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Origins: 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 once (or in some cases twice) per week.
Do pending payments indicate a problem with the loan originator?
Payments which are pending for up to 7 days are part of the normal course of business on Mintos, and occur whenever a loan originator’s position on Mintos shrinks compared to the previous week: when borrower repayments surpass new loans being funded.
If a payment is pending for more than 7 days, it means that the originator is late in transferring payments to Mintos, which may indicate a liquidity issues or simply chooses not to transfer payments to Mintos. You can see the average number of days in which payments are pending, for each originator, in the Statistics page.
How do pending payments affect your income?
When payments from a loan originator are pending, Mintos does not have available cash to disburse to investors for some of the loan repayments. 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. When the volume of pending payments grows, they begin to have a greater impact on your returns, especially with regards to short-term loans… but in that case there are probably bigger things for you to worry about.
If originators fail to transfer the pending amount within 7 days, it begins to incur 1.2 times the normal interest rate of the affected loans. This should incentivise originators not to abuse pending payments.