“We live in very uncharted times and territory, unexperienced before,” said Martins Sulte, Co-founder and CEO of Mintos at the beginning of his 100 minutes long live-streamed YouTube talk to investors on Friday, March 20, 2020.
The pandemic’s effect on the global economy hasn’t spared the market of investing in loans, and Mintos is not an exception.
In light of recent events, we reached out to our investors, to share more about decisions and steps that Mintos is taking to provide a sustainable marketplace for both investors and the lending companies. Investors joined the conversation with their questions, showing interest in a variety of topics. Martins talked about Mintos’s safety measures for company’s remote teams, cost cuts, relations with lending companies, the cases of individual loan originators, but also about features like pending payments and future plans when it comes to new Mintos products.
Below, we’ve summarised some of the information shared in the Mintos webinar.
Ensuring the health of Mintos
With the pandemic, the main task for Mintos was to ensure the health of the company in order to continue running the marketplace in a stable manner. The management team has questioned all assumptions about the Mintos business: analysed cash-flow, runway, expected revenue, cost base, headcount, etc. Fast and decisive adjustments to the current situation were made, based on the projected assumptions.
The company started the year with strong growth and plans for further expansion, and the cost base was set to support such growth. With changes in the market, the company’s goal has transformed from growth to maintaining the sustainable business that Mintos has today. As a result, the cost base had to be adjusted.
“We’ve stopped pushing the pedal to the metal, and started extending the runway.”
Mintos made a sharp cut in its projected budget, resulting in a cost decrease of 40%. With the elimination of all non-essential expenses, the company has introduced zero-based budgeting. Unfortunately, around 45 people were let go, most of them hired for the projected growth in 2020. With a clean start, optimised budget, and € 3.6 million in the bank, Mintos projects it has a runway for the next 15-18 months. “We feel confident about weathering the storm and getting out of the economic downturn stronger than before,” said Martins.
Measures of adjustment and control
In addition to creating a stable environment, Mintos adjusted the immediate priorities to the current situation.
1. Daily communication with loan originators and performance monitoring
2. Improvement of the pending payments feature
3. Work on extension functionalities for loan originators, as this might be an emerging necessity for borrowers in the upcoming months
4. Revision of the Mintos Ratings
What lending companies are doing
“We are preparing for the disruption in borrowers’ repayments and an increase in non-performing loans. We are not disillusioned about that. But, we feel that loan originators are well prepared and that they’re taking necessary measures,” said Martins Sulte.
From our contact with lending companies on Mintos, here’s how most of them are preparing to secure solid environments for their businesses:
– Ensuring the safety of their employees: some of these companies have thousands of employees, with a lot of branches and direct daily contacts with customers.
– Cutting and reviewing costs: “They [lending companies] have to be pragmatic. There’s competition among lending companies, and there’s an inclination to go out and issue loans to borrowers,” said Martins. Only those who cut costs and origination will come out stronger.
– Lending companies are tightening their credit and risk policies
– Keeping high standards of debt collection processes: where necessary, should also review the existing procedures
– Preparing for proactive work with borrowers that are experiencing difficulties: companies will be giving reasonable extensions to borrowers, and they need to do additional work to make sure borrowers can overcome difficulties and pay their debts
“Loan originators will be affected by this downturn, but we can’t say which and to which extent. Some are not going to survive the crisis, but in general, we feel that many are very well positioned and that they can also capitalise on this,” said Martins.
In this webinar, investors also asked about individual lending companies. As we are getting information from lending companies almost on a daily basis, we will continue to post regular updates on the Mintos blog.
Investors asked about: interest rates
Investors were also interested to know more about the higher interest rates offered by lending companies in the times of downturn.
As less investing is happening, companies are competing for liquidity. This means that interest rates are increasing, so lending companies must cut costs. Of the total cost base, the funding cost is only ⅕, so companies have a lot of space to optimise their costs, increase interest rates, compete for liquidity, and expand their portfolio with high-quality borrowers. “For those who are well capitalised and have liquidity, downturns are golden times as they can grab the market share by getting customers for cheaper prices, and from there, they can build a strong business. Many lending companies were born in 2008 and 2009, when they were able to build up their client base and issue loans at a reasonable cost,” said Martins.
Investors asked about: pending payments
Mintos marketplace works with two streams of cash flows: one is investments in loans and the other is repayments by borrowers. “Until a few weeks ago, there were more investments in loans than repayments from the borrowers, so our investors never saw [before] those two streams that we are netting together. When investments are higher than borrowers’ repayments, there are no pending payments for investors. There are pending payments for loan originators, as we do net settlements on a weekly basis,” said Sulte.
Now, when investments are less than borrowers’ repayments, investors see the pending payments, too. This is due to the fact that what can be netted between investments and borrowers’ repayments Mintos does net, but the part which is higher (in this case borrowers’ repayments) keeps on accumulating, until the settlement date.
Investors asked about: the Secondary Market
The Secondary Market is busier than usual as more investors are looking for the liquidity of their positions. During the time of uncertainty, some investors cash out, some look to allocate their investments to other asset classes, and some investors are buying. “There is also a very decent demand on the Secondary Market,” said Sulte. The decreasing price of the asset and increasing interest rates are good reasons to get in and buy assets for prices that are lower than in times when the markets operate with the usual dynamics.
“That’s why we have new investors still joining, because of the interest rates on the Primary Market,” said Sulte. “People are using the opportunity to get out of the downturn with a profit. It’s all different views of investors.”
Watch< more about the Secondary Market liquidity in the webinar video.
Investors asked about: the Mintos Ratings and lending companies’ financial reports
Mintos teams are constantly working to upgrade the Mintos Ratings. “How we see them [Mintos Ratings] developing is that one [type of] rating could be about the loan originator: its underwriting process, its debt collection procedures, etc. The other [type of] rating should be regarding financial instruments: the healthiness of the buyback guarantee. The third one is the quality of the loan supply,” said Sulte.
Mintos is not promising to introduce a new rating system in the upcoming days, but Martins Sulte confirmed that this is something that teams will be working on in the future.
When it came to questions of investors about the discontinuity in lending companies financial reports, Martins said that it’s almost impossible to impose a request about unified financial reports for all 60+ companies from more than thirty countries from around the world. This is due to different levels of precaution related to different local competition or cultures, different quality of reporting, different languages, etc. “We [at Mintos] rather pay attention to loan performance than to financial reports. Financial reports are backwards-looking, and we’re looking for information on a real-time basis. We have management reports for our use, and we use them, too,” said Sulte.
If you want to hear more about how different Mintos teams work with loan originators, take a look at the webinar video on the link here.
Investors asked about: the future of investing in loans
Although lending had its downturns before, this is the first time that individual investors are participating in lending during the market’s downturn.
In the near future, investors might invest less than they used to. This might have the most effect on the lending companies, as they will need to readjust their funding sources. “We believe that loans are a good investment. We see many who share this view, but also those who are uncertain. We see that there will always be those investors who will want to fund the loan,” said Sulte. What’s left to see is at what amount and what quality of loans this investing will be happening. Loans, small and business credits are not correlating with other asset classes, and that’s what makes them a good investment during the downturn.
“This is a good opportunity for loans as an asset class to show that loans are a viable asset that can perform well through the crisis,” said Martins.
Investors were interested in future projects in Mintos. Martins confirmed that although the current focus has shifted, Mintos is still in the process of obtaining the electronic money issuance licence. The e-money licence would allow Mintos to hold electronic money and provide payments services, further providing IBAN account numbers for investors and eventually a Mintos card, for easier access to investors’ money on Mintos. The company will also continue working on bringing investing to the Mintos mobile app, firstly with Invest & Access. This is also a product that’s in the pipeline for further upgrades based on arising preferences of investors, with possibly three variations for investors to choose from.
You can find the complete video on the Mintos YouTube channel