What Is Mintos

Mintos is the Latvian market leader in the online marketplace for loans founded in 2015. Current CEO is Martins Sulte, former Corporate Finance Analyst for 6 years and current CFO is Martins Valters, former Senior Audit Manager at EY specializing in the financial sector for 11 years. Both of them are also co-founders of the Mintos idea. Mintos provides retail investors with an easy way to invest in loans originated by a variety of loan originators all around the world. Its mission is to facilitate free and efficient movement of capital. 

Why Is Mintos Unique

Mintos is the market leader in providing finance to loan originators through investments in personal, mortgage and business loans. Mintos is one of the pioneers in the sector and even though the competition is getting more and more relevant, if we look at the number of investors and the volume of investments, Mintos is still leading by a significant margin.

Mintos serves as a platform matching the investors and lending companies/loan originators. In this three way relationship, loan originators are looking for financing possibilities and investors are looking for a return. Mintos is matching those two parties through its platform in the form of investing into actual loans issues by those loan originators. Main competitors of Mintos are companies offering the similar services, e.g. Grupeer.

The main competitive advantage is its position in the market. With more than 230,000 investors, the possibilities for loan originators are basically endless if attractive return is offered. Mintos know-how from on-boarding process with loan originators from all around the world means that new loan originators can rely on the smooth transition to Mintos API and available financing possibilities from number of investors.

Strengths And Weaknesses

Let’s start with the statement that I consider the Mintos product to be providing loans to loan originators rather than P2P investing as it’s often considered. Read the article How Does “P2P” Loan Marketplace Work to understand my reasoning.

Mintos currently provides biggest and most complex platform to finance loan originators all around the world. This provides diversification tools for investors who want to invest in the companies providing personal loans as they are usually not listed on the stock exchange and don’t have publicly traded bonds. Therefore, investing through platforms like Mintos is usually the only way to participate in this sector for retail investors.

Due to the massive amount of investors, probably the most liquid secondary market exists on Mintos. If you want to exit any loan prematurely, you are likely to do so in a matter of minutes if priced attractively and in a matter of days if priced at least a little reasonable. Most of the time there is a higher amount of loans available on the secondary market than on the primary one and there are some investors who are investing only through buying the loans on the secondary market (I was one of them as well).

Regarding auto-invest feature, there are 2 options. Invest & Access is an automatic tool without any modification options. If promises around 10% p.a. return and possibility to access to your money anytime. This means that when you wish to exit early, the tool will sell your portfolio on the secondary market. I don’t recommend this option as Invest & Access invests in all loan originators, even the ones which are let’s say a little “shady” and if you have bad luck, you will not able to sell those loans to anybody later. Second option Auto Invest is a traditional auto-invest feature where you make your own strategy for auto investing by selecting loan originators, interest rate and maturity according to your preferences.

Regarding weaknesses, I have to mention Mintos’ internal ratings. By community of fellow investors, these are considered to be very reactive. Historically, ratings have been downgraded only if problems with the specific loan originator occurred. Investors have to look up for more relevant ratings elsewhere (thanks to the internet it’s not that difficult though). Differences between quality of loan originators are significant and might not correspond to offered return at all. Not audited, loss making loan originators with negative equity may provide you with a return of 2% more than a long-term profitable loan originator backed by a strong group. The risk reward relationship is indeed not working properly sometimes.

The business model under which Mintos operates brings some negative aspects for investors. They are related to specific rights which loan originators have on the Mintos’ platform. For example, loan originator can buy the principal back from the investor at any time without any approval or premium. And indeed some loan originators can abuse this by buying back all the loans where installments are paid on time and leaving you with loans which are always paid late. This also means it makes no sense to pay any premium on the secondary market since loan originator is able to buy back the principal for nominal value and premium you paid to fellow investor becomes your loss.

When I started with Mintos I was looking for loans on secondary market only. I was manually checking each loan for the age of the borrower, his/her occupation (if available) and history of repayments to check, whether there are no late payments. I excluded some countries because I considered lending to people from problematic regions to be very risky. In a few months I realized this is just a waste of time. Country of borrower doesn’t matter as the only thing that matters is the financial stability of the loan originator. If you invest in loan in risky country, but loan originator is able to honor the buyback guarantee, you will not lose money. But if you invest in loan in reputable country and loan originator will go bankrupt, your money is gone. And if you find loan with great repayment history, there is always an option that loan originator will buy back your principal anyway.

In the last couple of months I have a little strange experience with Mintos and I’m not the only one. I honestly don’t have the faith in some loan originators anymore meaning I don’t believe that they are reporting correct data to Mintos in terms of which borrowers paid the installments and when. It started as a theory, but now I’m actually in doubt whether loan originators are not abusing the system by not reporting correct data and therefore are receiving interest free loans. This is especially suspicious for a grace period (period which covers possible payment delays caused by bank-to-bank payment, national holidays and specific policies of the loan originator). If the loan has 7 days of grace period and the installment if paid always on 7th date after the due date, for those 7 days I received virtually nothing. And if this is happening consistently with some loan originators, it’s starting to not look like a coincidence. Moreover, the fact that overall statistics on Mintos’ website show unusual share of delayed payments only strengthen my suspicions.

I also don’t like the ethical dilemma regarding pay day loans (short-term unsecured loan to be repaid at the borrower’s next paycheck) with an annual percentage rate above 150%. Yes, loan originators are providing such loans because in the end, that is the market they operate in. But I simply could not stand that I’m financing a loan originator with such practices so I filtered the APR to be lower than 40%. But as almost all of the loan originators are providing such loans, bad feeling remains. Even if I would not care about ethical aspects, I would definitely worry about the future of payday loans as they are being restricted slowly all over the Europe (e.g. recent examples in Denmark and Kosovo). Therefore, the going concern issues of loan originators operating in those countries are currently more and more relevant.

Recent problems with Aforti brought a lot of concerns to investors including myself. The risk of loan originator’s default is always there, but Aforti has not defaulted, yet it managed not to buy back late loans simply because it decided not to. Moreover, Aforti didn’t pay for loans which were repaid by borrowers already. To be honest, this freaked me out a lot. How is it possible, that I’m not receiving the money borrower has paid when I own the share in that loan and how come Mintos is not able to get the money from Aforti even if Aforti is doing business as usual and moreover investor’s claims were backed by group guarantee? For me, this is another issue of trust towards Mintos. If the platform isn’t able to secure investor’s interest when law is clearly in their side, I’m afraid what might come next.

After reviewing of loan investing opportunity, there are no additional details available except for borrower’s age and schedule of repayments (some loan originators also disclose occupation of borrower). I would expect much more detail in case of crowdfunding, in case of financing of loan originators this is not that relevant as I already described the risk is transferred from borrower to loan originators. The investor basically has to randomly select the loan from the desired loan originator. Regarding loan originators, Mintos provides investors with their last financial statements.

What Are The Risks

All loans are backed by buy back guarantee. This guarantee is provided by loan originators, not Mintos. Essentially, your capital if safe till the moment when a loan originator goes into trouble . The main risk in investing through Mintos is that loan originator will not be able to repay its liabilities towards investors, meaning not only buying back the principal but also transferring the money actually received from borrowers.

All loans on Mintos marketplace are divided into two investment structure types – direct and indirect. You can this information within each loan prospect and you can select only desired investment type in the filter.

Under direct investment structure, investors are buying claim towards borrower. In the event that a loan originator becomes insolvent, assignment agreements would remain in place and be unaffected. This means that loan originator would no longer be managing the borrowers’ payments but this would be transferred to the Mintos as representative of an investor.

Under indirect investment structure, investors are buying claim towards loan originator. In case of default, Mintos will be involved closely in the legal proceedings and all funds received from the loan originator will be divided proportionally to their investments among investors based on bankruptcy assets.

Mintos is publishing loan performance details. According to information provided only 0.1% of loans are in default and another 0.5% is late more than 60 days and thus are likely to be defaulted as the loan originator has not bought back the principal. Even though it doesn’t seem like a lot, some loan originator problems occurred only in recent weeks (Iute Credit, Monego, Metrokredit) so we will see the full impact on those problems later. As as always, past historical rate is no guarantee of future results.

Remember that with investing through Mintos, your capital is at risk. Mintos is not covered by the Deposit Guarantee Scheme or the Investor Compensation Scheme. This is a standard practice in the industry as currently loan larketplace financing in general does not require any license from the regulator.

What Are The Possible Returns

Mintos promotes a return at around 11.79% p.a. For my own filter consisted only of 6 best rated loan originators which pay interest also on delayed payments, my long-term XIRR is around 11% before taxes. Current interest rates from other loan originators in EUR are up to 14.5%. For investments in other currencies, returns can be up to 20%.

Mintos offers sign-up bonus for new investors who registers via a referral link based on investments made within first 30 days after registration. The bonus is as follows:

Financial Performance

Mintos is operated by Mintos Marketplace, registered in Latvia. The Company is ultimately controlled by AS Grumpy Investments, registered in Latvia as well. Balance sheet as at 31.12.2018 shows that assets consists mainly of intangible assets (I assume website), accrued income (service fee not yet billed to loan originators), prepayments related to property improvements and loan provided. Liabilities consists of tax payables and some trade payables but equity is the most dominant component on liability and shareholder’s equity side.

Profit and loss statement looks promising yet I have some concerns. Company revenue increased by 109% to 4.6 million, which is promising. However, administration and other general expenses grew by 174%, which slashed overall profitability as profit before taxes decreased from EUR 203 thousands to EUR 13 thousands. Reason for increase in administration expenses is mainly referral program and cash back campaigns to promote the product for existing investors. The company definitely has to decrease those costs to maintain the reasonable level of profitability in the future and it seems that they are doing it as during 2019 they reduced sign-up bonus by 50%. The main source of revenue for Mintos remained service and connection fee charged to loan originators and this is directly related to the amount of loan originators in the platform and the volume of funded loans. Secondary revenue stream for the Company is foreign exchange translation services provided to investors who wish to invest in loans denominated in other currencies than EUR.

Another important topic in Mintos is related party transactions which amount to around 41% of total revenues. This means that 41% of all fees collected from originators are from companies within the same group. This may be an indicator of additional risk for the investor as a potential conflict of interest might occur if Mintos would have to act as the agent of investors’ interests with negotiations with its related party. It also shows how much Grumpy Investments Group relies on external financing through Mintos marketplace.

Annual report for the year 2018 has been audited by EY Latvia. If you want to read the complete set of financial statements click HERE.

Summary And Recommendation

Mintos Summary

Market PositionMarket leader in Europe in loan originator financing
Interest Rate11-13%
Risk– Default risk of loan originator
– Default risk of Mintos
– Currency risk
Loan PerformanceIn general relatively poor payment discipline:
– 24% of loans are overdue
– 0.6% of loans is overdue for more than 60 days or defaulted
Loan DetailsOnly age of borrower and current payment schedule visible. Some loan originator provide only gender of borrower.
Secondary MarketYes
Auto-InvestYes. Both managed by investor and managed by Mintos.
Financial Performance– Profitable for last 2 consecutive financial years
– Annual report audited by EY
RegulationNone

Mintos offers market leading platform for loan marketplace. An investor can earn money by financing of loan originators with interest tied to loans with specific borrowers put in the marketplace. There are no minimum deposits or investment amounts. Historically, investors were able to receive around 12% p.a. interest.

For me personally, Mintos is in my portfolio for 1 year. Unfortunately, I got hit by Aforti case badly as my portfolio consisted of 9% of Aforti loans. I believe I learned from this mistake, reworked my filter for loan originators and decided to invest in only 6 profitable, high rating, stable loan originators which are providing group guarantee and direct investment structure and simultaneously to withdraw around 50% of my portfolio and transfer it to other platforms in December/January. The reason is mainly the trust issues I currently have about the abilities of the platform to communicate with investors on timely basis and to be able to negotiate in line with investor’s best interests. I also have a strong suspicion of loan originators abusing the marketplace rules. I will be following any news from Mintos and hopefully, my trust will be restored.

I personally recommend not to use Invest & Access auto-invest feature due to the fact that investor isn’t able to modify auto-invest conditions. In regards of loan originators, except of financial stability and profitability, I also recommend to look for interest on delayed payments and short grace period to make sure you’re not financing the loan originator for free. And most importantly, I recommend not to invest if you’re not comfortable with the business model of Mintos or don’t understand it completely. You don’t have to agree with me that this is not P2P investing, that is fine. But there is a huge difference between crowdfunding loans, P2P lending and loan marketplace such as Mintos. Make sure you’re completely on board before risking your own money.

I’m also not as happy with the buy back guarantee as general crowdfunding public seems to be. This is not a collateral provided to me as an investor as it is just a promise and nothing tangible (in case there is no pledge of assets or group guarantee which is the case only for a few loan originators). I feel that my loan is at least a little backed under direct structure by borrower’s ability to repay the loan and my claim could therefore be satisfied by this repayment in case of loan originator’s financial troubles. However, I’m afraid that if such event would occur, loan originator would simply not cooperate and transfer any payment regardless of borrower’s repayments as Aforti case showed (Aforti provided direct investment structure as well). I recommend to invest only in loan originators with real collateral, not just buy back guarantee which for Mintos means at least group guarantee (this however didn’t help with Aforti case as well).

To recap, if you would like to participate in crowdfunding of loan originators through market leader in this sector, you understand the risks and uncertainties involved, you can join me and thousands of others and SIGN-UP HERE. After that, you can communicate directly with other investors via group on Facebook HERE.