AltFi Europe In The Time Of Covid-19

The early news of virus fallout from the alternative finance sector is coming in. Below we run an excerpt of news from the European Crowdfunding Network (ECN) as reported by our friends at  Crowdfundinsider.

  • Our understanding – and direct experience here at Money&Co. – is that niche players will survive the crisis well.

The ECN , the group that represents online capital formation platforms across Europe as well as the UK, has recently completed a survey of member platforms and several non-member platforms seeking to gain insight as to the impact of the COVID-19 pandemic. The survey was completed at the beginning of April so the results are timely. The ECN represents both debt (crowdlending) and equity platforms as well as several donations/rewards platforms.

According to the ECN polling, there has been a “high negative impact” from investors participating on the platforms. Some platforms have taken measures to encourage active investments and others are preparing incentives.

To quote the survey:

  • When looking at the perceived impact on incoming capital flows we find a high negative impact especially on lending, with most respondents indicating a high decline in capital inflows of more than 50%. Equity platforms are also perceiving a high negative impact. On the other hand, donation and reward platforms perceive the whole bandwidth, from high negative to high positive impact on capital inflows. The majority of donation and reward platforms perceives no or positive impact. Platforms suggested that investors were cautious and waiting to evaluate the impact on their own capital base before making further commitments. However, there has been an increased interest by investors to CoVid19 related funding opportunities, which for now seem largely driven by the donation and reward side. Projects specific to CoVid19 have continued to capture investors interest.

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 £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.

  • 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.


Tags: Altfi, covid-19, ECN

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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.