Mintos cashback vol 3

Well, 2018 has started well – by mid-march I will have achieved the cashflow returns that took me all of 2017 to reach. Goes to show that sometimes having a bit of luck and cash at the correct time happens completely accidentally.

My biggest portfolio move this year was selling the small 12m2 rental apartment I had in Tallinn. While it was offering good rental returns, then in the long run it wasn’t in a very good house and 16m2 apartments have slowly started to gain popularity. Also, the prices of 12m2 apartments have reached ridiculous heights and since I needed to cash out something from my portfolio since I bought a new home which is being built, and I have to have cash available for various expenses in late autumn.

This deal however ended up being surprisingly well timed because I was able to drop most of the money from the sale into Mintos’s cashback program, which over the course of the last month has created some nice returns

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Of course the campaign has been very popular – there are days when there are no 60+mo loans and days when even the supply for 48mo+ loans has run out, but checking every now and then allows you to pick between countries and loan lengths to boost your portfolio. Since I’ve been investing mostly into Mogo loans anyway then I didn’t really feel much increased risk from temporarily increasing my exposure to them.

While this is a short term boost to investments (since when the cashback ends I will slowly have to start withdrawing money from the repayments), then it’s safe to say that Mintos has helped me boost my returns for the year significantly. Those who still have some cash laying around, then the campaign lasts for another 10 days (until March 16).

Mintos cashback vol 2

A bit more than a week after last Mintos cashback bonuses were paid out, another cashback program (actually two of them) was announced. Since I’ve seen some investors seem confused about the value of such a program, I thought I’d discuss it a bit. So, why offer a cashback?

  1. The obvious – bring in more money

As I predicted in my last post, the cashback pushed people to deposit more money, Mintos finished December with 46,9 million euros worth loans financed. This means more money for Mintos instantly (since they earn money based on the volume of loans financed), and a bigger growth push for them (since people who deposit money will not withdraw it instantly after the program is over).

2. The less obvious – encouraging long term commitment

I personally know a lot of people who invest in Mintos but only choose short term loans since long term loans seem too scary. What better to help people overcome mental hurdles such as this (taking on more long term risk) than extra money? Once people have dared to invest into longer term loans once, then once they have them in the portfolio it’s easier to add more long term loans (If you’ve already taken in 60mo+ loans then some more 12+ month loans seem less scary than having to “jump” from 1-3 month loans).

3. The practical – the money remains in the portal for a bit at least

Once you’ve invested into long term loans you can’t just instantly jump out again. Either the loan has to finish (take a long time), it has to get bought back for some reason (unpredictable) or you have to sell it on the secondary market. To sell on the secondary market someone else has to buy it – meaning other investors are likely to bring in more money. Or, if you’re in a hurry to get out then you’re likely to sell at a discount, and everyone is happy (other investor gets investments cheap). You can already see people selling BBG loans at a discount after having cashed in their discount.

4. The logistical – easier to manage

If an loan company (or Mintos) wants to increase amount of money from investors then logically you would have to increase interest. For long term loans a slight increase in interest is problematic since for a long term loan that comes to a large amount of money. If you list loans with the same interest rate as before, but offering a cashback it’s easier to manage (get to predict volume) and investors are less frustrated if loans get bought back later. It’s also more instant – increased interest rates will not motivate people to make deposits as quickly as a time-limited cashback offer.


 

Overall, since I’ve been investing into mogo loans for most of my Mintos career then for me the buyback is a nice bonus to have. I even sold some older loans at a bit of a discount to benefit from the cashback (I was interested to see that people were actually buying!). Some people are probably still a bit too scared to take in such long term loans, but, well, more left for those who pick them.

Mintos cashback program

It seems like Mintos is growing at such a rate that they need more investors’ money and therefore they are offering for the month of December a cashback program for investors willing to invest into long term loans via the primary market.

As someone whose portfolio in Mintos mostly consisted of long term loans (mostly mogo) anyways, then this is not a particular hardship to take part in – the cashback offers 2-5% cashback depending on the length of loans you are willing to put your money into.

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You can already see the effect this promotion is having by the fact that a) the primary market is pretty empty if you go looking for 60+month loans and looking at the stats for the whole month then half way through the month, Mintos seems to be on track of 45-50 million euros worth of loans being funded. Essentially they are reaching a point where through Mintos as much money is invested as through most other Baltic P2P portals, so super impressive for them!

Looking at the amount of money invested, and assuming maybe half of it would be invested into loans which qualify for the program (since there’s plenty of people who still wish to have only short term loans) the expense for the cashback I would assume, would run somewhere into the range of a couple of hundred thousand to half a million euros to be paid out to the investors.

I’ve also added a bit of extra money to Mintos this month, and will probably add another top-off to benefit from the cashback offer. There are a lot of interesting aspects to this offer, I assume at least some investors will be selling the loans they invested into on the secondary market once the program is over, so I’d expect it would be reasonable to stock up some cash to pick up bbg loans which are on sale on the secondary market at the start of January.

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For my portfolio it’s a nice boost to have, probably in the range of 50-100 euros max depending how much I deposit extra, but a nice Christmas present overall. The cashback gets paid out within a week as well, so if you invest now, then you’ll have time to reinvest the cashback amount as well after it’s deposited.

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First look into Mintos

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.

mintos

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.

Introduction

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.

Profit model?

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.

First impressions

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.