The digital revolution and the opening up of the baking market to “challenger” banks is one of the major financial trends. But it can be overdone – as a cautionary tale from the US, reported by our friends at Altfi, illustrates.
The business of handling open banking data can be a messy one, as demonstrated by Plaid in the US where it settled a class-action lawsuit in August for obtaining “more financial data than was needed”.
The issue in question was around how Plaid operated bank account login screens between 2013 and 2021—starting long before banking APIs were commonplace—that often mimicked those of a user’s own bank… while it was actually Plaid collecting the data.
As part of the settlement, Plaid admitted no wrongdoing, agreed to delete all the data that was collected and to pay valid claimants $58m.
“Plaid denies any wrongdoing and all of the allegations in the lawsuit; no court or other entity has made any findings against Plaid nor any determination that the law has been violated,” is the official line of the settlement.
Now the open banking giant has launched a ‘Plaid Settlement’ website, calling on affected users to upload proof of their claim before the end of April.
Historical Performance And IFISA Process Guide
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.
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 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.