In a perfect world, money could be moved in moments and investors would receive their repayments instantly. Unfortunately, instant settlement¹ is not always possible for multiple reasons. Money transfers – especially international transfers – take time, and on the Mintos platform, this is reflected by assigning the payment “pending” status to a loan. In this article, we’ll explain how pending payments work.
Pending payments are a regularity in the money transfers
Mintos is a licensed investment firm and platform for investing in loans. Through the Mintos platform, we connect investors looking to invest in loans with lending companies that are looking to fund loans issued to their borrowers. In such a setup, money is being transferred between different international parties, and transfers like this can’t happen instantly. While the transfers are in process, pending payments occur.
On Mintos, pending payments represent money that is in the process of being credited to the investor’s account. When the lending company informs Mintos via API² that a borrower has made a payment, this payment is assigned a “pending” status. At that point, we only have the notice that a transfer is coming, while we wait for the lending company to actually transfer the money to Mintos. The money is then credited to investors as soon as it arrives. Note that the pending payments are not the same as the borrower’s grace period.
Money transfer flows are not always straightforward
There are 2 transactional flows between Mintos and the lending companies:
- When an investor makes an investment, the money is transferred to Mintos, and from Mintos, it’s sent to the lending company that issued the loan.
- When a borrower makes a repayment, the money is transferred to the lending company, and from the lending company, it’s transferred to Mintos and then distributed to investors.
As it would be inefficient and also costly to transfer payments individually, receivables from the 2 described money flows are settled in weekly batches. Investments and repayments are offset against each other, and only the difference is transferred.
It’s worth noting that this settlement system applies in both directions – the lending company will also receive the invested amount on the settlement date.
Pending payments release
Under normal market conditions, outstanding investments on Mintos are usually increasing – there are more investments in loans than repayments due over a settlement period. So while there can be some pending payments, these are offset against investments flowing from Mintos to the lending companies. In some cases, pending payments could be released immediately, if the accumulated settlement led to a net cash flow from Mintos to the lending company for the period (i.e. new investments exceeding repayments).
In cases that lead to a decrease in demand, such as the COVID-19 pandemic, or the war in Ukraine and resulting sanctions for Russia, or when the lending company stops offering new loans, there are more borrower repayments than new investments in loans. In this situation, lending companies need to make net transfers to Mintos investors, which means that some payments will become pending as we wait to receive the money from the lending company.
Example
Day 1 – investments of €1000, borrower repayments of €4000 → €1000 are released to investors and €3000 become pending until the settlement day
Day 2 – investments of €2000, borrower repayments of €3000 → €1000 become pending, and the total pending amount is now €4000
Day 3 – investments of €5000, borrower repayments of €2000 → €3000 in pending payments are released to investors, pending payments balance is now €1000
Days 4, 5, 6, 7 – the same dynamics
At the end of the seventh day, we settle with the lending company. We check if we have to transfer money to the lending company, or it has to transfer money to Mintos. If the lending company has to transfer the money to Mintos, it may take a few days for the money to arrive. Once it does, Mintos releases the remaining pending payments to investors.
The pending payment period that reflects normal conditions driven by the weekly settlement-caused delays is around 8 days, although in some cases it can also take longer. Investors can see the pending payment amounts for each lending company on the Statistics page and on the Pending payments updates page.
Pending payments are a result of the lending companies’ net payment settlement made on a weekly basis, and we take measures to ensure this system is not being abused. When the settlements are late and pending payments are increasing, our team reaches out to the lending company to establish the causes for this and then needed actions and timelines are determined. Except for the unusual cases that are driven by events outside the control of lending companies, Mintos enforces penalties for late settlements, including paying interest on pending payments to investors.
Pending payments are segregated from Mintos’ own funds, and they are not related to the company’s liquidity.
How settlement payments are allocated to investors
Settlement payments received from lending companies are allocated in the following order (according to section 21.2 of the Mintos User Agreement):
- Contractual fees that are due from the lending company to Mintos.
- Servicing fees or fees for enforcing contractual rights in and out of court, in case when Mintos (or a third party assigned by Mintos) has taken over servicing of the lending company’s loans (in the case when the lending company has defaulted and the funds are in recovery).
- Reimbursement of costs incurred, including legal fees or costs for other actions aimed at recovering investors’ funds (in the case when the lending company has defaulted and the funds are in recovery).
- Payments due to investors, including borrower repayments of principal and interest, repurchase prices, and buyback prices. These payments are assigned in the order determined by the assignment agreement and generally follow a chronological order from the oldest to the newest.
- If the lending company is 14 days late in making payments to Mintos, or late for another period that Mintos finds material, Mintos may decide that payments due to investors as buyback prices are allocated after other payments according to point 4.
- Payments of late interest on pending payments due to investors.
- Payments of any late interest or penalty fee due to Mintos.
In case a different order of allocation would be required for legal reasons, we would be following that order and the background information would be shared with investors.
¹ Settlement here refers to the transfer of the money to complete the transaction.
² API stands for Application Programming Interface. It is a way for two software applications to communicate with each other.
