Interview with Martins Sulte-CEO of Mintos

Heute haben wir den CEO von der P2P Plattform Mintos Martins Sulte für ein Interview eingeladen. Er erzählt uns unter anderem von seinen Erwartungen vom P2P Markt in den nächsten Jahren,  wie sich Mintos von der Konkurrenz unterscheidet, und warum jemand bereit ist, über 100% p.a Kreditzinsen zu zahlen.

Can you briefly explain to our readers what Mintos actually does?

Mintos is a fintech startup. We operate a global marketplace for loans that allows investors to invest in various loans from a constantly growing number of loan originators. To put it in a broader context, the Mintos marketplace functions similarly to the way Amazon does. While Amazon connects merchants selling goods to consumers, Mintos connects loan originators selling loans to investors.

By creating this service, the Mintos team offers investors an asset class that previously was not widely available — the opportunity to finance loans originated by non-bank lenders, who have traditionally funded loans using their own balance sheet. In our business model, non-bank lenders become loan servicers, dispersing proceeds and collecting interest and principal payments from a borrower.

What is the return an investor can expect when investing via the Mintos marketplace?

In order to get the best experience on Mintos we advise investors to diversify their portfolios as we offer different loan products in different geographical locations. Investors can invest in business loans, car loans, invoices, mortgage loans, and personal loans on the Mintos marketplace.

Returns depend on a variety of different aspects such as the type of loans an investor is investing in and the type of risk involved in investing in that particular loan. Currently, the average return for investors is 11.7%.

The P2P market is booming. More and more P2P platforms are competing within the last few years. What is the unique selling point of Mintos?

One of the main bonuses of Mintos is variety. We know investors like to spread their investments to minimise risk to achieve their long-term financial goals. That is why we created the Mintos marketplace. Single originator crowdlending platforms are limited in the investment opportunities they can provide investors, as they only provide their own loans for investment.

This is where Mintos is more convenient for investors. On Mintos, we have 51 loan originators from 26 different countries. Investors can invest in eight different types of loans. This means investors essentially have access to 51 different platforms in one place, which allows them to effectively diversify their loan portfolio and minimise risk while having their investments conveniently in one place. This is one of the key advantages of the marketplace.

Another bonus of our marketplace is the added layer of security. On Mintos, each loan originator is carefully assessed by our risk team prior to joining the marketplace. Before beginning cooperation, we execute a due diligence procedure for each prospective loan originator which includes a thorough analysis of its loan performance, financial statements, management quality, underwriting policy, credit scoring, and data accuracy. During this process, we examine the loans of the company to make sure the performance of them meet our rigorous standards. Once the loan originator has launched on Mintos, we continue monitoring the company on an ongoing basis. This extra layer of checking the performance of loans and the financial stability of a company is unique to marketplaces like Mintos.

What is the development of the P2P market you expect in the next few years?

The P2P market is growing very fast and we expect it to go through a fintegration process, where banks and fintech companies work together – instead of as competitors. Large banks have identified the potential for collaboration with fintech companies and already they are taking steps towards achieving this.

In addition, we have already seen positive developments in regulation. For example,innovation supporting regulatory oversight of peer-to-peer lending was introduced in the UK in 2014. This helped the industry to gather a lot of attention and resulted in its growth.

Some of the readers are wondering how much a borrower has to pay for a loan? What is the average loan interest?

The interest rates paid by the borrowers depend on many factors including the loan type, loan amount, geography and from which loan originator they are borrowing from. Usually, they will pay the interest rate, plus fees determined by the respective loan originator. The specific annual rates charged by each of our loan originators can be found on our website here.

Since Mintos is a global online marketplace for loans, we do not issue loans.
On one hand, we give retail investors the opportunity to invest in loans originated by a variety of alternative lending companies in an easy and transparent way and earn solid returns. On the other hand, our marketplace provides loan originators with flexible funding and access to thousands of investors throughout the world instantly.

Why would someone be ready to pay such a high rate? Is it true that only debtors with very poor credit rating rate take these loans?

Here you are talking about the annual percentage rate (APR). Lending small amounts of money for short periods of time is expensive. Firstly, loan originators need to consider operational costs. Staff, product, IT, legal and rent are just a few costs that need to be taken into account. As a result, the lender often includes a fixed amount per loan to cover these costs. For example, if a lender charges EUR 10 per each EUR 100 loan with a 30 day repayment period, 10% of the loan is purely to cover operational costs. If it is calculated as an annual charge, that is 120% of the loan – without compounding. So already, without taking anything into consideration except for operating costs the APR is more than 100%. The APR assumes the borrower is taking out a loan for one year. That is why it can look so high.

Marketing is also a costly expense for short-term non-bank lenders as costs for borrower acquisition is expensive relative to their loan size. In addition, lenders also need to cover defaults. The default rate of each loan originator depends on many factors – loan type, location, borrower segment, etc. Therefore, the cost of these defaults will vary. The riskier the borrower class, the higher the default rate.

It is a common myth that only customers with a poor credit rating borrow these type of loans. In fact, people are often interested in short-term high-interest loans for a number of reasons. These range from easy access, quick turnaround and the ability to borrow only small amounts.

Banks rarely allow consumers the ability to borrow small amounts, meaning that they need to borrow thousands of dollars when in fact, they only need a small amount. This is where short-term loans are very attractive and it has nothing to do with their credit history.

In the unlikely event, if Mintos goes bankrupt, what will happen to the money of the investors?

In the unlikely event that Mintos goes bankrupt, investors will be given access to the full information from the Mintos database on the transactions they have concluded within the framework of the marketplace. The Mintos liquidator or administrator will take all necessary actions to transfer the servicing of all loans and investments to an appropriate manager.

If someone is interested in investing on Mintos which strategy would you recommend?

At Mintos, we encourage our investors to utilise the numerous diversification opportunities on Mintos. The marketplace can offer you seven ways to diversify your investment portfolio. This includes diversifying across different types of loans, loan maturities, geographies, currencies, return rates, risk-levels and loans with and without the buyback guarantee and also across different loan originators.

We recently wrote a seven-part series which explores these opportunities in detail. We suggest to our investors to read through diversification series, to make sure there are getting the most from Mintos and balancing their risk versus return. You can read more on our blog here.

In general, how much of your portfolio would you invest in P2P loans?

The amount a person should invest in loans through Mintos and peer-to-peer overall depends on individual circumstances. How much total and investable assets does the person have, what’s their risk appetite, what is the investment horizon, etc.? As with all forms of investment, when investing in loans through the Mintos marketplace, capital is at risk. But we do our best to make sure this risk is as low as possible. One of the best pieces of advice we can give is to diversify your investments. Don’t put all of your eggs in one basket. Also, start investing as early as possible – even just a small amount, in order to use the power of compound interest. Finally, we highly recommend people invest at least part of their funds in education, as it is the best investment you could ever make. Apart from formal education, this could also mean learning about personal finances in general or immersing yourself in the specifics of peer-to-peer lending by reading speciality blogs, participating in forums, and talking with fellow investors.

What is the next milestone Mintos want to reach?

At the rate Mintos is growing, considering that more than 1 000 new investors register every week and more than EUR 100 million is invested through the marketplace in the same time period, we believe we will reach EUR 2 billion in total loans financed through the marketplace in just 10 months time.