Twino and Mintos, 1 year summary

I accidentally discovered that it’s been about a year since I started investing in the two Latvian P2P portals – Mintos and Twino. While in the beginning, I was mostly testing them out as a potential alternative to the Estonian Bondora, then a year later the situation has changed – I’ve fully exited Bondora on both my private and business portfolios and Mintos and Twino are steadily trucking on as the 3rd and 4th biggest P2P positions, providing steady interest returns with very little hassle.

Good sides:

  • Both Twino and Mintos offer impressive volumes (finishing December with 14mil and 18mil of loans originated, respectively), meaning that for most investors it’s not difficult to employ their money – with reasonable conditions it gets fully invested within an hour.
  • Steady communication and development have positioned them both as relative flagships on the Baltic market, inspiring several other followers (I’ve lost count of the amount of buyback based sites that have popped up recently).
  • Geographical diversity for loan originators provides an easy chance for investors to reduce risk by investing into loan markets other than their own (through OR I’m heavily invested into the Estonian consumer loan market already).
  • Easy-to-use and generally understandable interfaces and reporting systems make keeping track of your investments and changing settings relatively easy (unlike some other sites).
  • By far the most liquid part of my P2P investments, making it easy to cash out rather quickly if in need to reinvest somewhere else (so works as a good place to keep your “cash” position).

Reasons to worry:

  • Quick development also means effort of keeping track of changes – Mintos has gone through a lot of legal changes (relationships between Mintos and originators have changed) and Twino has gone through a full structural reform (with Finabay renamed to Twino and the structure flipped around).
  • Hands-off model also means lack of significant info on the risks of originators and potential losses; this being particularly true for the non-buyback loans which both have started to offer.
  • Sometimes problematic unannounced changes, which have got some deserved negative feedback from investors (mostly unannounced and not well communicated interest changes).
  • Influx of investor money means reduced returns long-term, with interest rates having averaged lower already within the year (while still remaining relatively high).

Overall I’d say I’m quite pleased with both these picks. In my portfolio they are the closest to a near-cash position that I have, and while I don’t focus on actively increasing the positions, then I add in 50-150 euros monthly, keeping them on track of hitting a combined 10K value within the not too distant future.

I’d definitely like to see how they manage with increased investor demand (since the longer the history the higher the trust, but the more money available the lower the interest rates), and hoping to start see some solid numbers on non-buyback loans (rather much like gambling to pick them up now without any significant recovery history to speak of).

Average returns in Twino and Mintos

If there is one topic that investors get passionate about, then it’s returns. Looking at the current economic climate, then P2P returns are clearly quite good, but the somewhat downwards trend you can see happening is clearly causing dismay among investors.

Way back when, when I started investing in Bondora, it was completely possible to get 20% returns yearly due to the fact that the market was both new (therefor high risk), and pricing was vague at best (due to lack of precise credit models). However, in the recent few years the industry has clearly evolved to be more mature and less inefficient, bringing to investors loans with buy-back guarantees, which at times might have left beginners the impression that there isn’t much inherent risk left anymore when it comes to investing into P2P (which is clearly not the case).

The two favourites of the recent year or so have clearly been the two Latvian portals – Mintos and Twino, which offered large loan volumes with buy-back guarantees. For a while the interest rates were high enough that many people were a bit confused as to why the rates were that high, and were sure that the rates would be dropping in the near future.

It seems that we are somewhat starting to reach the point where returns will not be as high as they were anymore, and this is of course both good and bad – for investors who enjoy higher risks, the reduced returns are of course bothersome, for more conservative investors the lowered level of risk will of course be more appealing.

Twino

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Twino has already gone through one attempt to reduce the interest rates, which caused significant uproar among investors. They attempted to drop the interest rates to 10%, which caused investors to reduce their investments, which made them increase the rates once more, but they are still not back to the point where they started at (they used to be 12,9% & 14,9%; however now are 10-12% & 13% respectively.)

This means that while it’s still possible to generate >10% returns, then looking at the loan volumes they process the question arises – for how long? Since Twino is closing in on 10 million loans funded per month, then clearly there is enough investor money to go around, meaning when the higher interest loans run out, then the lower interest loans will get funded as well. Once enough get funded regularly, it would be reasonable to expect a drop in the rates.

Interestingly enough, a lot of investors in Twino seems to be super cautious about the longer term loans (24 months), which in my opinion seems a bit unfounded – largely because 1) they are resellable 2) a large amount of them get bought back early, meaning it’s not such a big commitment.

Mintos

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Now, with Mintos, the dynamic for the rates is a bit more complicated since different loan originators balance the interest rates between what they themselves believe to be fair and what the other originators are offering. This so far has caused a sort of a hierarchy to form between the different originators, meaning some loans disappear from the market very quickly (or get marked full by autobidders) while some remain “waiting” on the primary market.

While there have been fluctuations here and there between the interest rates offered, then it’s clear to see that the amount of loans with a buyback guarantee has been slowly but surely decreasing, meaning that investors are forced to do some more in depth analysis to figure out whether or not they should include lower rate buy-back loans or higher rate ordinary loans, which is rather complicated to do due to the lack of public information about the loan books of the originators.

Future of returns

Twino and Mintos do not exist in a vacuum – the amount of investor money available is dependent on the amount of projects listed on alternative sites and the returns offered there. However, if you look at the average returns offered by other portals, then >12% returns will be more and more unlikely as time goes on.

Just looking at the Estonian portals available, then Estateguru historical returns are <11%, for Bondora they have said they wish to hit 10% returns, for Investly the returns are <9%. Higher returns are offered by P2P portals which include more risk or a more complex model (Crowdestate for example inherently has much more risk, Omaraha’s premium for returns makes sense if you consider the fact that they have no proper exit mechanism available and the learning curve is rather steep).

It’s of course difficult to make predictions about the future, and how the markets behave, but I do believe that we are likely to be hitting the downwards slope of returns, which will in the long run bring us closer together to US/UK/Central European returns for P2P portals.

On the one hand this means a bigger faith by investors (investing their money at a lower rate), and a reduced risk rate (due to growth of the whole sector), on the other hand this will signify lower returns, and higher efficiency on the markets, meaning the >20% returns several investors have achieved are likely to be in the past. As someone who does believe that the effort/risk vs returns have been off balance so far, the returns lowering a bit is not an unexpected development.

Twino and Mintos portfolios, 6m

The great Latvian face-off! How has it been going? Time to take a look.statustwino

Twino

So, when it comes to Twino the original plan was to have short term loans only to balance out the fact that most other of my investments are long term (such as Bondora and Omaraha). At start it was working well, but Twino has been playing around with interest rates quite a bit, so I’ve adjusted my plan a bit and ended up investing into longer term loans (since they offer 13% interest at the moment) and keeping only a part of the portfolio in very short term loans.

The interest difference of course isn’t that much, but realistically the likelihood that I would have to take out all of the money quickly enough for it to matter is small enough to be probably quite irrelevant. If I just need to cash out quickly then there is a somewhat functioning secondary market, and I’m keeping enough money in cash to not really be worried about the slightly reduced liquidity. Overall, I think they’ve managed to find a place in the Baltic P2P market and will prove to do well in long term too.

Mintos

statusmintosNow, when it comes to Mintos, then I buried my plan of investing only into short term loans way before I did with Twino. I do have two autobidders running, one of them catching shorter term loans, but with mogo offering 13,5% with buyback as well, there isn’t really too much of a reason to diversify that much across different loan providers (especially considering the fact that I have investments in other portals as well). So if I look at the balance of my portfolio right now, then about 75% of the loans are mogo car loans with long deadlines.

When it comes to the volume, neither Twino or Mintos have had issues. Whenever I add more money, it gets invested in minutes, and I can see why a lot of people who start on either of these sites don’t really feel the need to diversify across too many more portals. Overall if I look at the 5 core portals in my P2P portfolio, then by portfolio value the division would be Bondora > Crowdestate > Omaraha > Mintos > Twino. A couple of months ago the first three were trailing ahead quite a lot, but I’m letting the last two catch up since I think they’ve both proven their value in both the volumes provided, with transparent data & expansion plans and just overall great communication. To sum up, I’d say that they have both been worthy additions to my P2P portfolio.

Social lending portfolio (March, 2016)

Honestly, so many things were happening in P2P in Estonia in March that it was difficult to keep track of everything. Overall, big numbers, some chaos and interesting future perspectives would probably describe the month. Overall, I just got back from London and it was an experience in how far behind we are when it comes to investing being mainstream – you can hardly look anywhere in central London (or on the metro) and not see some sort of advertising for investing. Things are hopefully changing here as well, though.

Bondora personal portfolio

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I’ve started the process of wrapping up my private portfolio, which can be seen from the dip in interest earned (below 100€ for the first time in 6 months). What this means is that I am selling off defaults and old mispriced loans, that I want to get rid of. Current plan is to sell off the not-so-great parts of my portfolio within this year, and then do a sale for the better loans next January (so the tax obligation would arrive mid-2018).

Overall I think it’s a reasonable plan because 1) secondary market is so slow at the moment that I don’t want to dedicate too much of my time to selling things 2) selling good EST loans at a premium won’t be an issue, so I might as well let them pay as they are, and then sell the ones that are too far from deadline once I actively pull out. I’ve transferred out 1K of money, which is going into stocks since it’s money invested as a private person.

Bondora business portfolio

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For my business portfolio, I am a bit torn. Bondora is not the highest returning part of my P2P portfolio (Omaraha is), however Omaraha is unable to offer enough volume and lacks a secondary market. So it seems that Bondora will have to remain the biggest part of my portfolio at this point. There was a slight dip in interest returns since last month a lot of the loans started with frontloaded interest payments, it should stabilize out and start climbing now.

Omaraha portfolio

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As time goes on, I have to admit, I am liking Omaraha more and more. It is clearly currently top when it comes to returns, since I haven’t had any defaults yet. However, they recently announced that all new defaults will have a buyback at 80% of principal value, which means that the potential loss isn’t immense – especially since most of my loans (90%) are 900+ (the highest) credit group. Looking rather stable, and aiming to get to 100/month in interest earned by some time in autumn. Will see, depending on how I manage the different proportions – adding money to Omaraha is heavily dependent on their volume of loans. I mostly just add money when what I have on the account has run out.

Mintos, Twino, Viventor

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I’ve essentially given up with my idea that Mintos could offer reasonable short-length loans and slightly replayed the proportions between Twino and Mintos. Of course, Twino has been slightly confusing this month, the biggest problem being that the autobidder is slightly broken at the moment. Viventor finally managed to get theirs working though, so there must be balance in the universe 😉

Currently Twino/Mintos stand equal in my portfolio (just added the money into Mintos later, which is why the interest returns lag). For Viventor, they seem to be doing OK, so I will probably add in a couple of hundred extra there just for their 1-month length loans. Mintos’s offers of 13% consumer loans and 13,5% car loans means that even though I’m not a fan of the loan lengths there, it does slightly pull ahead in the race of the Latvian platforms at the moment.

Crowdestate

I have this dream, that one day CrowdEstate’s IT system will work as intended. At this point it seems like they are still suffering from issues when a new project releases, which made this project fun – since I was in London I had to find a Starbucks for wifi and then suffer through the horror of using their website on my mobile phone. I really want them to do well, but issues like this take away a lot of goodwill that investors would otherwise have.

Estateguru, Moneyzen & Investly

Estateguru is impressing with volumes, however as stated before, not adding any money currently since my portfolio there is private (no word of a secondary market for a long time now).

Moneyzen did not manage to get the new regulatory license on time, which means that no new loans are being given out. Which makes me reasonably happy that I ‘only’ have 500€ there, but it’s not being reinvested, so not good overall.

Investly seems to have gotten their pipeline for factoring (invoice selling)  going, there seems to be a reasonable amount of invoices listed, which is making me consider actually finalizing my registration and testing them out.

Huge updates to the business model of Bondora

Just when things were looking reasonably calm and settled, the new legal regulations that came into effect on March 21st pushed Bondora towards finally announcing their change of direction – from being an intermediary to being a credit provider.

What has changed?

In essence the situation now works like this – when a client wants to get a loan then  this loan is initially given out by Bondora, and then the pieces are sold to individual investors. Essentially what this means, is a move towards a more Lending Club like model – that investors purchase the right to a claim (which they’ve been actually doing for a while already, but now there seems to be some legal alterations to the process). Overall, the biggest change by far is the fact that Bondora now announced that due to their change in legal status they will be keeping a part of every loan in their own balance sheet. The definition of ‘part’ has not been announced but this has some impact how to assess risk.

Bondora now has ‘skin in the game’

While before, owners of Bondora also invested into loans (the CEO, Pärtel Tomberg, said this amounted to 1,2 million € worth of loan pieces, amounting to a total of about 3% of the portfolio), now Bondora as a business will also be impacted by the quality of the loans. In theory it does two things – firstly it somewhat increases the strain on the finances of Bondora; secondly it ties them more directly to the quality of the loan book.

It’s difficult to assess the long term impact of this. In many ways Bondora is now moving towards the model that several loan originators that list their loans at Mintos are using – keep a % of the loan in their loanbook and sell the rest. In theory it should be good overall. Also, this was a predictable change in their business model. In the long run it’s probably a stepping stone towards a full on banking license. This change would also allow to start some kind of securitisation based on the existing loan book, but there is no info so far on this.

Changes to the recovery process

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Now, a much bigger change that was announced was more a aggressive debt collection strategy that outlines a new process where DCAs are to be involved in the process as early as 7 days into the collections process. This has predictably caused a serious uproar from some investors due to the fact that DCAs apply fees on money that they collect, reducing investor returns. One of the key questions that has arisen is the question of whether 7 days is a reasonable date for becoming more aggressive and whether waiting a bit further to verify increased likelihood of bankruptcy would be reasonable.

Now, the initial reactions seem to be very emotion based, and I’ve kept myself from making any rushed judgements. A lot of investors seem to consider this as a large loss without considering the fact that once DCAs take over collections they do not keep at it forever – if a settlement is reached the client keeps paying and further aggressive collections is not needed. Another issue that there isn’t much info on, is the rate at which collections happens – the main issue with court collections is that the time delay is immense, often more than a year before anything happens; for DCAs the recovery is clearly much quicker. Overall I’m expecting to hear more information on this before making any long term decisions.