Interview with Mintos CEO – Martins Sulte
With a market share of just above 45%, Mintos is, by far, the largest marketplace lender in Europe. The platform has been in the industry since 2015, and it is, without doubt, one of the industry forerunners. In this interview, we ask CEO Martins Sulte how Mintos is handling the Covid-19 pandemic, what Mintos does to minimise the investors’ risk, his views on the alternative investment industry, and much more. The interview also offers an interesting insight into the future of Mintos, which, among others, involves a Mintos debit card, new investment products, and regulation.
The Story of Mintos
Who came up with the idea of Mintos, and why was it founded?
After graduating business school INSEAD in France and Singapore, I returned to Latvia with an idea to establish my own business. I was following peer-to-peer (P2P) in the US and the UK (Lending Club, Prosper, Zopa, Funding Circle, etc.) and was sparked about the idea to build a platform that takes it one step further from all the existing investment platforms, allowing retail investors much broader and easier access to loans as an alternative investment type, at scale and globally. I then looked for investors to start it off, established the company and team in 2015, and with time it grew into Mintos we know today – an award-winning global marketplace for investing in loans.
Who financed Mintos in the beginning? Does Mintos have the same primary owners today?
Mintos was founded by Martins Sulte and Martins Valters and four other co-founders who also became our angel investors – Maris Keiss (co-founder of 4finance and Mogo), Aigars Kesenfelds (co-founder of 4finance and Mogo, angel investor in Artsy and Madara Cosmetics), Kristaps Ozols (co-founder of 4finance and Mogo), and Alberts Pole (co-founder of 4finance and Mogo). At the beginning and throughout the first years of Mintos operations, the company had raised a total of € 7 million, all from the above-mentioned angel investors.
Mintos’ Crowdfunding Campaign
As we have written about in our newsletter, you recently raised pledges of over €7,2 million from over 7000 investors in a crowdfunding campaign – one of the largest amounts ever raised with equity crowdfunding in continental Europe. Why did you choose crowdfunding instead of a regular funding round? Do you plan to use crowdfunding for future funding rounds as well?
With an upcoming funding round to implement our further growth roadmap, we decided that it was the right time to also involve our community, many of whom had already expressed interest in acquiring part of Mintos over the years. It was a logical step to choose crowdfunding as the best fitting option for such a funding round before we proceed with a funding round with venture capital firms this year. At this moment, we don’t have any immediate plans to have another crowdfunding round.
Effects of Covid-19
How have you been affected by the Corona crisis? Have you taken any specific steps to handle the crisis?
Yes, we have been affected by the COVID-19 pandemic. The first effect we noticed was that of investors losing confidence in the future in general due to the global uncertainty the Corona crisis brought and dramatically reducing their investments which meant much less liquidity available.
Then in some markets, we saw further effects from the crisis. To explain it, I’ll first take a step back – our marketplace has retail investors on one side and lending companies and their clients – borrowers, on the other. Investors invest in loans that are issued to borrowers and receive return and interest when borrowers pay the loan back.
Along with global interruptions across work in almost all industries, it brought iterations in borrowers’ capability to pay back the loans. While many companies have a buyback obligation to pay back returns even if the borrower has delayed the payment, extended its loan or defaulted, there are some cases when the situation has been more complicated due to severe pandemic impact on the local economy and we, along with investors on Mintos, experienced challenges in receiving timely returns. Over the course of 2020, we have taken aboard various new learnings, did significant crisis communication to make sure we lessen the volume of uncertainty for our investors as much as we could, and re-focused on the recovery of investors’ funds by establishing new roles in teams and sharing regular updates with our investors. Now entering 2021, we see our efforts as we recover more and more funds and prepare our marketplace for yet another growth period as we become a regulated marketplace and bring our investors higher security over their investments.
Investing on the Mintos Marketplace
What type of investing do you offer at Mintos? How does it work?
On Mintos, retail investors invest in loans, a type of alternative investment asset. We aim to make investing and establishing passive income easy. On our marketplace, investors find predefined Mintos strategies that work for portfolios of all sizes. Investors can choose a strategy that matches their investing goals: Diversified, Conservative, or High-yield, depending on their own risk appetite. There are also manual and custom-automated investing options for greater flexibility. Anyone can visit our website and see if investing in loans is what they wish to try or pursue, and also have a peek into our knowledge base, in case an investor is looking for support.
What does the average investor at Mintos look like?
The average investor on Mintos is a man, comes from Western Europe, is 35 years young and works in finance or IT industries. The average investment range prior to COVID-19 was around EUR 4200, yet we see that in some countries, this average range has fluctuated greatly through-out 2020, and it might be too early to state the current average investment volume.
If I choose to invest my money at Mintos and build a diversified portfolio, how much can I expect in net yearly return after losses and delayed payments?
The current interest rate is 12,8%, and based on the historical performance, we see that investors have earned on average 8-10%. We have recently released new data on our webpage, giving investors insight into how to look at investments in loans in the long term – the calculations include data we have on funds in recovery, and we regularly share recovery expectations with our investors. Yet, it is also important to keep in mind that past performance is not to be relied on, and return could be higher or lower for any particular investor.
How much can I expect to receive in return throughout the year if there are no losses and the loans are repaid on time?
If an investor chooses to build a strategy in one of the three Mintos Strategies – the investor will have an average interest rate of 11.91% with the Diversified strategy, 11.56% with the Conservative strategy, and 12.16% with the High-yield strategy. The interest rates vary depending on the market situation, and investors should always check on Mintos before starting to invest.
Investors prefer Mintos due to the high customisation possibilities – each investment can be catered to investors’ interests. There are various types of loans, lending companies and their countries of origin where they issue the loans, and many other filters that an investor can choose and then see the possible return. It is equally important for investors to evaluate the risks associated with any kind of investing.
Buyback Guarantee, Loan Originators and Risk
How does the Buyback Guarantee affect the risk faced by investors?
Buyback guarantee, or the most precise name of it – Buyback Obligation, is a consideration on behalf of the lending company issuing the loan. If the loan is more than 60 days late, the lending company is obliged to buy back the investment at nominal value plus accrued interest. Usually, this means investors will be able to recover their investment in case of a borrower default.
How do you choose which loan originators to cooperate with?
Before a lending company can offer loans on Mintos, we carry out a series of due diligence reviews and checks to find out if they’re suitable for our platform. These checks are the most important aspect of our onboarding process for new lending companies since many investors measure risk based on knowledge of previous loan performance or the profile of the lending companies themselves. Once onboarded, the lending company is under regular evaluation by the Mintos Risk team, and findings are translated into the Mintos-developed risk assessment point-based model “Mintos Risk Score” that helps investors make informed decisions.
Due diligence begins as soon as we receive an application from a lending company, but even before this, we’ve carried out our own market research and benchmarking to give us the best possible understanding of the industry, the local market and its strongest lending companies. For every ten lending companies who want to offer loans on Mintos, only one will successfully fulfil our requirements to join the platform. I would suggest readers visit our recent blog posts on this topic to understand the full picture of the process (find the blog post here).
What is the process if a loan originator does not pay the obligations they have with the Buyback Guarantee? Has it happened, and if so – how did you handle it?
Any issue situation on Mintos, whether related to the lending company or other aspects of our marketplace, is looked at individually. While we follow strictly set procedures for each function, we also know the importance of being flexible and paying attention to each case and how we make decisions that are in the interests of investors. If a situation appears where we see that the lending company or a group is not able to respect the buyback obligation, we are working with the respective company to understand the underlying factors, reasons and possible solutions, with the aim for investors to recover all or maximum possible funds from the particular investment faster.
What exactly are the risks investors at Mintos are facing? What scenarios will leave investors with a low return, having money at Mintos they cannot get back, or ultimately lose all their invested capital?
There are Credit risk/Default risk, Cash flow timing risk, Prepayment risk and Currency risk. Here I would invite readers to take their time and look at this page on our marketplace. It is crucial investors are aware of all these risks, as with any other investment choice.
How do you make sure the risks are minimised and that the loans you offer at the marketplace are safe for investors to buy?
We focus on delivering as much information and diversification opportunities for investors to enable them to make informed investment decisions. Essentially, investors must always keep their investments as diversified as possible – whether it is within a single asset – diversification in loans would mean the investments are made across multiple lending companies who issue loans and from multiple markets; or among many different assets. For example, if an investor is seeking the safest option to invest, investors should look up Mintos Conservative strategy as best suited for such interest. Diversification is key in minimizing risks associated with investing.
Do you personally invest in loans through Mintos?
Of course, I do. Loans are a great addition to any diversified investment portfolio to help boost returns.
The Alternative Investment Industry
Who do you see as your biggest competitors, and what sets Mintos apart from them?
To understand who our competitors are, it’s important to note that we are not the classic definition of peer-to-peer (P2P) because we do not issue the loans that investors can fund on Mintos – we are a marketplace for investing in loans. Therefore, we have very few, if any, direct competitors. Meanwhile, we have other P2P platforms as indirect competitors since we compete for the investors. Having said that, we hold 45% of the market share in Europe when it comes to investments in loans, with the closest competing platforms holding a 1-8% range of market share. The market is only developing, so at this stage, it is much more about growing the pie than competing for a larger share of the pie.
I believe our unmatched loan supply and ongoing efforts for increased transparency set us apart from other investing platforms.
Are there platforms or persons in the alternative investment industry that inspire you?
I have been following all the big players in the P2P space, also looking at the new, smaller ones who come up with new, alternative ideas. Since the mission of Mintos is to become the primary relationship to the next generation of investors, I’m curious about multiple areas of fintech and financial services it can make more accessible to more people globally. There is no specific player I would single out.
What do you think the future of P2P lending looks like? Which challenges do you see for the industry in the coming years?
With the European Union-released crowdfunding legislation back in October 2020, many P2P platforms now have to comply and choose among forms of regulation in order to stay competitive. At Mintos, we chose to apply for an Investment Firm (IF) and Electronic Money Licence (EML) to become a regulated marketplace for investing in loans and to be able to offer more services and products to our clients. The journey to becoming regulated, whether with licences or other legislation, will determine how prudent, flexible and able each platform is and what kind of service clients might expect. I believe this industry-move will significantly improve the quality of existing service and remove all participants who are not in it for the long term. Clients can expect higher safety when investing in loans.
The Future of Mintos
Since the founding of Mintos in 2015, what have been the most significant challenges so far?
The year 2020, for sure, was significant for us. We had to reorient all business from growth to maintaining the current business and had to implement many things in a very short period of time while weathering the storm and coming out of it stronger. I believe the result of these challenges is yet to be seen, as we are now coming back to our growth plans fuelled with even more ideas and power.
What is Mintos’ strategy for the coming years? Have you planned any new initiatives? What is your vision for the future?
The vision of Mintos is to become the primary financial relationship to the next generation of investors. We have a roadmap of initiatives we are about to implement this year; many of them are related to opportunities we will be able to offer our investors once we have IF and EM licences. We plan to introduce a Mintos debit card and new products for investment, such as ETFs.
If we look ten years into the future and Mintos no longer exists: What went wrong?
While any company can go out of business, from our current positions where we have been operating for five years and hold significant market share, it is highly unlikely that we no longer exist. But if it were the case that we would not exist, then perhaps that would be because we didn’t respond well to some major market changes.