What is Mintos all about?
Mintos is a marketplace lending platform that brings together investors and borrowers by enabling various loan originators to use a marketplace lending model in funding loans. Previously loan originators established their own platforms; now Mintos offers a single platform to those non-bank lenders that seek to sell loans. This means non-bank lenders do not have to make major investments in establishing and maintaining their own platforms. By connecting to the Mintos platform non-bank lenders get an instant access to investors that are looking to purchase marketplace lending assets. Thus, non-bank lenders can focus on their core skill of originating loans.
What are the main advantages for investors?
At Mintos investors can invest in loans that are originated by various non-bank lenders that use our platform to fund their loans. The main advantage for the investors, accordingly, is that they get an access to much broader investment opportunities as part of a single platform, both in geographic terms, and in terms of various loans originated by various non-bank lenders. Investors on the Mintos platform can invest in mortgage loans, secured car loans, small business loans, and soon also unsecured loans. Loans are currently originated in Estonia, Latvia, Lithuania, and we are about to add loan originators from Finland, Georgia, and Spain. This, combined with the fact that the minimum investment in one loan is EUR 10, means that investors can easily build very well diversified investment portfolios. Also, as a result of having various loan-originators and many investors on one platform our secondary market is very liquid.
It is also important that non-bank lenders whose loans are available to investors on our platform are experienced in underwriting. The platform is used by Capitalia, for instance, which is the leading small business lender in the Baltic sates and has been lending for five years. All lending processes are orderly at the company, it has experience, and it has access to historical data. That is essential for investors who can be sure that the detailed credit analysis are preceding the granting of a loan. Moreover, the loan originators on the Mintos platform are required to retain a part of each loan on their books, i.e., to have “skin in the game” to align their and investors’ interests.
Finally, all loans on the Mintos platform are prefunded by the loan originators; thus investors can start earning from the moment of the investment and there is no cash drag. At the moment more than EUR 1 million of loan inventory is readily available for investment on our platform.
What about borrowers? What are the advantages for them?
Mintos does not issue loans, but it is important for us that the loan originators who use our platform at the end of the day can offer cheaper rates to borrowers. Also, the lending process is much more convenient at these loan originators. When borrowing money from Capitalia, for instance, a small company can expect the money to arrive in its account in just a few days’ time, usually even faster. At a bank, by contrast, that could take several weeks. Finally, some of the loan originators who use our platform provide loans and services to those borrowers who might not have had an access to affordable credit before. For instance, among clients of Mogo, the largest non-bank car loan provider in the Baltic region that is also on our platform, there are those who are seeking a car loan, with the average requested sum being around EUR 3,000. This segment is underserved by the banks.
So far the average net annual return for investors investing via the Mintos platform have been slightly below 13%. We expect the average net annual return to hover around the low double digits also in the future. However, investors should look not just at the return, but also the relevant risks. In the case of Mintos, investors can easily build a very well diversified investment portfolio across different loan products and geographies, thus reducing unsystematic risk within the marketplace lending asset category. Also, the Mintos platform was the first with a buyback guarantee where some of the loan originators buy back non-performing loans from investors, thus substantially reducing risks for investors.
What is the background of Mintos?
We started to work on the idea in mid 2014 and launched the platform in January 2015. I come from the investment banking where I spent six years before going for an MBA at INSEAD. That, actually, was the first time I heard about the peer-to-peer lending because I borrowed from Prodigy Finance, a platform that provides funding to international postgraduate students attending top-ranked business schools, while also delivering competitive financial returns to institutional and private investors. The other Martins, Martins Valters, our CFO and also a Co-Founder, has 11 years of experience from Ernst & Young where he audited some of the largest financial institutions in the Nordic region.
To fuel our growth we have raised EUR 1 million in venture capital to date. That has helped us in forming a strong team and an experienced board of directors. In a bit more than six months since the launch, more than 2,400 investors from 30 countries have registered on the Mintos platform and funded more than 1,500 loans for a total of more than EUR 4 million, of which EUR 1 million in the last month alone.
Is yours a bespoke platform?
Yes. We began work on the platform half a year before we launched it to the public, and we developed it in-house from scratch. Each marketplace lending platform has its own nitty-gritty approach, so it is best to design the platform ourselves. The Mintos platform is used by various non-bank lenders, and so we see ourselves as a technology company with a strong finance background. Currently, we have eight software developers in our team. We listen carefully to what investors say and appreciate their feedback as it greatly helps in improving the platform.
What has been the greatest challenge in launching Mintos?
I have to say that innovations and entrepreneurship have always been ahead of regulation, and FinTech is no exception. So we have worked hard to inform the public, policymakers, and regulators about how marketplace lending works. That is very important. The marketplace lending industry is developing very quickly, and we want our sector to be competitive. It is also a challenge to educate investors, because the development of marketplace lending platforms in continental Europe has occurred less quickly than in the UK, for instance.
In comparison to the market in the UK or the United States, what is the status of p2p lending in Latvia and the Baltic States?
We tested our platform successfully in the Baltic states, and that is very nice in that we were the first ones in Latvia to offer such a platform. Now we have investors from 30 countries, and we are rapidly expanding the scope of loans available on the platform and loan originators – Latvia, Estonia, Lithuania, soon also Finland, Georgia, Spain. I have to say that in the UK and America, p2p lending platforms appeared much sooner than in continental Europe, there are far more platforms, and people are more aware of them. That leaves a lot of untapped market in Europe and we certainly see that as an advantage when thinking about our development.
You are planning to move the platform to the UK and submit it to Financial Conduct Authority (FCA) regulatory supervision. What led you to that decision?
The UK, and London in particular, is the world’s largest centre for FinTech. From the perspective of the p2p lending, we must think about three major advantages for moving our platform to the UK. First of all, the legal framework in the UK is orderly, and there is a clear regulatory system. Second, the British government has clearly indicated its support of p2p lending be it through investing itself via such platforms or through introducing Innovative Finance ISA, which will allow peer-to-peer investments to be held in the tax-free wrapper, from April 2016. Finally, more and more investors on our platform come from Western Europe, so we want to be closer to them. Our strategy is to be competitive at the European level, and our move to the UK is a logical step in that direction.
Which marketing channels do you use to attract investors and borrowers? Can you tell us about your acquisition costs per client?
When it comes to borrowers, each loan originator uses its own marketing channels – a mix of online, offline, and partnerships. Mogo, which specialises in auto loans, for instance, has strong partnerships with used car dealerships. When it comes to investors, word of mouth is very important in that people who make investments through p2p lending platforms actively communicate through various forums and blogs. We haven’t engaged in too many marketing activities to attract investors, instead they have found us, while we are working very hard to make sure that investors on our platform have a great investor experience. We are grateful that the work we are investing in building a great investor experience has led to our investors proactively sharing their experiences, thus becoming ambassadors for the Mintos platform.
Your Website currently lists 2,400 registered investors from 30 countries. Which five countries have proven to be most important in this regard?
The top five countries by investment amount are the three Baltic states, Estonia, Latvia, and Lithuania, as well as Germany and the UK. As investors get to know about us the balance is increasingly shifting to Western Europe where saving and investing culture is more developed.
What is the importance of buyback guarantees for providers in your business? Will the percentage of such loans increase on the Mintos platform?
The buyback guarantee means that in case a loan on our platform is late for more than a specific number of days (usually 60 days), the loan originator will buy back the non-performing loan from investors and thus bring it back to its balance sheet. That substantially reduces risks to investors, but does not really increase the risk to loan originators as they are prefunding the loans anyway. We have to remember that the default risk can be measured, and with the buyback guarantee this risk is just transferred from investors to the loan originator. The buyback guarantee will command lower interest rate offered to investors, but expected returns will be stable. On the other hand, if the default risk is passed on to investors, they will price it in and require a higher interest rate. To provide the buyback guarantee or not is up for loan originators to decide, but yes, there will probably be more offers of that type in the future.
Can your investors expect any new product development over the next six months?
Investors will certainly notice our development, because it happens all the time. The small business loan originator recently joined the platform, and we are looking to add new loan originators, new types of loans from different countries. We will continue to improve the platform so that it is easy for investors to use. Among major developments we are certainly looking to provide investors with an API to invest in loans. A lot is happening behind the scenes – improving speed and stability of the system, refining the process of non-bank lenders connecting to our platform, improving payment processing, etc.
Where do you see Mintos in three years’ time?
We see ourselves as a serious player in the European market – one that provides a free movement of capital, which enables integrated, open, competitive and efficient financial markets and services that work for the benefit of investors and borrowers.
P2P-Banking.com thanks Martins Sulte for the interview.