve long predicted here in our News pages. One way platform lending operations like Money&Co. might do this is to seek a banking licence (but the process is long and demanding). Another way is to collaborate (thought this can be fraught with pitfalls).
Starling Bank has played a deft hand in the race for scale among the leading digital ‘neobanks’. It has always had fewer account holders, when compared to Monzo and Revolut but it has steadily built up its deposit base faster than both.
The firm is now using some of those juicy deposits to fund consumer loans originated by peer-to-peer lending pioneer Zopa, itself in the last throws of launching its own deposit-taking bank. Starling Bank then buys the loans and transfers them to its own balance sheet with Zopa continuing to service the loans.
A spokeswoman for Starling told AltFi: “Starling is in a unique position among neobanks of having a very high value, high growth and high quality deposits. We currently hold over £1.25bn on deposit and the sum is growing at double digit rates every month.”
Yes You Can, rated B, for £30,000 with an 11 per cent fixed yield over five years, is now filled. Project Rhapsody rated A+, with an 8 per cent fixed yield for three years is also filled. More loan offerings will land on site soon.
Historical Performance And IFISA Process Guide
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.
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 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.