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The Aforti Incident
In August 2019 Mintos announced the suspension of Aforti from the marketplace, due to their failure to transfer to Mintos payments received from borrowers.
Making things more complicated was the fact that Mintos had been disbursing investors’ accounts using its own funds while not receiving the corresponding payments from Aforti. So when Aforti did resume payments, the money was first used to cover the hole in Mintos’s balance sheet. In fact, Aforti’s debt towards investors hasn’t shrunk for the past 3 months, as repayments have continued going towards Mintos.
Understandably, this ongoing crisis has sparked a lot of anger among investors. To prevent similar situations in the future, Mintos changed its methodology: Loan repayments would no longer be distributed to investors until Mintos receives enough money from the originator. Money repaid by borrowers, which was not yet transferred from the loan originator to Mintos, now appears under “Pending Payments” in the Overview, Portfolio and Statistics pages.
Communication from Mintos regarding pending payements was so poor, this not-so-new feature remains largely misunderstood to this day. Due to the context in which Pending Payments were introduced, investors naturally associate them with problematic loan originators. In a moment you’ll see that this isn’t necessarily the case.
Thankfully, a representative of one of the loan originators has responded to my concerned post on Facebook and provided an eye-opening explanation about pending payments. By doing so, he has also shed some light on the way in which Mintos actually works.
How Mintos Works
Many investors assume that Mintos sends and receives money to and from loan originators on a daily basis. Actually, the settlement is made on a weekly basis, based on the debt accumulated throughout each week. What does this mean? Let’s take Cashwagon as an example.
If the volume of Cashwagon loans funded on Mintos throughout the week surpasses the volume repaid by Cashwagon borrowers, then Mintos owes money to Cashwagon. You can’t see the amount; the Statistics page will simply show zero pending payments for Cashwagon.
However, if the volume of loans repaid by borrowers throughout the week surpasses the volume funded on Mintos, then Cashwagon owes money to Mintos. The exact amount owed appears under “pending payments”.
Whether Mintos owes money to the loan originator or vice versa, the debt is settled every Thursday morning (at least for Cashwagon).
Do pending payments indicate a problem with the loan originator?
As you now understand, pending payments are part of the normal course of business on Mintos. They occur whenever a loan originator’s position on Mintos shrinks compared to the previous week: when borrower repayments surpass new loans being funded.
Normally, pending payments are not delayed any longer than the day of weekly settlement. You should only become concerned if the amount of pending payments continues to grow after that day.
This is rather difficult for investors to track, as we don’t know the exact time and status of the bank transfer. Clearly, Mintos will be the first to notice if a weekly payment is missing.
How do pending payments affect your income?
Although pending payments do not necessarily indicate a problem with the originator, they do indicate a negative balance between the originator and Mintos, meaning that Mintos does not have available cash to disburse to investors for some of the loan repayments.
Essentially, pending payments have the same impact on your return as grace period or late loans without late payment fees. However, under normal conditions, the scope of pending payments relative to the overall loan volume is usually minuscule, and they are normally settled within a few days.
It’s also worth remembering that the alternative to pending payments is for Mintos to disburse investors accounts either with virtual money, or with its own funds – both dangerous options.
There have also been cases when pending payments were not settled on the weekly day of settlement, despite the originator seemingly conducting business as usual. Some payments have been pending for weeks. I honestly don’t know why this happens, but it’s certainly something that Mintos should keep close tabs on.
Update 17/03/20: Mintos has just announced the introduction of interest on pending payments. If originators fail to transfer the pending amount within 7 days, the pending amount for each loan will incur 1.2 times the normal interest rate of that loan. This should incentivise originators not to abuse pending payments.