Mintos, a European marketplace for loans, launched a securities crowdfunding offer on Crowdcube earlier this week. The equity sale quickly surpassed its £1 million hurdle and as of today, the offering has raised over £6 million backed by more than. In the process, Mintos set a Crowdcube record of raising €3 million in just over 2 hours. The first million arrived in about 15 minutes. The valuation of the Fintech has been set at £68 million.
Based in Latvia, Mintos has emerged as a top lending marketplace having facilitated over €5.7 billion for 30+ million loans. Mintos is interesting as it does not originate any loans listed on its platform, the company aggregates debt issued by partner platforms. Their website claims to host 68 lending companies from 33 countries. The debt offerings are a blend of individual and small business loans along with mortgages. Many originators have a buyback guarantee but others have been suspended or withdrawn – many due to the pandemic with some falling under imposed-moratoriums.
Mintos does not charge any fees to investors and makes most of its money on commissions they receive from lending platforms. Mintos operates a secondary marketplace where a 0.85% charge is assessed for selling a loan.
While the Fintech appears to have generated significant traction in its lending marketplace, Mintos is not content with growing this business as it has as the company has received both Investment Firm and Electronic Money Institution licenses in Latvia thus opening up the door to other services.
In light of its decision to launch a securities offering on Crowdcube, Crowdfund Insider reached out to Mintos co-founder and CEO Martins Sulte. Our conversation is below.
Mintos grew dramatically in 2019. How are you doing in 2020? How has COVID impacted your marketplace?
Martins Sulte: 2019 was a record year for us in all possible fields. We grew from a 50 something team to 200 people team in less than a year and scaled our business to become market leaders in Europe.
Already at the end of February 2020, we noticed the first signs of Covid-19 impact – investors slowed down and/or stopped investing because of the uncertainty about the future. It was followed by an increase of non-performing loans that further impacted investor appetite for investing. That in turn resulted in a few of the lending companies not being able to withstand the pandemic and crisis and having to resort to wind-down or restructuring. Our strong position allowed us to refocus on current business and work actively to recover investors’ funds and rebuild confidence in investing in loans.
Nevertheless, throughout this time in 2020, our team also continued working on our plans to become a regulated marketplace. We are very close to fulfilling the necessary requirements and acquiring two licenses – Investment Firm and Electronic Money institution, which we expect to receive in early 2021.
Still this year we are also holding a crowdfunding campaign with our community. It is our way of saying Thank You to all who have been with us throughout our success and challenges, and looking forward to continuing to invest with us. Anyone in our community will be able to invest in Mintos, become a shareholder, and join us on our journey. So far we’ve seen more than 20 000 investors sign up for this opportunity.
You post an average 12.45% return for investors. Is this net of defaults? How do you manage issuer risk? What about the Mintos Risk Score?
Martins Sulte: The 12.45% is average interest based on the current rates on the platform. According to the data we hold, the expected defaults stand at 2-3% per year. So the expected return is about 10%.
We measure our issuers – in Mintos’ case, these are the lending companies issuing loans to borrowers and then listing them on our marketplace – risk by performing regular monitoring of the lending companies we cooperate with, including their financial analysis and loan portfolio review. We share this analysis as part of the Mintos Risk Score, which consists of four different sub-scores of each loan placed on Mintos that portrays the risk level of each particular investment opportunity on our marketplace.
Some European P2P platforms have struggled during COVID. Do you advocate for more rigorous regulation?
Martins Sulte: We support regulation – it is vital for growth of the industry. We definitely see a high value in implementing standards of quality by becoming a regulated marketplace. Regulation is a must for loans as an alternative investment type to go mainstream, and we see it also as a way to make our service safer for our investors. At the end of the day, investors are the ones voting with their money – where to invest and how much.
Where are most of your investors located? How much institutional money invests via your marketplace?
Martins Sulte: Our investor base is spread across Europe, with the majority in Germany, the Netherlands, and Spain. We focus exclusively on retail investors.
You are in the process of receiving an Investment Firm and e-Money License. How will this change Mintos? Will you become more of a digital bank?
Martins Sulte: Implementing the requirements of both licenses will make Mintos a fully regulated marketplace for investing in loans. It means we will introduce new internal and external processes and policies that will decrease operational risks of the platform and further increase the level of transparency on Mintos.
An Investment Firm license will allow us to add new investment products (such as ETFs), while thanks to the Electronic Money Institution license each investor, in addition to an investment account, will also have a Mintos IBAN account with a debit card attached. This will lead to increased security for investors’ funds. By offering new investment products and financial services to further serve the needs of our customers, we eventually see us becoming the primary financial relationship for the next generation of investors.
The peer to peer lending model appears to be diminishing as multiple online lenders have moved away from retail money. What are your thoughts on this? Do you envision the same happening to Mintos at some point in the future?
Martins Sulte: No, we don’t. Those who moved away, for example, Zopa, LendingClub, and others, are lending companies that issue loans as their primary business. For them having a platform for offering these loans to retail investors is just another way of how to fund the loans they issue – it’s a cost centre, not a profit centre.
The lending companies we work with want to diversify their funding sources by funding a part of the loans through retail investors.
Retail investors, on the other hand, demand alternative investment solutions that are both accessible and not correlated with traditional assets. In the European Union alone, retail investors hold investments worth €7 trillion.
Over the next few years, the global crowdlending market is expected to grow at a compound annual growth rate (CAGR) of 29.7%, from €57 billion in 2019 to €472 billion by 2027. And from a broader view, global non-bank lending – in other words, the loan supply potentially available for investing – is already worth more than €3 trillion.
With Mintos sitting right at the intersection of these trends, I am confident that we are well-positioned to capitalize on this opportunity.
Mintos does not turn a profit yet. When do you anticipate becoming profitable?
Martins Sulte: Being in a high growth stage, we are focusing on growth, not profit. Ever since we’ve launched back in 2015, we have continuously grown and don’t plan to stop anytime soon. We have now become the leading marketplace in Europe (excl. the UK), and we’re only at the beginning of our journey.
There’s a vast market to be seized, the demand for retail investment is huge. To open it up for us and execute on our growth plans, we are now fundraising. We started with our crowdfunding campaign and will continue with venture capital firms.
How robust is your secondary marketplace?
Martins Sulte: It’s very liquid.
For example, we had a client last year who sold almost EUR 1 million within 24h on our Secondary Market. At the moment, the total value of loans sold on the Secondary Market is €338 925 300. Investors who wish to sell usually can do it very quickly, especially with a small discount on their loan. At the moment we see loans at par value having the biggest chunk of overall loan amounts sold on the Secondary Market.
Have you considered cryptoassets (digital assets)?
Martins Sulte: No, we haven’t. We focus on investing in loans. There’s a vast market to be seized with a lot of opportunities within our existing focus. And I think crypto is still a very niche product that hasn’t been widely adopted, it doesn’t offer the scale we can achieve with loans as an alternative investment type.
What are your expectations for 2021? Are you considering expanding into new markets?
Martins Sulte:We expect to continue our growth along with becoming a regulated marketplace. With the pandemic subsiding and a COVID-19 vaccine coming to the masses globally next year, we also expect investor confidence about the future to return.
The current fundraising round will allow us to implement the necessary changes to become a regulated marketplace. We will then be able to reach more customers in our current markets and expand into new markets where we are not present today. At the same time, we will continue to offer unmatched loan supply on Mintos, including loans with lower risk and return levels.
As we scale, we will also add new investment products and financial services to further serve the needs of our customers. While it will take some time, eventually we see us becoming the primary financial relationship to the next generation of investors.
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