“Mintos has adjusted to the “new normal”. We’re fully operational, we’ve adjusted our strategy and now we’re focusing on maintaining our current business volumes instead of pursuing growth,” said Martins Sulte, when opening the most recent AMA (Ask Mintos Anything) session, which was live-streamed on the company’s YouTube channel on Thursday, April 23, 2020.
Investors taking part in the session participated with more than 300 questions. In this 60-minute long conversation, Martins replied to 30 of the most popular questions from investors. We’re sharing a summary of those replies in the article below.
The question with the most upvotes from investors was: “What would happen if Mintos goes out of business?”
Martins Sulte said that for such a case, having all the information would be the most important thing. “It’s about knowing which loans investors have invested in, and who owns what, etc. This information would be made available for the liquidator or administrator. They would use it to manage the process of the company’s winding down, which most likely would involve handing it to a third party who could manage the claims, cashflows, and so on.” Sulte added that all this information is backed up on a regular basis.
Investors asked about: the safety of their money on Mintos
Martins emphasized the difference between uninvested money on an investor’s Mintos account, and investors’ money that’s invested on Mintos. Uninvested money or deposits are always available for withdrawal as they’re separate from Mintos’s personal assets.
“Money invested in loans, as with any other investment, comes with a risk,” said Sulte. “Investment means that the capital is at risk, and it can not be considered as a deposit; the interest rate goes hand-in-hand with the risk. Usually, the higher the interest rate, the more risk is involved,” he said, adding that Mintos has risk mitigation procedures in place, which investors can read more about on our website.
Investors asked about: the Secondary Market fee
Mintos has around €4 million of available capital, part of which will be used as a minimum capital for electronic money institution and investment firm licenses.
“We looked at all business assumptions, the Mintos business model and how we operate, and we decided to re-introduce the Secondary Market fee. When Mintos first started, we were charging 2% to all investors for investing through Mintos. Eventually, we dropped that, and again from the beginning, we had the Secondary Market fee that was dropped in 2017 in order to boost liquidity on the Secondary Market. So, technically the Secondary Market fee was ‘re-introduced’, rather than ‘introduced’,” said Sulte, adding that Mintos does not plan to remove the fee for now, and it remains part of the current business model.
When it comes to investment firm and electronic money institution licenses, Sulte said that a lot of work went into the pre-application process and that currently, Mintos has a good working relationship with the regulator while fine-tuning the submitted documents. “We’ve made good progress, and we should get these licenses rather soon,” Martins concluded.
Investors asked about: pending payments
When it comes to pending payments, they need to be distinguished from what’s known as the “grace period”. A grace period is a set number of days after a loan’s due date, during which repayment may be made by the borrower without penalty. On the other hand, “pending payments” refers to the time investors wait for the lending company to transfer repayments to Mintos, so that they can, in turn, be transferred to them.
“The pending payment is when the lending company has to transfer the collected borrower repayments to Mintos. We usually expect the transfer to happen in three to four days after the settlement day, but in some cases, we see that it takes longer for lending companies to make the transfer. If it takes longer, then investors receive the interest for the late transfer from the loan originator, instead of the borrower,” explained Sulte.
When it comes to the question of whether pending payments are allowed to be postponed, Sulte said that the loan itself can not be extended indefinitely. “On Mintos, the limit is 180 days, and ‘pending payment’ as such can not be extended: it is money that is in transit from the lending company to Mintos,” said Sulte.
When this process takes longer than the usual 3–4 days, this can lead Mintos to suspend the lending company from the marketplace, and support payment restructuring with the lending company.
Investors asked about: Finko, Varks and Forward Flow
When Mintos was informed about the revocation of Finko’s license in Armenia on March 25, 2020, Finko’s loans from Armenia on the marketplace were immediately suspended. “Lending companies maintain a constant dialog with the regulators, and it’s business as usual. Finko said that they previously received similar letters from the Central Bank of Armenia, and that there was nothing extraordinary about the latest letter. The Armenian Central Bank was inquiring how the company manages certain balance sheet items. The loan to the group treasury company was deemed as a ‘non-recoverable loan’ by the Central Bank of Armenia, which Finko didn’t agree with. The CEO of Finko Group (Janis Pizics) explained this in the article available on the Mintos blog,” said Sulte.
“Varks is affected by the lockdown in Armenia, as 90% of their collection happens physically through branches, or through payment boxes. Besides this, the Central Bank of Armenia is not allowing credit institutions to contact their borrowers over the next few weeks, and loans must be extended without penalties,” said Sulte.
In the last few weeks, Finko has transferred more than €300 000 to Mintos, as well as all Forward Flow loans, and the money was returned to investors. Martins Sulte said that although the collection process in Armenia is difficult, Mintos expects to receive a €1 million transfer from Finko in the coming days. Sulte also said that based on the available information, the chances of recovering the outstanding portfolio seem good.
Forward Flow was designed by Mintos, but it is a fairly common way to fund loans, especially among institutional investors in the USA. The way it works is based on the investors commitment to buy specific loans in a specific volume for a specific period of time. “This way, investors can lock in the interest rate for the longer period and loan originators can predict the future funding,” said Sulte.
Mintos first introduced Forward Flow with Varks, while work with other companies was in progress. At the moment, these activities are on hold due to lower investor demand.
(Note: For those looking for answers about problem cases, we’d invite you to take a look at the most recent update on the Mintos blog.)
Investors asked about: the group guarantee
“Guarantee is as good as guarantor,” said Sulte, and further explained why Mintos doesn’t enforce group guarantee on just any occasion. “If we enforce the guarantee, this can result in less recovered funds. For example, Varks was a cash cow for Finko, the main asset of the group. Now their guarantee is not as strong. If we would enforce the guarantee, we would recover a tiny part of the outstanding exposure, so we believe that at this moment, it is better to work with Finko, set a plan and work towards it. Enforcing a group guarantee could make Finko bankrupt, and this would affect not only investors who invested in loans from Varks, but also other investors who have invested in loans originated by other companies in the Finko group,” said Sulte.
Evaluation of the expected value of various scenarios is something Mintos does first in all problematic cases, before enforcing the guarantee straight away. The company puts together a restructuring plan and gives the lending company more time to evaluate its possibilities, etc. “This asks for a lot of effort from our Risk, Legal and Partnerships teams. Behind the scenes, there is a lot of work investors really don’t see,” added Sulte.
Investors asked about: extensions and buying back loans
Extensions are a common tool used by lending companies to restructure loan repayments, and they’re nothing new in the relationship between the lending company and borrowers. Extensions existed before the pandemic, but some lending companies didn’t have extensions enabled on Mintos. Before the pandemic, the lending companies used to buy back extended loans from the marketplace, and place the extended loans back on the marketplace available for investors to invest in. In case when extensions are offered en masse, e.g. due to current moratoriums and/or individual decisions by the lending companies in the time of crisis, buying back and placing loans anew on the marketplace would ask for huge amounts of money from the lending companies, especially in times of less investor demand.
“If we don’t enable extensions on Mintos, it could lead to bankruptcies and dire situations for investors,” said Sulte. For this reason, extensions are now being shown on Mintos, although it should be noted this is not a decision of Mintos. Extensions are agreed between borrowers and the lending companies exclusively.
“We don’t allow lending companies to buy back loans without reason, and place those same loans back on the marketplace with a lower interest rate,” said Sulte. He added that if lending companies get cheaper sources of funding, they can buy back their loans, but this so far hasn’t happened very often on Mintos.
Investors asked about: daily statements
The issue about daily statements was identified, and while the problem lies in representation of information, the database itself is not affected. “We’re working on that, it’s been tested and should be put into production soon, so the historic statements should also be adjusted accordingly,” said Sulte, adding that this affects only a small amount of transactions overall.
Investors asked about: the P2P “scam cases”
“Those are still allegedly ‘scam cases’ on some P2P platforms, and that is something official institutions need to deal with,” said Sulte. He said that the failure of some platforms during the current economic crisis will definitely change the way investors look at platforms in future.
“Firstly, I am sad to see people losing – or potentially losing – their money. Secondly, I realize how little due diligence some investors were making. For some of the platforms, it took me only 3-5 minutes to conclude that I wouldn’t touch them at all, there is red flag after red flag, for example; platforms with non-disclosed loan originators, people with dubious experience who are running the platforms, etc,” said Sulte. He added that such apparent signals, including unrealistic returns or guarantees, were apparently not being taken into account by investors.
“When we look at all the lending companies on Mintos – collectively, they employ 23 000 employees and have funded 25 million loans on Mintos. Mintos itself has 150 people on the team. To bring quality loan supply on the platform takes resources, it can’t be done by just a 3–5 person team. Giving money to a platform is easy, getting it back is a different business,” said Sulte.