360 Finance, Inc. (NASDAQ:QFIN) reported Q3 results this week delivering positive results. The Fintech loan facilitator showed a dramatic rise in loan origination volume versus the same quarter year prior. According to 360 Finance, Loan origination volume was RMB 55,965 million (USD $ 7.962 billion), an increase of 108% from RMB 26,925 million during the same quarter in 2018. Loan originations also increased by 16% from Q2 of 2019 to RMB 48,378 million. Net income jumped to RMB 733.5 million (USD $102.6 million), an increase of 27% from RMB 577.4 million in comparison to Q3 last year.
Shares traded higher by more than 16% following the positive report.
Earlier this month, 360 Finance was selected as a “Top 100 Financial Services and Top 100 Financial Innovations in 2019” for its quality financial services and the spirit of financial innovation.
Importantly, on November 27, 2019, FountainVest Partners, through its investment arm Ruby Finance Investment Ltd., acquired an aggregate of 11,521,266 ADSs of 360 Finance from certain holders of the Company’s ADSs. Upon the completion of the strategic investment, FountainVest became a significant shareholder of the company. A person designated by FountainVest has joined the board of directors.
Additionally, in August 2019, Fuzhou 360 Online Microcredit Co., Ltd., a wholly-owned PRC subsidiary, received approval from the People’s Bank of China to connect to its Financial Credit Information Basic Database.
Haisheng Wu, Chief Executive Officer and Director of 360 Finance, commented on the strong quarterly results:
“We continued to achieve healthy and solid growth as we remain committed to executing our strategies in place. We have firmly implemented our strategic transition from a traditional loan facilitator to a technology enabler through the ‘capital light’ model. This transition allows us to serve more financial institutions and steadily reduce overall operational risk. Recently, we have observed regulatory tightening and market volatilities. We have always prided ourselves on our market leading position and ability to maintain high regulatory compliance standards. We have been actively working with regulators, industry associations and other leading companies to advocate for operating in regulatory compliance and protecting customer privacy. For example, we jointed efforts with National Internet Finance Association of China to appeal for the establishment of an industry-wide anti-scam alliance. In response to the short-term market uncertainties, we expect to adopt a relatively conservative measure of customer acquisition, yet remain confident in meeting our full year guidance. In the long-run, we will continue to focus on the quality of growth and safety of operations, while maintaining a reasonable growth rate. We are committed to delivering greater value to all of our stakeholders. ”
Jiang Wu, Chief Financial Officer of 360 Finance, added:
“Our solid operating performance in the third quarter continued to generate healthy financial results. In this quarter, loans originated under the ‘capital light’ model accounted for 20% of total loan originations, a significant increase from 8% in the previous quarter. It not only frees up more cash to support our daily operations and pilot projects, but also provides us with more of a cushion against industry headwinds down the road. Meanwhile, our customer acquisition has become more efficient to offset, to some extent, a decrease in margin as a result of our strategic transition. We remain committed to originating more on-balance sheet loans to better match revenue with cash flow as long as the costs of consolidated trusts are reasonable. In addition, we have been trimming down overall funding costs through strengthening long term relationship with our financial institution partners and diversifying our fund sources, such as domestic ABS market. For example, in July, we successfully issued RMB 1 billion of ABS with an attractive comprehensive cost at about 5.6%, despite the challenging domestic ABS market. More importantly, we maintained our prudent attitude towards risk management to ensure sufficient provisions for estimated credit risks. ”
Mr. Yan Zheng, Vice President of 360 Finance, stated:
“We maintained our market leading risk performance with 90 day+ delinquency ratio stood at 1.07%. We have implemented proactive measures in all stages of our operations to ensure full control over credit risk management in the long-run. These measures include raising requirement thresholds for loan applicants, offering loans with more flexible repayment schedules to increase the transaction volume of high quality borrowers, and recording additional provisions related to credit risk. In addition, we have received approval from People’s Bank of China to connect to its credit system, which will allow us to download and submit data on borrower’s credit profile. We believe this will enhance our risk management capabilities by increasing the effectiveness of credit underwriting and a borrower’s cost of default. Furthermore, we have adopted a stringent collection policy to ensure full regulatory compliance. With these measures in place, we are confident to elevate our overall business resilience and achieve more sustainable development.”
Outstanding loan balances stood at RMB 70,568 million as of September 30, 2019, an increase of 106% from RMB 34,338 million as of September 30, 2018, and an increase of 15% from RMB 61,289 million as of June 30, 2019.
Total net revenue came in at RMB 2,583.0 million (USD $361.4 million), a whopping increase of 98% from RMB 1,302.7 million in the same period of 2018.
Cumulative borrowers including repeat borrowers were 14.73 million as of September 30, 2019, a solid increase of 129% from 6.44 million as of September 30, 2018. Repeat borrowers delivered a majority of borrowing at 70.3%.
The percentage of funding from financial institutions was 93%. Unlike peer to peer lending platforms, 360 Finance has partnered with 74 banks in China, such Industrial and Commercial Bank of China, as well as other state-owned banks and commercial banks.
Yan Zheng, Vice President of 360 Finance, explained that their risk performance continues to remain steadily at market leading level with 90 day+ delinquency ratio at just 1.07% as of the end of the third quarter.
“We have implemented proactive measures in all stages of our operations to ensure full control over credit risk management in the long-run. These measures include raising the entry threshold of loan applicants, shortening the tenors of loans granted, offering loans with more flexible repayment schedules to increase the transaction volume of high profile borrowers, and recording additional provisions related to credit risk. Furthermore, we have gained direct access to the PBOC’s credit system, which allows us to download and upload a borrower’s comprehensive credit performance. We believe this will enhance our risk management capabilities by enhancing the effectiveness of credit underwriting and increasing a borrower’s cost of default.”
360 Finance is a leading digital consumer finance platform and a Fintech partner of the 360 Group connecting over one billion mobile devices – a significant number.
Serving both prime and underserved borrowers, 360 Finance provides a variety of consumer credit products powered by its proprietary tech stack. Products include affordable, unsecured, digital lines of credit which borrowers can typically utilize as a supplement or alternative to credit card debt.
The company highlights its “unique user experience supported by resolute risk management.” The company’s success has translated into meaningful borrower acquisition, borrower retention and funding advantage. All of this has helped to boost the rapid growth and scaling of its business.
Applications for credit a fully automated and approved borrowers may receive funds in around five minutes.
360 Finance reports that their customers tend to be younger as they appreciate the rapid and transparent access to credit. Frequently, the company offers borrowers larger credit balances at lower prices than its competitors.
360 Finance incorporates a robust and highly automated ID process that mitigates fraudulent credit applications – the largest source of defaults in the online lending sector.
Going forward, 360 Finance is exploring markets in Southern Asia, like India – a market where they have already attracted over 1 million users.
China is the largest Fintech market in the world. Until recently, it held the most robust peer to peer lending market anywhere. But sector shifts have compelled online lenders to exit P2P lending and this is where 360 Finance excels.
360 Finance has deployed AI Robots in various operational functions to improve the standardization of their operations and to reduce operational risk and labor costs.
As of June this year, 75% of the collection work, 77% of the telemarketing work, and 91% of customer service work have been performed by their AI Robots. The remaining work of collection, marketing, and customer service is performed by humans, though the company actually uses AI robots there as well for “Quality Inspection.”