Latvian Lending Marketplace Mintos Expands Beyond Loans to Offer Investments

After six years of operating as a peer-to-peer (P2P) lending marketplace, Mintos CEO and Co-founder Martins Sulte said that it made sense for the company to transition into a full-fledged investment firm.

This came after being granted investment firm and electronic money institution licenses to operate as a regulated financial investment marketplace, a project the company had been working on for close to two years.

“Having this stamp of approval from the regulator brings additional basic benefits when it comes to fund segregation, how the business is run and the process procedures for the people are involved,” said Sulte, who runs one of Europe’s leading marketplaces with over 420,000 registered users in 62 countries and more than €7 billion invested in loans since its launch in 2015.

The firm provides a two-sided marketplace for investing in loads, connecting borrowers to retail investors and lending companies across the world.

Sulte said the firm’s goal is to help retail investors across Europe to build wealth long term. Mintos will capitalize on its status as a now-regulated marketplace to transition its current loan offerings into Notes and ETFs, other investment products that retail investors did not have access to before.

“We have a very clear roadmap of what to do,” Sulte explained, saying that the transition plan to move the business into a fully regulated setup will take up to six months to complete.

And launching from a small country means that “from day one, it was never our ambition to build something just in Latvia or in the Baltic States,” but rather to look internationally, unlike companies getting started in bigger markets that can focus on building a reasonably sized business, Sulte explained.

He added that the investment firm will be more active in its big markets like Germany and Spain, while also opening up to other countries.

Challenges Unique to Europe

Despite the success it has achieved, Mintos has barely scratched the surface – Europe remains a huge untapped market when it comes to retail investors.

“Any form of investment across Europe – for example, in the stock market – is super low compared to the same in the U.S.,” Sulte said, adding that in Europe, about 20% of households participate in capital markets, while in the U.S., it is more likely in the 40-50% range.

European investors are also risk-averse. Several factors, like the lack of tax incentives and a reasonable income interest rate environment, don’t encourage investing in capital markets – not to mention real estate, which forms a significant part of total assets in Europe.

That presents a huge challenge to the loan business. “They’re [investors] holding their money in deposits. They have quite a bit of cash tied into real estate, and that’s about it – they don’t really participate in financial markets,” Sulte explained.

Mintos is not alone, he said – it’s a challenge for the entire sector, including neobrokers and new-age investment platforms. Sulte said there is a need to educate them to build for the future by assuming more risk, which is going to lead to higher returns, as well as to educate investors to diversify their portfolios using ETFs, equities and bonds, for example.

“There’s a whole spectrum of things you could add to have a holistic investment portfolio,” he noted, adding that the solution will be to find tools and ways to encourage the next generation of investors to participate.

Given that Mintos offers fixed-income and new assets, Sulte said the company felt firsthand the impact of COVID at the end of February and early March of last year, when investor interest dropped significantly within a short period of time.

Business has since picked up this year. Sulte said the pandemic helped investors to better assess the potential yields in the case of a crisis, as the business had operated for close to five years without having non-performing loans or bad debt.

Hide and Seek

Sulte said that moving forward, more and more crowdfunding and crowdlending platforms will be regulated – especially as the European Union directive, which applies to crowdfunding, comes into force in November.

And bigger players will have an advantage, because going through the regulation process and maintaining the regulatory cycle requires certain resources.

That means smaller players will likely try to play “hide and seek” and find jurisdictions where there’s no regulation, said Sulte – and that might work for a while. However, “many will realize it’s not worth it,” opting to get out of the market or consolidate with other players.