Mainstream And Alternative Finance Sectors Continue Down Convergence Path
Today we bring news of the latest step along the evolutionary path that is bringing convergence between mainstream finance and the alternative-finance sector. Our friends at Altfi report a significant development:
The pioneer of peer-to-peer lending Zopa is to shut its P2P platform after 16 years in a bid to focus on its growing bank and credit card business, AltFi can exclusively reveal.
Zopa Bank, the company’s 18 month old neo bank business, will be buying the retail P2P loan portfolio at face value from the firm’s c.60,000 investors who will receive their investment balances back by the end of January 2022.
In a statement to AltFi, Zopa said there will be “no impact” on borrowers as Zopa Bank already services their loans and staff engaged in its P2P business will be offered new roles within the bank.
Zopa CEO Jaidev Janardana told AltFi in an interview regarding the closure of its peer-to-peer business that the twin effects of tighter regulation of the P2P lending sector since 2018 and growing negative retail investor sentiment towards P2P during the pandemic largely explain the decision.
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- The latest £77,600 loan offering, yielding seven per cent and risk-rated A, is currently 37 per cent funded.
The lender is seeking to fund claims for financial mis-selling. The term of the loan is 15 months.
Below are some details from the borrower’s pitch – as ever, we’ve done due diligence but cannot warrant or guarantee the truth of the representations. For full detail, register or log in here.
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.