LexinFintech Holdings Ltd.

Ladies and gentlemen, thank you for standing by and welcome to the Listing FinTech First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. I must advise you that this conference is being recorded today. And I'd like to hand the conference over to your first speaker today, Mr. Tony Hung, Senior Director of Capital Markets. Thank you, and please go ahead, sir.

Thank you, operator. Hello, everyone, and welcome to Lushin's First Quarter 2021 Earnings Conference Call. The company's results were issued earlier today and are posted online. Joining me today on the call are Mr. Jay Hsiao, our Founder Chairman and Chief Executive Officer, Mr. Craig Zhen, our Chief Financial Officer, Mr. Yang Chao, our Vice President, Ms. Beryl Heap, our Senior Financial Director, and other members of our team. For today's agenda, Mr. Hsiao will provide an overview of our recent performance and highlights, Mr. Zinn will discuss our core results, and Mr. Chao will discuss our credit performance. Before we continue, I refer you to our safe harbor statement in the earnings press release, which applies to this call as we will make forward-looking statements. Also, please note that this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Finally, please note that unless otherwise stated, All figures mentioned during this conference call are in Lemming B. I will now turn the call over to our CEO, Mr. Xiao, whom I will translate for.

Hello, everyone. I am very happy to tell you that we have once again achieved a high-speed growth in this quarter. China has become the world's largest consumer market. The new consumer strategy allows us to grasp this growth trend and better acquire more quality customers. In the first quarter, the implementation of this strategy effectively promoted the growth of the number of users and the size of the business. In the first quarter, the number of new users increased by 14 million. In seven consecutive quarters, the number of users increased by more than 10 million, and the number of users increased by zero. As of the end of the quarter, the number of new users reached 13.2 billion, which increased by 56.5%. The number of new users increased by 30.3 million, which increased by 46.5%. In the quarter, the number of new active users increased by 1.8 million, which increased by 88%.

I'm pleased to announce to everyone that in this quarter, we have once again achieved the record of high growth in our financial results. China has already become the world's largest consumption market, and our new consumption strategy will allow us to seize the benefits from this opportunity. In the first quarter, this strategy enabled us to grow both our user base and business scale rapidly. In the first quarter, Lushing's newly registered users reached 14 million, continuing seven straight quarters where our newly registered users increased by over 10 million, leading the industry. At the end of the quarter, Lushing's total registered users reached 132 million, an increase of 56.5% year-on-year. Users with credit lines reached 30.3 million, an increase of 46.5% year-on-year, and new active customers for the quarter reached 1.8 million. an increase of 88% year-on-year. In the first quarter, Lushin's platform facilitated 53.8 billion in loans, an increase of 57.8%. The new FPD30 has been maintained at less than 1% for eight consecutive months.

The data is also the lowest level since the epidemic.

The continued refinement of our risk management systems allowed our asset quality to continue to improve. At the end of the first quarter, our 90-day plus delinquency is at 1.84%. And FPD30 for new loan originations has been below 1% for eight months now, the lowest since the pandemic.

Both our user base and our scale continues to grow rapidly, and our risks continue to stabilize and decline.

This dual rise and one decline allowed many of our core financial metrics to reach record highs. In the first quarter, Liching's revenues were $2.9 billion, gross income was $1.37 billion, and non-GAAP net income reached $771 million, with EBIT non-GAAP reaching $911 million. I anticipate this positive trend will continue in the following quarters, and we are fully confident in our ability to reach our loan origination targets of $240 to $250 billion.

Next, I would like to share with you some of our current strategies in financial technology and new consumer business. First of all, in financial technology, we are advancing a diversified support strategy. For small and medium-sized enterprises, we have launched a series of pure business-oriented modern products with multiple scenarios. In the first quarter, this part of the product has served nearly 200,000 customers, mainly from mechanical equipment and electronic周边制造业,轻工制造业,批发零售业, Next, I'd like to share with everyone several of our current strategies in our financial technology services and new consumption.

On the financial technology services side, we're in the process of diversifying our assets, and specifically towards micro business owners. We have worked with multiple scenarios to develop a series of pure operating credit products. In the first quarter, these products served nearly 200,000 customers, primarily from machinery, equipment, electronics, and related manufacturing, light manufacturing, and wholesale, generating $2.1 billion in transactions. At the same time, after analyzing our existing customer base, We discovered that over 15% of our customers fit within this category of operating and financing need. And in the future, we will increase efforts to fully uncover the potential of these assets.

to build self-sufficiency products, improve business autonomy, stability, and regularity to become the realistic demand of regional banks. In the past seven years, we have developed the ability of Internet products, the ability of operations, and the ability of financial technology to help financial institutions to solve these problems to a certain extent. For this purpose, we have launched a regional bank co-growth plan and joint operations service to help banks build self-sufficiency products and realize localization development.

Currently, many banks, especially small and medium-sized regional banks, face common challenges when it comes to traffic acquisition, operating models, and other problems, and have become overly reliant on outside channels or a single partner model, which is difficult to sustain. Creating a self-operated product group Increasing operational self-sufficiency, stability, and compliance has become a real need. Le Chien, through our past seven years of solid internet product experience, operating capabilities, financial technology capability, stands in a unique position to help financial institutions solve these problems. As a result, we've initiated our co-development with regional banks plan and joint operations services to help banks create a self-operated product group, enabling localized development. On May 13th, we signed strategic cooperation agreements with the Bank of Nanjing, the Bank of Gansu, Songyuan Bank, the Bank of Kunlun, Jiangnan Nongchun Business Bank, the Bank of Ruromuchi, and nine other banks.

In addition, our financial technology output has also made considerable progress. We have produced tens of millions of technology revenues for our online small and medium-sized products, such as Le Tu and Le Tu Pro.

In addition, our financial technology output services has also achieved noteworthy growth. Our online microloan credit products risk product, Le Tu Pro, already has over 30 participating institutions, achieving tens of millions in financial technology revenues.

In terms of new sales, our new and old products have a strong market share, and the market share has reached more than 60 million in the first quarter. The current market share service demand has exceeded 510,000. The number of service providers is 1,575,000. The total amount of the transaction amounted to 2.37 billion yuan. At present, the purchase price has been restricted to Shenzhen, Yitian, Zhuo Yue and many other core business areas. This has created a good value for the brand and quickly verified the effectiveness of the model. Next, we will quickly expand the use of the purchase price in three ways. One is that we rely on N7's malls to carry out online purchase price business for stock users. The other is the cooperation between consumer brands and commercial real estate. On the one hand, we have launched a solution for the purchasing industry in the field of offline, offline, beauty and education. For this purpose, we are actively building a BD team to recruit, serve and supply suppliers, and create a new model of online and offline buying and selling. In the second quarter, we hope to create more than 300 million in trading. We look forward to providing new marketing tools to online and offline merchants across China through buying and selling. We hope to help business owners improve their business capabilities and drive a real economy.

On our new consumption strategy, our buy-now-pay-later BNPL product Maya is growing rapidly. In the first quarter, Maya achieved over 60 million in GMV, and to date, Maya has served over 510,000 customers and 1,575 merchants, generating a total GMV of over 237 million. Maya is already established in the Shenzhen ETM Mall, Excellence Malls, and other core shopping and business areas. creating opportunities for merchants to grow their revenues and rapidly proving the viability of the operating model. Next, Maillard will also develop along three strategic directions, rapidly expanding the possible use cases. First, we will utilize our Feng Shui e-commerce platform to target existing users to push the online Maillard business. Second, we will continue to work with major consumer brands and malls and outlets. Third, we will work with offline fitness, health and beauty, educational, and other businesses to use Maya as a business solution. Towards this goal, we are diligently building our business development team, integrating service providers, creating an online and offline joint development model for Maya. In the second quarter, we anticipate achieving 300 million in GMV. Through Maya, we look forward to creating for China's vast online and offline merchants a completely new sales team, enabling merchants to improve their operating capabilities and driving the real economy.

Our local service and lifestyle products, Lecard and Yuehui,

has also established relationships with leading nationwide vendors to provide benefits and privileges, increasing and gathering benefits and advantages to transfer to financial institution partners, and also increasing the stickiness of our consumers. In high-frequency consumption scenarios, Le Card and Yue Hui are already exhibiting good growth potential. Current numbers indicated that in May, after rolling out the Yue Hui model in participating movie theaters, 3.65 million in GMB was generated in a single month.

In the future, our new consumer products will connect with online and offline high-quality consumer scenes and extend to the national and city areas. Not only can they contribute more revenue to us, but they can also help financial institutions, especially regional banks, to reduce costs and acquire high-efficiency operating customers. This will be a driving force for positive growth in our business. I believe that the layout of these new businesses will help us to diversify and open up more room for growth and achieve stable growth.

In the future, these new consumption products connecting both online and offline consumption scenarios will expand nationally to every city and district, and not only will it contribute revenues to us, but can also help financial institutions, especially local financial institutions, to acquire customers more cheaply and to more effectively manage high-quality local customers, creating a new driver of growth for Le Chien's businesses. I believe that these new initiatives will enable us to further diversify open new areas of even greater growth, and create stable growth for the future.

Thank you, Jay.

As mentioned, we are very proud to announce our best quarter ever. In addition to achieving our highest loan organization ever, with numerous other all-time highs, we are also pleased to announce that our highest adjusted net income ever as non-GAAP-adjusted net income reached RMB 771 million. Key to our success in the quarter is the improvement of our credit statistics, the recovery and stability of which we had already indicated back in January, which is now being reflected in our financials, a trend which we expect to continue for the year. Our loan ordination trends continue to be strong, and we fully expect to reach our guidance of RMB 240 billion to 250 billion in the long ordination for the year. In addition, our cost of capital declined to 7.46% from 7.7%, as we are once again lowering our funding costs, a trend which we also expect to continue over the course of the year. For the quarter, the profit-sharing portion of our revenue remained relatively flat, as we have decided to focus more on profitability and cash flow from this core part of our business. We already have the industry-leading position when it comes to profit sharing, as we can choose to increase the portion of our funding from profit sharing based on the market condition. This year, with our increasing scale, we will further refine our risk measurement operations while simultaneously improving our operating efficiency, enabling our probability to further improve. At the same time, we will continue to invest in our new initiatives and technology to ensure our long-term growth. As a core of our strong probability for the quarter is the increasing strong performance of our credit team. So next, I would like to turn the call over to Jayden to discuss our credit performance.

Thank you, Craig. As previously mentioned, we have continued our stable credit performance in the first quarter, and we expect this trend to continue. Our 90-day plus delinquency ratio is now at 1.84% in the first quarter, and our credit performance continues to be stable, as our lifetime charge of ratio has stabilized at between 3.5 to 4%, a rate which we expect to continue for the year. Our 30-day delinquency is at 3.6%. In addition, as you can see from the graphs disclosed with our latest earnings release, our first payment default rate, 30-day plus, for new loan originations have been at well under 1% and continues to improve. Through continuous improvements and refinements of our risk management systems, we have been able to work continuously with financial institutions to enable them to tap into their preferred customer segments for new loans to further differentiate the risk levels for these high-quality borrowers thereby optimizing the overall asset mix. Whether in terms of risk assessment, loan pricing, or loan size, we have made additional improvements in efficiency in all areas, reducing the expected delinquency rates. In terms of portfolio management, we have developed more accurate and differentiated strategies to manage overdue boxes, while enhancing collection rates through high efficiency and intelligent tools and more refined business management policies, enabling us to keep our overall collection rates and delinquency levels at a consistently healthy and stable level. As a result, I fully expect our strong credit performance to continue throughout the year. With that, I conclude our prepared remarks. Operator, please proceed with questions and answer session.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and light for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Please stand by while we compile the question and answer roster. Once again, if you wish to ask a question, please press star 1 on your telephone. Your first question comes from Jackie Zuo from China Renaissance. Please ask a question.

I have three questions for you. The first one is about our purchasing business. Just now, the management gave us the target of RMB 300 million in the second quarter. I would like to know if we can analyze the purchasing business of online and offline channels, what is the ratio? What is the current profit model of the overall purchase? What are the risks here? and what will be the ratio of our long-term purchase business, including the size of the business. The second question is about supervision. Recently, we also saw that the supervision area talked about the 13 plus gold platform, which also mentioned the requirement of authenticity. I would like to ask the management to see how the new requirement of authenticity affects our first-time business. 那最後一個小問題就是關於我們小杯放款今年的一個目標。 你會看到一季度的這一塊的這個業務也是進展非常不錯。 那讓我翻譯一下。 So thanks, Benjamin, and congrats for the strong results. I have three questions. Number one is about our uptake pay business, 買押。 I observed that management gave $300 million target GMB for second quarter. So can you give us a breakdown in terms of online and offline channels? What is the current unique economics for Maiya? And who is bearing this credit risk? And what is our long-term target for this business? And second question is about regulation. We know that the regulators summer 13 FinTech platforms end of April and require loan facilitation business to go through licensed credit bureau. So how will that impact our loan facilitation business going forward? And last question is about our SME business. So just want to understand what is our SME loan target for this year. Thank you.

Okay, let me answer the first question first, which is about buying this business. In fact, this business, as you all know, is a business model that we launched in the first quarter of this year. This business is very different from our original work mode. That is, we are comprehensive for consumers, and we are for merchants. We stick to a few principles. First, we will not use the entire modern business model of consumer finance to do this business. Secondly, we have to analyze the consumer's entire consumption, and then adopt a new capital model. This business, in fact, in the first quarter, we invested in the market for only one month. So we have reached more than 60 million in total trading volume. Of course, this number is mainly due to online buying and selling. In the second quarter, as of now, we have seen that some of the buying and selling businesses in our county are growing rapidly. So, from the present, I think this proportion is not very stable. So, I believe that in the future, more growth space will come from the county. This is the whole proportion of buying and selling. As for the risk of buying and selling, from the present, because this asset is relatively new, we have not seen it for a longer period of time. Looking at some early indicators, we can see that the quality of the customer group is significantly lower than the previous model, which was used to attract consumers. In the future, the risk of the product's overall location will be relatively low. Our goal is that it is less than 1% of the risk. We just talked about the whole model and revenue of our buying mode. I want to say that this business is still in the early stages of exploration. For Lexin, we have just started to push the whole model and a few industries out slowly. From the current situation, at least in the two aspects of the online and industry, we have received almost 40% of the business fee in three months. The higher the number of customers they choose, the higher the cost they are willing to pay. So I think in the future, in fact, the overall income model of the buyer, I think it will also make some changes in different industries. So I hope that when the future of our model is more stable, we will share with you some details about some of the financial models, some data that can be modeled. What I just talked about is supervision. This has an impact on the entire housing sector. In fact, we have always understood that the model of housing that we are developing today should have a certain stability. Why does it have a certain stability? First of all, all the business that we are developing today are all done within the very clear supervision framework of today. And the whole supervision is more mature. Let's see what we have done in the business model of housing. First of all, we provide a customer service to the bank, plus a service to the user. The bank provides a standard credit service to the user. Today, every credit service made by the bank is under the supervision of the bank. So I think overall, we do not provide any credit service to the bank. So Jackie, on your first two questions. First, with regards to the BMPL, our Myop product, I think obviously we started in the first quarter, and there is a big difference between

what this product does and what we've done traditionally, not the least of which of course is that it's a 0% interest product to the customers, and we collect the fee from the merchant. Now, when we created this product and we set out on these goals, we had a few principles in mind that this is not going to be in any way like traditional consumer finance, and it would not be structured that way. And in turn, it would require a new type of funding model. That said, we have to say that all these things right now are very early. Now, we were able to achieve $60 million in terms of GMV in the first quarter, which was primarily driven by online and online transactions. In the second quarter, we can see that the offline has been growing very, very rapidly. And we believe that most of the growth in the future that we can see is probably likely going to come from offline as opposed to online. That said, we're hesitant to say a very specific percentage right now, or breakdown, because it is early. It is a little bit unstable. Now, similarly, for the asset quality, it's probably too early to say. That said, based on what we can see right now, it's clear that the customer quality is far better than what we've seen before. And in fact, it's better by a substantial level, and it's definitely much lower. Our goal here is to try to keep the losses down to say, under 1% or so. Now, also I'd like to emphasize that for the BNPL, this is very, very early on in terms of the model. So when it comes to the definitive model, growth and otherwise, it's still early. But what we can see, and it depends on the sector or industry, if for example, we offer a 3-month product, charging 4% is no problem at all. Longer term, charging a higher percent wouldn't be too much of a problem. Now, that said, though, the revenue model and exact percentage will no doubt depend on the sector. But we like to hold off until later before giving everyone more details on the numbers and otherwise essentially the things that you would need to build a financial model. So that's on the BNPL product. Now, on the regulation, we have to emphasize that our loan facilitation model was developed in a very stable manner under what the regulators have seen within a regulatory framework that is actually fairly mature. So we are very confident in our model. What we do at the core is we give the banks a few services including customer acquisition service and the ability to pay customers. The banks then provide the customers with your traditional financial service. So we have not provided credit scoring services, and we have not provided credit services. So hence, while we'll have to see how things develop on the regulators on the credit scoring and the credit bureau front, overall, we're definitely very, very positive on the outlook on the regulatory side.

And we would also like to comment about the event where 13 institutions or 13 companies got called to Beijing.

I think based on our knowledge it was mainly about, if you will, the post and regulatory situation and having a fair regulation, and in particular targeting those businesses that are much more complicated with more platforms integrated. And as an independent company, hence we don't fall under, if you will, that level of regulatory risk or scrutiny.

About your third question, what are some of our small and medium-sized businesses' goals this year? Because of this small and medium-sized business, we are still in a relatively early stage today. We see that our own platform has a large number of customers, including small and medium-sized entrepreneurs or individual business owners. In the future, we will continue to dig into the needs of this part of the customer. We hope that this business will become our new growth point this year.

On the SMEs, right now I'd like to say that it's pretty early. That said, as mentioned on the call, there's definitely a lot of customers and users on our platform that are either SME business owners or have similar backgrounds. So, hence, we feel that this could become a real good new growth engine for our business. But right now it's probably too early to talk about some of the details of the numbers or to give guidance for this business.

All right, thank you. Next question comes from Ethan Wang from CLSA. Please ask a question.

I have two questions. The first is about the percentage of platform-based services out of the total platform-based loan origination out of the total loan addition volume in the first quarter. And my second question is on take rates. Just wondering what is the level, what is the first quarter's take rate for credit-oriented and platform-based business model respectively? Thank you.

Okay, the first question is our share ratio. Just now, I was talking about it. This quarter is 47. Last quarter, it was almost 50. Basically stable. This one, because we are already in the market. This is what we defined. We found a new model. This one, its advantage is that our capital side will take more risks. Of course, because they take more risks, it has an impact on the overall profit. From our perspective, it may take some time for the market to accept this model. Therefore, our current strategy is to increase our revenue. When the market recognizes this model and realizes the value of this model, we will be able to further improve it. Regarding the second question, the overall take rate, Yeah, so even I think when you look at the first quarter, the profit sharing we mentioned earlier in the prepared remarks for the first quarter was 47 percent. This is compared to the 50 percent in the previous quarter. So overall, it's pretty stable. Now, of course, it's notable that this is a market and this is a, shall we say, a form of funding that we developed. And we're in the process of getting more and more banks to accept taking on the risk and also improving the potential take that we get on it. So it's a combination of more and more financial institutions accepting this model and accepting, shall we say, to give us a higher take rate on it. Now, until that time, if you will, in the meantime, we may focus a little bit more on keeping more of the profitability for ourselves until such time as the market, the financial institutions, is willing to give us a higher take rate. On the take rate itself, you can see actually based on some of the math that the take rates, depending on how you do the math, would be the highest in the past five quarters for a variety of reasons, including risk. But we can talk about the details of this offline in the future.

Thank you. Our next question comes from Steven Chen from Haitong International. Please ask your question.

So, Mr. Guan, please give me a chance to ask a question. There are two main questions. The first one is, I would like to ask about the buyout side. From the current accounting standards, I would like to know about the buyout business. Do we need to go to It's the same as a major business. You have to make an expected savings. And then, will the buyer's business also have a so-called guarantee income in the future? Just like a major business. This is from an accounting point of view. I want to know. This is the first. The second is, I looked at this vintage picture. 我就看到好像我们看到去年一季度二季度做的那些所谓的新增的贷款 那个vintage那条线的 The shape seems to be a little different from the previous vintage lines. Especially when we look at these two seasons, it seems that the vintage trend has increased very quickly since the sixth month. I'm sorry, there are too many lines in the third season, I can't see them. So I just want to understand why The shape of the lines of these two seasons are a little different. Is it because of the problem of wind and air, or is it because of the problem of this model, or is it because of the problem of this model, or is it because of the problem of this model, or is it because of the problem of this model, or is it because of the problem of this model, or is it because of the problem of this model, Let me translate that. Two questions. First of all, a follow-up question on Maya. From the accounting point of view, I would like to understand that when the business of Maya grows, are you going to see some expect the credit laws to be booked as some part of provision charge in the P&L account. And so we also expect something like guaranteed income for the Maillard business. And secondly, if we take a look at the vintage chart of curve chart, What we find that is for those long originated in Q1 and Q2 2020, the shape of these vintage charge-offs is different from the previous quarter shape, especially we are seeing the vintage start to see a sharp rise starting from the six-month onwards. So I'd like to understand the reason behind. Is it related to the risk management model, borrowers character, or macro economy? And unfortunately, I am not able to identify the Q3 curve. So did you see a similar shape for the Q3 vintage chart of fence?

Okay, the first question is about the accounting process of buying and selling. Buying and selling is a very new business. It is relatively new, so the quantity is not very large. We are also looking at how to deal with it. Of course, we will follow the way of Afterpay to see how to deal with this thing. From the numbers of this period, it is more of a receivable risk. After all, it is not a modern product. It is a receivable risk. So for the first question, Steven, I think it's important to emphasize the product, the Maya, is very new. The scale right now is not large. So on these things, it's fair to say that we still have to figure out exactly how the accounting will work. Now that said, of course, everybody can look at, for example, Afterpay globally and how their accounting works for a consideration. But as a whole, in terms of what it would be, it would actually be more like receivables and receivables risk associated with that. So importantly, this is not a loan product, and it would probably not be accounted for in that way. Now, overall, it's still early, but very, very clear that the risk for this product is very low.

针对第二个问题,其实你可以关注一下, 我们这个Venture Charge-Off Curve, 它的起点是我们的Charge-Off Time。 正常的Ride-Off是在第七个月才进入的, 因为我们在20年的年初是做过Charge-Off。 Yeah, so Steven, maybe I jump to the end first. It's not an indication of the risk performance, but rather it's an indicator of how the charge-off works, basically the charge-off time, for example, in the seventh month.

So as it goes out, it would actually be consistent with the 30-day numbers. And while there have been early charge-offs in the past, again, I don't think you can read actually too much into the curves in that way, if you will.

All right, thank you. Our next question comes from Alex here from UBS. Please ask your question.

Thank you for the opportunity to ask me this question. I have two questions. The first one is about the supervision aspect. Since there are still some uncertainties in the supervision aspect, or some market concerns, I don't know if the management team has any new ideas about applying for a small generation of national Internet signage? Or is there any progress so far? Including from the supervision side, So I have two questions. First one is on the regulatory firm. So given there are still some uncertainties around the regulatory developments, I'm just wondering whether the management is considering to apply for a national online microloan license as a hedge to the regulatory risk. So I'm wondering if you have heard of any new regulatory developments on this front, given that this particular license is still on consultation draft stage. Second question is on the Maillard product. So I'm wondering whether we should expect some synergies between this product and our major installment loan products going forward. So basically, that should have result in a lower customer acquisition cost if we see more synergies going forward. I'm just wondering if you have seen any early trends on such conversion of customers. Thank you.

Yes, we also talked about the issue of supervision. I think the supervision, actually, from our understanding, today's legislation on supervision is basically already on the table. The stability of this supervision should be already available. We think the uncertainty of living in a long-term situation should be relatively less and less. We just talked about whether we will apply for a national Internet credit. In fact, we already have an Internet credit card. We have already obtained one in Jiangxi. Therefore, we will not apply for an Internet credit card next time. I don't think it's appropriate to use small debt to run a business with a low leverage rate. We don't think this is in line with our long-term development position. The second thing we talked about is the value of buying and selling at the same time. I think buying and selling is actually what we are doing today. It's a business of thinking about the future. Our clients are very healthy and well-off. In the future, if we provide these clients with lower interest rates, and a better cash loan. We think there is a lot of space here. And we are buying from the current point of view, especially in the offline, the cost of the entire transaction is relatively low. Let me give you an example. We are in a business factory in Yitian, Austria. We did some activities and subsidies with them in the early stages of the business factory. We spent a total of 50,000 to 60,000 yuan, but we got more than 1,000 customers. The average cost of each customer is only a few tens of dollars. I think that today, in the offline market, there is a lot of pressure. In the scene of offline sales and brands, there is still a blank opportunity. So it is a good opportunity for future development. Its customer cost is relatively low.

Alex, we did mention the regulatory situation a little bit earlier, but I think we want to emphasize here that the regulations, as we all know, around loan facilitation is out and has been established. We would say that, in fact, it's stable, and the regulatory environment around the loan facilitation model is also stable. and the associated risk with the model and also with the environment have actually decreased and been reduced over time. So that's the first thing we would like to emphasize about this. Now, with regards to what you asked about the national microloan license, well, we do have microloan licenses. For example, we have the Jiangxi microloan license. Now, when we look at the underlying model, involved with a national microloan license. We think that the leverage levels are too low. It's not consistent with the type of business and the business model that we would like to operate. So actually, we will not be pursuing that particular license. Now, with regards to your second question on Maya, shall we say, whether or not it can lead to other conversions or positive externalities, It's clear that for the BNPL clients, for the customers, these are very, very good customers, and there's a very good and open space and opportunity here. Obviously, potentially, a most obvious solution would be consumer loans that are of lower interest, and we can see a very strong potential market for offering these things to the BNPL customers. Now it's also interesting to note that there's a lot of potential for customer acquisition. So what we're finding is because BMPL is so new, and it is an open space and a space of tremendous potential growth, the customer acquisition costs are also quite low. So to give an example, when we did a promotion with the ETN outlets here in Shenzhen, We spent only something like $50,000, $60,000 living B, and we got over 1,000 new customers. So literally, the customer acquisition cost was like tens of living B. So hence, we can see the tremendous potential here, given how BMPL is a completely new space, and hence the potential for many fronts, including on the customer acquisition side.

Thank you. As a reminder, ladies and gentlemen, if you wish to ask a question, please press star 1 on your telephone. Our next question comes from Cindy Wang from DBS. Please go ahead.

Hello, Ms. Guan. Thank you for giving me this opportunity to ask a question. Congratulations on your brilliant performance in the first quarter. I have three questions for you. The first question is about the loan from Zhong Xiaowei. As you can see, the performance of the first quarter has been very good. We have reached a balance of $2.1 billion. I would like to know about the balance of the average loan, and generally speaking, the interest rate of the loan, and the price of the loan. What is the range? Please give us more details. Secondly, I would like to ask about China and the small and medium-sized banks. I would like to ask, in which aspect of the product will we have a greater opportunity to cooperate? Regarding the future of this product, if it is presented in the profit model, how will we present it? The third question I would like to ask is regarding the asset quality trend is actually a good one. I would like to ask about the current situation of the second quarter. And for the whole year, we still maintain a charge of rate of 3.5% to 4%. Or is there a chance that we can see a further improvement? Let me translate my question. My first question is related to the SMB loan. Because this type of loan has been growing very strongly and achieved maybe $2.1 billion loan balance in the first quarter, could you provide some colors on what's the loan tenor and the size of the loan as well as the APR for this new SMB loan? My second question is related to the small and mid-sized co-develop with the small and medium size of banks for the joint operations services. Could you provide what type of a product you are going to work with these banks and what's the profit model will look like going forward? The third question is related to the asset quality trend. Could you give us some colors on what the trend looks like in the second quarter of this year and how do we expect in the second half of this year? Is there any possibility that the vintage charge of rate is going to improve to 3 to 3.5 percent instead of your early guidance of 3.5 to 4 percent this year? Thank you. 好的,我大概回答一下第一個問題。

This is the whole of our small and medium-sized companies. The amount we give out is about 100,000 to 150,000 on average. So the whole price of our small and medium-sized companies is also about 180,000 to 240,000. The other average deadline is about 120,000. I think here, actually, For customers in different industries and different types of small and medium-sized businesses, we will have a bigger gap in the future, because it is still very different from that of individual consumers. This is mainly the case of small and medium-sized businesses today. Another thing is that in this quarter, we have signed a strategic partnership with nine regional companies. In the future, we will cooperate with them in addition to our original home business model, We will select a group to carry out a full-scale strategic cooperation. Under the framework of today's whole supervision, in fact, many local banks, their current funds cannot be spent. And their own system capabilities and operating capabilities are relatively weak. We can rely on some of our years of experience to help banks to build their own products. In the future, we will arrange a dedicated team to help the banks design products, promote products, and operate these products. In the future, we will receive more of the whole division on the joint operation of this product. In other words, we will help the local banks to use their own photo resources and other resources, including the bank's other resources. We will do a few things for it. So Cindy, for your first two questions, are the SME loans

The typical size these days would be about $100,000 to $150,000 living fee. The pricing would be typically 18% to 24% in terms of interest. And the tenor would be 12 months. But it's fair to say that there is a high variation in terms of the different SMEs and potential customers out there. So in the future as we do more of the business, and we get into, if you will, more detailed calculations, we will have in the products as well. Now, on your second question with regards to the, if you will, cooperation with the smaller and medium-sized banks and what products we would cooperate on. Well, we'll first start with working with a select group for deeper cooperation. And what we do see, of course, right now, is a situation where for a lot of the financial institutions, the credit, the money can't leave the province and also their operations on several levels has room for improvement. So what we would aim to do is actually to work with them and cooperate with them on a one-on-one basis and on a side-by-side basis effectively to help them develop the new and more innovative products targeting their customers to help them run their operations better, especially when it comes to managing their existing customers, and to look more closely at their portfolio and their customers as well. And what we would make on this would effectively be like a commission on the business. So obviously under this model, we won't be taking on any risk.

In the second quarter and the next few quarters, we will continue to strengthen our risk optimization and management. At the same time, we will continue to improve and optimize our wind control system strategy and model. So we hope to continue to optimize and optimize our risk management and optimization. But considering that our new business is in a high-speed development stage, we still maintain a cautious and optimistic attitude. Currently, we still maintain the guidance of VL3 between 3.5 and 4.

So Cindy, I think as mentioned earlier, everything that we see from the first quarter is going in a positive direction and this continues in the second quarter. And we will definitely continue to further refine our risk control models and to improve it. So we certainly hope to improve the numbers and to continue to see the asset quality continue to improve, but also taking into the account that We do have, if you will, new initiatives and businesses. And of course, we continue to grow. So overall, we want to be cautiously optimistic about the general asset quality trends. So I think what we would like to do is maintain the outlook at 3.5 to 4%.

Great, thank you. We're now closing on the end of the call. Your final question comes from the line of Yeda Li from CICC. Please ask your question.

The first one is about our financial institution partners. I would like to ask, up to now, EQ21, how many financial institution partners do we currently have? And how many of them are in the green asset division model? Okay, I'll translate my question. I have two brief questions. The first one is about our funding partners. So could you please share more information with us on how many funding partners we have in total by the end of 1Q21? And besides, how many partners do we have under the profit sharing model? The second question is regarding our new joint operation service model. And I've noticed that, so I was wondering if you could help us understand what's the actual difference between the new joint operation service model and what we've been doing before. Thanks so much.

Okay, so we have always been happy with the whole asset or relatively welcome by our cooperation of the financial institutions partners so we have hundreds of financial institutions in the past in stable cooperation that this year due to the whole of the whole of the bank of the whole of the local supervision is a series of some new new requirements and guidance that we in the first half of this year significantly strengthen the entire investment and coverage of the regional bank so we have There are more than 10 regional partners in the process. Some of them are already on the line. So we have to calculate a specific number here. What we are talking about is the mode of joint operation with regional banks. What is different from the mode of division today? I would like to emphasize that these two products have significant differences. The first one is that the mode of division today is a mode in which our own customers and traffic are distributed. and then we can use it to divide it into two modes. The joint operation, in fact, we are not using a standard product that we are happy with today. We are helping financial institutions to design a series of products for their local areas to promote and operate locally. What's important here is that, first of all, the customers are not separated by us. In the future, we will not rule out the fact that some of our customers will be separated by us. What we expect more is that the products that they jointly design will have a local customer capability. In this case, the entire customer is based on localization. Or, The local banks hand over some of their online loans to them. For example, some of the ads that are posted online are all done by us. So this product is completely self-sustaining for the banks. It is not a loan product. In the future, in the future, in the future, in the future, in the future, in the future, in the future, in the future, in the future, What is the big difference between the two? For example, some banks that we are talking about now, they have tens of millions of customers who have saved money. These customers do not have the ability to sell to them today. In the future, we will develop a series of models based on the amount of customers that the bank has saved today to help them do the sales of this business. When this business is done, we will also participate in the division. So I think joint operation is a comprehensive output from the past, from customer operation, risk, and management. We will have a special team. In the future, we will even send a team to do business. We will send employees to work in the bank to help them complete the entire business expansion. It will open the limit of the size of the user today.

So I think with regards to the first question, well, our asset quality and the attractiveness of our assets has always been high. So we've consistently had over 100 funding partners, and certainly we continue to increase the number. It's perhaps worth noting and highlighting that of late there's been a series of local regulations or guidelines targeting towards more shall we say local type banks. So hence as a result some of our operations and our goals have targeted the local banks in light of the type of guidance that they've received. And we've signed up over 10 regional banks recently. but we don't have the definitive exact number on that particular initiative to give you on the call right now. So that's on the first question. Now on the second question, there's actually a very, very obvious difference in terms of the cooperation and how it works. At a high level or at the customer acquisition level, the traditional model is our customers. and it's our traffic and it's our customers and our traffic getting directed to the financial institution. Under the new cooperation model, it will no longer be using actually our particular customer's traffic or actually our current products. It would be working with the financial institutions themselves to develop local products and to help with their local operations and based on their local environment and conditions to develop the appropriate set of products targeting their local customers. So again, at a high level and a very key thing is this is not our customers being diverted there. It's rather developing a capability not only to serve well the local bank customers, but also actually to help with the local customer acquisition. So we would be able to, for example, help direct their online advertising and marketing, something that we certainly have expertise in. Now ultimately, interestingly, once the product is developed and we have these revenue drivers, in terms of the revenue and the profit and the split, it may actually be very similar to our existing products. So in that sense it's similar, Again, the underlying model is very, very different. Now also, I think it's important to emphasize that, for example, we see a lot of banks, they have many depositors, they have many customers, but they don't necessarily know how to develop the right type of financial products and loan products to target or serve these depositors and customers. So that's what we aim to do, and we aim to help with a complete model. So this would involve actually a dedicated team and, in fact, dedicated teams that would live and breathe and actually work at the banks, if you will, side by side. So, hence, you can see that this would actually be a very different product than what our existing products are.

All right. Thank you very much. Ladies and gentlemen, let us conclude our conference for today. Thank you for participating. You may all disconnect.