Much of the FinTech sector is in a state of suspended animation as the virus effects pan out. We’ve long been predicting a period of consolidation in the UK’s platform, or peer-to-peer (P2P) sector, and Crowdfundinisder brings news of fall-out in the American P2P market. This includes a story of a possible “fire sale” of a US P2P platform. So what next for the UK? As previously argued here, we believe that the robust, niche business models will do better than most.
There has been a lot of chatter regarding the fate of Fintech lenders in the past few weeks. The COVID-19 pandemic has hammered online lenders as sources of capital have shied away and some borrowers have backed off. Existing borrowers are not always making payments on loans. LendingClub (NYSE:LC) recently reported that it expected a 90% drop in loan originations this quarter. Today, Fitch Ratings said that the impact of COVID-19 may imperil the viability of some marketplace originators.
In a separate write up on Forbes today, it was reported that OnDeck (NYSE: ONDK) is for sale having hired Evercore to pitch the platform. The possible transfer was described as a “fire sale.”
In 2014, OnDeck IPOed at $10 a share with the stock price quickly jumping to over $20/share. Today, OnDeck trades for less than a dollar thus representing a serious decline in value. Its market cap stands at under $50 million.
Late last month, OnDeck reported a quarterly loss of $0.92 per share. The consensus estimate, according to Zacks, was $0.06 – thus representing a huge miss.
During the earnings call, OnDeck said it was pushing pause on new term loan and line of credit originations. The online lender said it will focus on serving existing customers and supporting the PPP program, for the time being. The company has also taken “aggressive measures” to reduce costs including an across the board 15% salary reduction and a 30% cut for the OnDeck CEO and board compensation.
Historical Performance And IFISA Process Guide
That figure is the result of over £23 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.