Challenger Banks Still Playing Secondary Role In SME Funding

The FinTech Times comes up with what must be, even on a Monda, winner of the dodgy metaphor of the week award. It runs an article on challenger banks, seen by the writer as the eternal “mistresses” of finance. There’s useful information here, nevertheless. We run an excerpt below, with the full article available here.

Bank challengers have always claimed they are a on a digital mission to shake up the banking industry figures, however research from Curve shows that even among the keenest early adopters, traditional banks are still used for four in every five purchases.

The challenger banks have always claimed they are a on a digital mission to shake up the banking industry with slick apps and new features which make managing money, and collecting rewards, far more user friendly.

However, the latest research from Curve would suggest they still have a long way to go. The service that allows customers to manage multiple bank cards through a single platform believes it is a unique position to research spending habits for those who have a choice between challenger and high street accounts.

The result may make uncomfortable reading for the challengers. When given the choice, Curve users pick their high street card over a challenger’s for more than four in every five transactions.

This finding prompted Curve to delve deeper to better understand consumer behaviour among those who have a choice of using either a high street or challenger bank. The conclusion will make unsettling reading for the new brands. Only Monzo appears to be making any major sign of inroads in competing with the high street in a year when we have already seen the closure of N26 and NatWest’s, Bo.

Curve, CEO Shachar Bialick, believes its figures prove investors backing the challenger banks may be in for an uncomfortable surprise when they look beyond the promise of disruption and focus on actual day-to-day statistics.

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 £21 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 two bad debts 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.