Bondora Announces Changes for Go&Grow Product for New Customers

Estonian p2p lending marketplace Bondora* announced today that for new customers the availiable Go&Grow interest rate is 4%. They can invest an unlimited amount in the product called Go&Grow unlimited. The Go&Grow tier with an interest rate at 6.75% will remain available only to existing customers that joined before August 24th, 2022. Currently that tier is limited to adding 400 EUR new investment per customer per month.

Bondora says this change is necessary, since they will prioritize launching new loan markets, new financial products, and newtarget audiences in the coming months.

According to the announcement Bondora has 200000 customers, which invested more than 650 million EUR.

First Mintos Notes Are Live – A First Look

As announced Mintos* launched the first notes today. For an introduction what notes are please refer to my previous article.

To see the new notes listed on the Mintos primary market, investors can toggle a switch on the upper left side

mintos notes primary market
Screenshot May 25th, 2022, click for larger view

Initially there are notes from the loan originators Eleving Group, CashCredit and Sun Finance listed. Notes for more loan originators will be added as soon as they have published the required prospectus.

Clicking on an ISIN brings up the detailed information about the loan set. Most of the offered information mirrors that available for claims, but there are some new parameters, e.g. ‘sink factor’

mintos set of notes
Screenshot May 25th, 2022, click for larger view

Investors have voiced questions and concerns around the shift from the claims to the notes product. Mintos has adressed common questions in this Q&A. One of the most discussed aspects is that Mintos is required to withhold 20% taxes. This amount can be lowered for residents of these countries as soon as they submit a tax residency certifacte from their tax authority to Mintos.

Despite all communication efforts by Mintos it seems an uphill battle. On the German forum in a recent survey 55% of respondents answered that they will stop investing at Mintos as a result of the introduction of the new notes. Another 24% are unsure about it. Similar sentiments can be read on the Czech forum.

If investors will suit the action to the word this might impact Mintos origination volumes in the coming months. Some investors might switch to competing platforms with similar offers, e.g.

It will also be interesting to see if there is an impact on the discounts on the secondary market for claims, as investors might try to sell claims before the secondary market sunset for claims on June 30th. If investors do not wish to hold claims to maturity there might be increasing supply outweighting demand and therefore offered YTMs might rise until June 30th.

 

New Mintos Notes Product Will Launch on May 25th

mintos logoThe long announced and several times postponed Mintos Notes product will finally launch on May 25th, Mintos* said yesterday. The notes are financial instruments and issued under the new investment firm license Mintos received last year. For each loan originator there will be a seperate prospectus (see example). Mintos mentions safeguarding of investor funds and notes under MIFID II requirements and increased transparency as investor benefits.

mintos transition

Until 30 June, investors can buy and sell investments via claims on the Secondary Market as usual. Then, from 1 July onwards, investors will be able to buy and sell Notes only, as a result of regulatory requirements.

The transition will mean two key changes for investors:

  • As the claims cannot be traded from July 1st onwards on the secondary market, investors will have to hold any claims in their portfolio to maturity
  • Mintos is required to deduct withholding tax depending on the investors country of tax residency and applicable double taxation treaties

My take

The transition will mean a major change for the marketplace that could either stiffle or empower Mintos growth. I expect that many investors will shy away from investing in very long term claims on the primary market in the remaining 7 weeks. Also buyer demand on the secondary market will likely decrease for the claims on long term loans. Potentially this will lead to offers with rising discounts before the trading of claims ends on June 30th.

There is some hesitation voiced among investors regarding the upcoming notes due to the withholding tax and surronding paperwork to claim possible reliefs and reductions (Mintos has announced that it will publish more information on the details). Mintos might try to offer some incentives in order for investors to take the leap and embrace the new product. I also imagine that Mintos will step up investor marketing again, once the notes product has launched. Already Mintos is taking a lot of effort to communicate and explain the coming changes via blog articles and newsletters.

This disruption might also increase the trend of loan originators setting up their own, unregulated investor marketplaces in other jurisdictions than Latvia.

 

New product: Mintos Invest and Access – What it is and My Opinion

Mintos* will launch a new product offer called Invest & Access tomorrow. It was already unveiled and presented at the P2P Conference in Riga on Friday. Before I write about it watch the video below for about 10 minutes with Mintos CEO Martins Sulte explaining Mintos Invest and Access.

invest and access presentation riga
the video should autostart at the right point. If not it is at 2:29:22

The new offer makes it super-easy for investors to invest and automatically diversify through a very wide selection of loans. Mintos does that by investing the money in all loans on the platform that carry a buyback guarantee and are from originators that are at least 6 months on the platform. Mintos promises that investors will be able to cash out easily (subject to market demand) instantly, saying investors don’t need to bother about handling the loan selling on the seondary market. Mintos does that by selling the non-late loans to other investors.

The investor can still see how the portfolio he holds is composed on an overview page. One important aspect for the market dynamics on Mintos marketplace is that Invest & Access will invest before the autoinvests.

Mintos is cleary aiming to make it easy for new investors that don’t want to spend much time thinking about the investment and optmizing yields by giving them the average yield by just one click. The Invest & Acesss page will show the weighted average interest rate, which at the time I saw that page was showed as 11.98%. But the figure will change and update as market conditions fluctate and as the FAQ says it is not guaranteed.

One important point in the FAQ/footnotes is that the ‘instant access’ only applies to current loans. That means if the investors has e.g. 15% late loans, that would mean that he gets only 85% as instant withdrawal and for the remaining 15% has to wait until either the loan is bought back by the buyback or becomes current again (I suppose in that case the investor could trigger another cashout).

Investors can runs both Mintos Invest & Access as well as the existing autoinvests, should they which, but in that case Invest & Access would use any available cash the investor has first, therefore I would guess that there are rarely any funds left for the autoinvests to use.

My Opinion on Mintos Invest and Access

Mintos clearly offers a product that makes it as easy as possible, lowering the entry hurdles especially for new investors. And as Bondora Go&Grow* shows there is a high demand by investors for simplified products. Statistics published by Bondora show that in April 2019 63% of the new investments in that month where conducted via the Go&Grow product, which is constantly gaining over the other investment methods Bondora offers. Other examples are the Access products offered by British Assetz Capital*.

Looking at it from the perspective of an investor that is a little more experienced and willing to spend a little time Invest & Access does not seem an attractive offer. By definition it offers the weighted average interest rate.

By setting up own autoinvests at Mintos, keeping a good diversification and foregoing the highest risk, investors can currently achieve about 13-14% yield on Mintos. So if they would instead use the new product they would have about 2-3% lower yield, and have actually less control on which originators they invest in. An important point to consider, is that the value Mintos shows you, is the average interest rate, NOT the expected average yield. The yield will be significantly lower than the interest rate as Mintos will include buyback loans from originators with long grace periods or originators that do not pay interest income on delayed payment. Excatly those are typically avoided when investors configure their own autoinvests.

And concerning the argument of liquidity. Mintos is very liquid anyway. Without using the new product it is no problem to liquidate a portfolio within a few minutes to  a few hours it just depends on the price. Sure you might have to offer a discount. Maybe depending 0.2%-0.6% on average. But that is a small price if you had the higher yields before.

So would I recommend using Invest & Access over the ‘traditional’ way of setting up own autoinvest? There is one use-case I would. If an investor wants to invest very short-time (for whatever reason ‘parking’ money) for less than say 120 days, than it is worth considering.

In my opinion on why Mintos launched the new product, there are actually two reasons:

  1. there is demand for a simplified product and this new product shall satisfy that
  2. the new product will help on the sales site for attracting and onboarding new orignators. Originators that can only offer rates that are below the average interest rate on the Mintos platform so far were hard to sell. With Invest & Access they will be just part of the bundle and automatically sold (once the originator has been on the platform 6 month)

That brings us to an interesting point. How will Mintos Invest & Access the market dynamics? The big factor here is that Mintos Invest & Access happens BEFORE autoinvest and manual investment. There are already (even before launch) speculations and fears of investors that it might bring down interest rates or ‘force’ them to use the new product to avoid cash drag, but I think it is much to early to make any prediction what might be the outcome. But I sure am curious what this will do to the activity on the Mintos marketplace.

What are your opinions on the new product? Please share them in the comments. Thx.

mintos invest and access

P.S.: The following interview with the Mintos CEO was recorded just before the announcement of the new product, therefore it does not cover Invest and Access – but it has a lot of information on the current state of Mintos.

(Source: Bernhard Hummel)

P2P Lending: How are interest rates set?

Everybody talks about the win-win situation p2p lending offers for lenders and borrowers. By cutting out the large spread a bank takes when making a loan, the lender can get a higher interest rate, than he might in a savings account and the borrower may get a lower interest rate, than using his credit card. But who does actually decide what the interest rate for a p2p loan will be?

Several market mechanisms have developed. P2P lending services use combinations of these to built their platforms. I’ll describe some of the elements:

Individual Loan Listings vs Markets: With Listings (e.g. Prosper, Lending Club, Auxmoney, Isepankur) lenders can look at individual loan listings and see multiple parameters (e.g. credit grade, income, DTI, occupation, location,…). The lender can select (“filter”) loans based on his strategy. This is not necessarily a manual process as he can opt to use automatic bidding tools that make the selection for him based on criteria he set in advance. Other p2p lending services use Markets (e.g. Zopa, Ratesetter) which combine loans based on broader criteria (e.g. loan term, or credit grade). Here a lender can only decide which market to invest into, but does not pick individual loans.

Close at Funding vs Auctions: Some p2p lending services close loan listings once they are 100% funded. The loan is then originated. Others uses an auction process where the listing is open for bidding for a set time. If the loan amount is 100% funded then the bidding continues for the remaining auction period. New bids at lower interest rates push out old bids at higher interest rates, thereby lowering the final interest rate for the borrower. Some p2p lending services allow loan listings of both types or let the borrower prematurely end an auction (e.g. Rebuildingsociety, Isepankur, Assetz Capital).

Uniform vs Mixed Lender Rates: After an auction the interest rate for the borrower can be set at the rate of the highest successful bid. In this case all lenders on the same loan get the same uniform interest rate (e.g. Isepankur). Another option is to calculate the interest rate as an aggregate of all successful auction bids. In this case each lender gets the rate he did bid – there will be a wide mix of lender interest rates on the same loan (e.g. Rebuildingsociety).

Who does decide what the interest rate will be on a p2p loan

I. Borrower sets interest rate

The borrower decides, what (maximum) interest rate he is willing to pay (e.g. Smava, Auxmoney, Isepankur). The lenders can then decide, if they want to fund this specific loan at that rate or not. If there is an auction and lender demand is strong, then the borrower may get the loan for a lower interest rate then specified. Obviously lenders will fund loans with most attractive rates first and other loans will go unfunded. These borrowers can react by relisting at a higher interest rate. Continue reading

Thoughts on Future Pricing for P2P Lending Services

Multi-sided platform are platforms that need to attract two or more customer groups in order to create value. They interconnect these groups serving as intermediary setting the rules. The platform need to achieve satisfactory results for both/all sides.

One example are video game console manufactures. The product will only attract enough buyers if enough games are at available. Developers on the other hand will prefer those manufactures, that already sold large numbers of consoles and thereby offer a large potential of customers.

Another example is Google. One customer group are the users. The value proposition here is ‘free search’.  With the huge audience Google has and the algorithms for matching, Google can offer targeted ads to advertisers.

So Google gives away search for free, in order to make profit from charging advertisers.  In this case there was not much alternative in deciding which customer segment to charge. But sometimes both customer segments are charged and it is hard to decide which side to charge (more).

P2P Lending services are obviously multi-sided platforms, too. They need to match borrowers and lenders. Ideally there will be roughly the same level of demand as of supply of capital.

The current situation is that most p2p lending services charge borrowers more fees than lenders.

Possible causes for this are:

  • At the inception of p2p lending services, opinion was that it is harder to convenience lenders to trust this unproven model and unknown new company running the service – therefore lenders were charged nothing or little to not build entrance barriers
  • Orientation on established models for loans – banks charge borrowers fees too, therefore borrowers will accept these as usual
  • Cost-bast pricing: In vetting a borrower the service will incur costs, whereas a new bid by a lender will incur close to zero costs as it can be processed automatically. Even higher than the vetting costs are the customer acquisition (marketing) costs to obtain borrowers.

Now years after launch, most p2p lending service are “short” of (good) borrowers. Their lenders have a surplus of capital that could be lend out, would there be more loan applications on the platform. And typically customer acquisition costs are much higher for winning new borrowers than for winning new lenders. Furthermore borrowers must be acquired over and over again, whereas lenders remain customers for longer periods of time and reinvest capital.

The logical consequence would be for the p2p lending marketplace to change the pricing. By charging borrowers less and charging lenders more, the value proposition to borrowers would be lower APRs, attracting more borrowers.

A counter-argument voiced against this, is that pricing would not change, because lenders would just raise the interest rates they offer to cover the higher fees. This will happen to some degree, but I think how much is dependent on the model the p2p lending marketplace works. In a market place where lenders do set interest rates themselves (e.g. Ratesetter) this will in my opinion be likelier than in a markplace where the operator sets the interest rates (e.g. Lending Club) or where the initial rate is set by the borrower (e.g. Smava) and can possibly be bidden down (e.g. Isepankur). Furthermore even if costs for borrowers overall would not change, the marketing-message could – ‘fee-free loans’ will be more appealing.

This change would need to be a gradual shift as existing lenders are accustomed to current prices and will resent higher fees. For the p2p lending service the effect per loan could be neutral. The amount of fees earned per loan would stay the same, just the proportion of the parts payed by lenders vs. borrowers would change. Continue reading