Mintos chief executive Martins Sulte explains to Marc Shoffman how the European lending marketplace plans to build on its success in 2021 and beyond.
Mintos has pioneered a new peer-to-peer lending format in Europe by matching investors on the continent with loan originators from around the world.
The Latvia-based lending marketplace celebrated a landmark year in 2020. It reached €6bn (£5.27bn) in funded loans and raised a record €7.2m in a crowdfunding fundraise on Crowdcube.
It was also a transformative year as Mintos applied for an investment licence in Latvia that will let it expand its operations and product range.
New investor protections were introduced such as an appropriateness test to ensure the risks of the product are understood.
Mintos also boosted transparency on the platform by introducing a new risk score based on an originator’s loanbook quality and performance, how well it recoups bad debts, how it operates buybacks and its co-operation with Mintos. This aims to help with investor due diligence.
That would be an exhausting 12 months for any company but Mintos chief executive Martins Sulte, is not sitting back just yet.
Marc Shoffman: What is the key to the success of Mintos’ growth?
Martins Sulte: It all comes down to the product. We are offering unparalleled opportunities to invest in loans – you can find a lot of different loans across different countries on one marketplace.
On the other side, you have the lending companies providing a good funding source for borrowers.
We then bring these two sides together in an easy-to-use product, which is the key for success.
Marc Shoffman: How do you choose your originators?
Martins Sulte: We have a sales partnership team that screens the loan originators at a high level to understand the product offering and market position.
If that is satisfactory, there is enhanced due diligence on the loan portfolio performance, the management, the servicing. This is all considered before we decide if we are comfortable to connect.
Marc Shoffman: How have investors reacted to the new platform features?
Martins Sulte: Investors now get additional insight they didn’t get before. The risk score isn’t something investors would flood to praise as we had it already, it’s just an evaluation of what we had before.
Marc Shoffman: Why is it important for you to be regulated?
Martins Sulte: When you are dealing with finance you have to be regulated to get into the mainstream and provide services to more investors across more countries.
For some investors, the first question is whether you are regulated and this will influence if they decide to invest.
We are expecting to get our investment licence between the first and second quarter.
Investors now have to complete a suitability assessment as part of our plans to be regulated. There has been good feedback on it so far. It is the first experience of investing for many of them.
Marc Shoffman: Will regulation create better outcomes for investors?
Martins Sulte: The reason regulation exists is to protect both parties. When it comes to retail it is more to protect the interests of investors and to have safeguards in place.
Regulation will help weed out obvious cases of fraud but it is not possible to weed out all cases even in a fully regulated set-up. It is never going to be.
Marc Shoffman: How have you navigated the pandemic?
Martins Sulte: The first wave in March 2020 was a challenging time. It came as a shock and affected investor confidence.
The impact of the second wave was less so. People are getting used to the situation.
We are seeing investors returning and the start of the year has been strong for us. The number of loans in recovery has increased, that’s part of investing and something which I guess investors also had to learn.
The double-digit returns do come with a risk and that affects the loan performance.
Marc Shoffman: What is your focus for 2021?
Martins Sulte: 2021 will be an exciting year, we have great expectations. We are looking to scale up both sides of the marketplace.
It will be a year of branching out. We want to bring on lower risk loans, more investment products and a debit card. The investment products would include traditional exchange traded funds.
We are forming a team to provide this, subject to getting the investment firm licence. There is, of course, competition that we keep an eye on but so far we haven’t seen anyone do anything different.
Most platforms are setting up and are trying to replicate what we do but they are super small.
Marc Shoffman: How did it feel to exceed your crowdfunding target with a record fundraise?
Martins Sulte: The best bit was that we were able to get thousands of new investors on board. This gives them the opportunity to be part of Mintos and share in our wider vision.
Obviously, the funding itself is also helpful. It gives us more confidence to invest in our growth and customer acquisition.
Marc Shoffman: Can you see Mintos opening up to UK investors?
Martins Sulte: It is definitely in our mind to open up for UK investors but not this year. We will see how Brexit pans out. Mintos is unlikely to fund loans in the UK though. Most investors are euro denominated so there would be limited interest in funding British pound loans.