Loan Growth Rebounds

In the ever-evolving world of financial technology, the third quarter of 2024 has marked a pivotal turning pointDespite challenges, including declines in net profits for some companies, there has been a significant uptick in loan facilitation volume compared to the previous yearAs efforts to mitigate risks began to pay off, the quality of assets also showed favorable improvements across the sector.

After a prolonged period of stagnation, the lending market has undergone a notable shift in Q3.

Recently, six publicly listed fintech companies on U.S

stock exchanges, including Lufax Holding (NYSE: LU), Qifun Technology (NASDAQ: QFIN), Lexin (NASDAQ: LX), Xinyex Technology (NYSE: FINV), Xiaoying Technology (NYSE: XYF), and Jiayin Technology (NASDAQ: JFIN), disclosed their unaudited financial results for the third quarter.

Examining the operational data from these companies reveals that, while some are still experiencing year-over-year declines in net profit, the overall trend for loan facilitation volumes has shifted positivelyMost companies, in contrast to their previous contraction, achieved substantial quarterly increases in the amount of loans facilitated, and alongside this, asset quality has also shown improvement.

Specifically, among the six publicly traded fintech firms, three have reported both revenue and net profit increases year-over-year

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In terms of loan facilitation volumes, only one showed a quarter-on-quarter contraction, while the others experienced growthMoreover, the delinquency rate for loans overdue by more than 90 days (M3+) also exhibited a decline or stabilization compared with the previous quarter.

In terms of revenue, Lufax Holding, Qifun Technology, and Lexin retained the top three spots, reporting revenues of 5.543 billion yuan, 4.370 billion yuan, and 3.660 billion yuan, respectively

For net profit, the leaders were Qifun Technology, Xinyex Technology, and Xiaoying Technology, with figures of 1.799 billion yuan, 624 million yuan, and 376 million yuan, respectively.

Among these, Qifun Technology, Xinyex Technology, and Xiaoying Technology all reported year-over-year increases in revenue and net profit for the third quarterXiaoying Technology observed the highest revenue growth at 13.29%, while Qifun Technology enjoyed the largest increase in net profit of 58.11% year-over-year.

The CEO of Qifun Technology, Wu Haisheng, commented in the financial report that this quarter saw continuous improvement in net interest margins due to reduced funding costs and risk mitigation

Approximately 55% of the total lending volume from ongoing operations does not involve credit risk, reflecting an effective adjustment in operational strategyIn Q3, thanks to more efficient and diversified customer acquisition channels, the cost of acquiring new customers further decreased.

"Part of the reason for performance improvements may stem from the widening interest margin, which is a result of decreasing financing costsCurrently, the competitiveness in the bank loan market has intensified considerably, leading to declining rates during collaborations between banks and fintech companies," noted Ji Shaofeng, chairman of Jiangsu Weijin Chuanglian Information Technology Co., Ltd.

However, performance profiles were mixed

Two companies, Lufax Holding and Jiayin Technology, reported both revenue and net profit declinesLufax, continuing its business transformation strategies initiated last year, saw a 31.14% drop in revenue to 5.542 billion yuan, resulting in a net loss of 725 million yuanJiayin Technology experienced a revenue decrease of 1.50% to 1.445 billion yuan, with net profits declining by 16.8% to 270 million yuan.

Lexin failed to break its pattern of "increasing revenue without increasing profit," achieving revenue of 3.66 billion yuan, marking a 4.4% increase year-over-year, while net profit fell by 16.50% to 310 million yuan

However, compared to the previous quarter, Lexin's net profit showed notable improvement with a quarter-on-quarter increase of 36.7%.

Overall, fintech companies have shown marked improvements in performance during Q3, with most exhibiting a notable decline in M3+ loan delinquencies compared to prior quarters.

Specifically, Lexin's performance remained stable compared to the previous quarter, while the remaining five firms saw varying degrees of improvement

Xiaoying Technology marked the most significant drop in M3+ delinquency rates, declining by 1.16 percentage points to 3.22%.

As asset quality stabilizes, certain companies are loosening their previously tight operational parameters.

In terms of facilitated loan volumes in Q3, five of the six publicly listed fintech companies experienced quarter-on-quarter improvements, with three exceeding a 10% increase—a notable highlight being Xiaoying Technology's impressive growth of 24.6%.

According to Xiaoying Technology representatives, a series of government policies aimed at stabilizing the market have positively influenced liquidity and boosted consumer confidence

Overall, the macroeconomic environment has improved, and small and micro enterprises are feeling an increased sense of achievement in this contextXiaoying Technology has tailored its offerings to individual entrepreneurs, small business owners, and rural startups, providing essential financial services.

"After a period of risk control and slowdown, the risk situation in lending institutions has easedFurthermore, despite banks maintaining lending volumes, some institutions have initiated new lending activitiesHowever, this uptick in lending is likely temporary as the overarching macroeconomic environment currently does not support substantial expansions by institutionsAdditionally, risks from long-tail clientele continue to emerge," Ji Shaofeng commented.

Similarly cautious, Dong Ximiao, chief researcher at Zhangle Bank and a part-time researcher at Fudan University's Financial Research Institute, expressed skepticism about the ongoing expansion amidst market challenges, noting that some consumer finance companies are proactively winding down relevant businesses.

Lexin remains the only company among the six fintech firms that recorded a contraction in loan volume facilitated during the third quarter

The total transaction volume was 51 billion yuan, showing a year-over-year decline of 19.5% and a slight quarter-on-quarter decrease of 0.2%, continuing its cautious operational strategy from previous periods.

"Over the past year, we have been cautious in our operations, continually enhancing our risk management capabilities, focusing on prime clientele, and refining our operational efficiencyAs a result, we've achieved noticeable progressOur overall asset structure is healthier, and risk management is improving," stated Lexin's CEO, Xiao Wenjie, indicating a commitment to maintaining cautious operational principles while emphasizing quality growth and enhancing investment in consumer scenarios for a competitive edge.

Equally cautious is Qifun Technology

Wu Haisheng remarked in the financial report, "While we are encouraged by the recent economic stimulus policies, the actual impact on overall consumer demand and behavior may take time to manifestLooking ahead, even though our asset quality has improved and user engagement has begun to rebound, we will continue to manage risks prudently."

Additionally, the financial report indicated that due to the marginal returns from risk management SaaS operations and limited upside potential for upselling, Qifun Technology plans to phase out this service by the end of 2024. As of September 30, the balance of loans intended for the discontinued service was 31.901 billion yuan.

Industry insiders have pointed out that the improvement of operational efficiency in fintech companies is closely tied to technologies enhancing existing business practices.

Financial reports indicate that in Q3, Lexin invested 149 million yuan into R&D, marking a 17.7% year-over-year increase

From a risk perspective, Lexin began a comprehensive upgrade of its risk system at the end of last year, which includes enhancing its comprehensive lifecycle risk management system, improving monitoring and early warning capabilities, developing strategy robots, and upgrading intelligent anti-fraud models, thus significantly strengthening its risk management capabilities.

Xinyex Technology is also continuing to deepen its capabilities in fraud detection and risk control, leveraging advanced technologies like graph algorithms, multi-angle visual recognition, voiceprint verification, and text embedding to present actionable innovative solutions along the entire spectrum of credit technology fraud prevention.

Besides technological innovations, overseas ventures have become increasingly recognized as a new engine of growth in fintech

Southeast Asia and other emerging markets have become popular destinations for expansion.

For instance, Xinyex Technology, which has been early to establish its overseas presence, reported robust growth in its international business for Q3, with revenue contributions nearing 20%. New trading users have outnumbered domestic ones for two consecutive quartersSpecifically, the firm achieved revenue of 640 million yuan, representing an 8.7% year-over-year growth, while transaction amounts soared to 2.7 billion yuan, a 22.7% increase year-over-year, serving a cumulative 6.3 million users.

Simultaneously, Xinyex Technology has made progress in diverse operations and strategic partnerships in its international ventures

For example, it has been granted a "multi-finance license" regulated by Indonesia’s Financial Services Authority (OJK).

Lexin has also accelerated its overseas business strategy in Q3, expanding its investments and operations in Southeast Asia beyond the Mexican marketThe company reported rapid growth in Indonesia, with a 31% increase in trading users quarter-on-quarter and an 18% rise in transaction volume.

Dong Ximiao suggests that for some fintech companies, expanding internationally could be a promising strategy, yet it is not always a matter of survival

Decisions to venture abroad should align with a company's resource capabilities and market demands, also taking into account risks tied to international finance regulations and country-specific risks"While the technological capabilities can be viewed as an integral part of a fintech firm's international strategy, compliance and business model challenges may arise," he noted.