I attended the Mintos investors’ press conference today which was aimed at introducing themselves and their future plans to Estonian investors. It was a nice cosy event and I managed to ask as many questions as pretty much the rest of the audience combined, but I came away with a pretty good impression of their future plans.
What is Mintos?
Mintos is at first glance just an ordinary (Latvian) social lending platform that offers investors the chance to invest into secured (real estate & car) loans. What is more though, is that Mintos is essentially a marketplace for other loan originators to gather capital, which essentially offers small scale loan originators an alternative to the bond market.
For example, currently they are partnered to an Estonian company called Mogo, which does car loans – so they give out the loan to the borrower, and then it gets sent to the marketplace for investors to “buy” a piece of the principal. This means that Mogo doesn’t have to give out bonds or take out bank loans to increase capital while Mintos gets to make a mint (ha!) off providing marketplace services that enable that.
Mintos had clearly taken the event seriously, having their CEO, CFO and the local Mogo representative there. While obviously Riga isn’t a long distance away to come to Tallinn, it still shows some care that they bothered to send their A-game. (Though when it comes to start-ups then everyone has to know how to market!)
The introduction which lasted about 20 minutes was an expected general overview of their concept and reasons for starting the company. Reasons being similar to other such sites – banks have not adjusted to the needs of modern markets, people’s deposits sit on bank accounts earning zero interest, banks are not very open to giving out loans and increases in the popularity of sharing economy are obviously bleeding into the field of finance as well.
Mintos has positioned itself as a secured loan provider. In Latvia they offer real estate loans and in Estonia they are partnered with Mogo for car loans but they are hoping to expand both geographically and in terms of loan products and finding other loan originators to partner with.
Currently an investor can start investing from 10€, they’re hoping to hit 2mil in outgoing loans this month (since sums are bigger than in Bondora for example where the maximum loan amount is 10K). The 1500+ investors (from 27 different countries) currently on platform have on average invested 2000€ (about 500€ on average in Estonia), most investors have about 40 loans in their portfolio and in the first 4 months they have paid out 30 000€ in interest, making the current net return 13%. Apparently Estonians tend to invest more through companies which implies at a more sophisticated strategy and better knowledge of the market which is likely due to our active competition in this sector.
The Mogo representative also commented on the benefits of this cooperation deal for them. Essentially as a credit provider for them its difficult to raise extra capital. The traditional ways of growth would be either bank loans or bonds, which are both time, labour and money extensive processes, making it much easier for them to use Mintos as a marketplace to save themselves the trouble of raising a round of additional capital.
Q & A
The questions and answers section was pretty interesting, and the summaries here are based on my notes, so take them with a grain of salt.
Growth potential in Estonia?
Clearly there is market competition for both investors and the borrowers. They don’t see themselves competing with classical asset classes for the investors’ money, which I found interesting. Also, they see that for the end consumer (loan client) there isn’t much of a difference in terms of getting a loan from them, so the competition there is much fiercer, which means in addition to all the portals in Estonia banks come into play as well. (No numbers were given, which I kind of understand, but which investors really want to hear.)
Loan to value & value assessment
Currently the real estate loans Mintos provides to Latvians are set at around 40% LTV on average. They have an independent real estate assessment partner who does the assessing (the biggest in Latvia). They rely on that, but also run what they called a “sanity check” to look over the objects. The deals are signed in the presence of a notary, meaning less chance of any kind of fraud.
What was much more interesting to me personally was the way the value of cars is assessed by Mogo. Essentially they have 4 people working on it, and since for them speed is relevant they essentially look up equivalent prices for similar cars (make, model, year, equipment) off Auto24 and look at a median price based on that. They try to balance the repayment schedule in a way that keeps the LTV balanced throughout the contract, since cars mostly constantly lose value.
The concern of another recession hitting was also brought up, and the answer was as expected – hopefully principal payments have already reduced the total sum of the loan enough to cope with a potential price drop, and if no then in case of recovery they go after the income of the borrower the same as other sites do in case of unsecured credit.
Other loan originators
Now, this is the part that is super fascinating to me, and which might give Mintos a chance to actually become a very big player in the world of social lending. They currently have only one partner, but they are apparently looking for more to utilize the marketplace to the maximum. They said that due diligence is done when looking for potential partners and they must have faith in the loan underwriting model of the partner. Clearly current aim is to expand to other Central and Eastern European countries since investors like investing close to home.
Where does the money come from?
Mintos has had a round of capical from venture capitalists, they have currently gathered 1 million from investors which will hopefully give them quite a long runway. The team currently has 15 people, so in theory they have time to expand. Less financing than expected is necessary to initially finance the loans since people are already utilizing autobidders which lessens the strain on their funds.
Since as all start-ups, Mintos’ model is clearly to gain traction and expand their market share quickly then they are running in the red. Essentially their money comes from three different sources at the moment – the 1% fee they take from the secondary market transactions, the interest earned on the 5% of every real estate loan that they keep in their portfolio (they never completely sell the loans) and the service fee that the partners pay for utilizing the marketplace. I did ask specifically about the expected timeline for actually starting to make a profit but they really didn’t want to give any specific numbers.
While there were some things that bothered me a bit – the lack of specific numbers. While I understand that with such a quick growth based company long term plans are likely to be useless, then they must have something that they are assessing their growth based on.
In terms of the way they currently function I can definitely see the appeal of wanting to invest there since having secured credit especially in the current expectant and gloomy market situation is definitely likely to be less risky than completely unsecured credit such as Bondora or Omaraha or Moneyzen. Still, the trade-off is significantly lower returns, which one must take into account.
Also, in no way is this deal bad for them. For Mogo – instead of having to go through the trouble of raising capital or releasing bonds people are essentially providing them with capital for growth using Mintos as a marketplace. The risk here of course being that if the underwriting model and loan pricing is done badly either by Mintos or Mogo, then you might take a significant loss since the interest rates are low.
I’ll have to think about it a bit, but I might make a small investment to see how they are doing. They definitely have an interesting business model and from the investors side the fact that they function as a social lending business is far less important than the fact that they’re trying to build an international marketplaze that other loan originators could utilize, which is what has the true potential to take the market by storm.