Another FinTech Heads Down Banking Path
The paths of the mainstream and alternative finance sectors are converging. Major institutions continue to demonstrate a healthy appetite for FinTech companies. Meanwhile, many of those FinTech companies are knocking on the door of mainstream acceptance all on their own.
The fintech filed its banking licence application with the SEC yesterday, revealing its intentions to become a full-reserve national commercial bank.
As a full-reserve national commercial bank, Circle will not lend out its customers’ deposits, rather all customer deposits will be backed by USDC and will be able to be withdrawn at any time.
USDC is a digital stablecoin pegged to the US Dollar and runs on several crypto blockchains, including Ethereum and Stellar and there is now more than $27.5bn of it in circulation.
Now, the fintech believes that USDC (USD Coin) will soon grow into the hundreds of millions of dollars in circulation.
“We believe that full-reserve banking, built on digital currency technology, can lead to not just a radically more efficient, but also a safer, more resilient financial system,” said Circle CEO and co-founder, Jeremy Allaire.
Since being founded in 2013, Circle has worn many hats. The app started its life as a peer-to-peer payment network before shifting to a payment provider and is now one of the more prominent crypto trading platforms in the US.
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 £24 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 2020/21 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.