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Operator
Ladies and gentlemen, thank you for standing by, and welcome to the 360 Digitech Fourth Quarter and Full Year 2021 Earnings Conference Call. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Ms. Mandy Dong, IL Director. Please go ahead, Mandy.
Mandy Dong
Thank you. Hello, everyone, and welcome to our Fourth Quarter and Full Year 2021 Earnings Conference Call. Our results were issued earlier today and can be found on our IR website. Joining me today are Mr. Wu Haisheng, our CEO and director, Mr. Alex Xu, our CFO and director, and Mr. Zhong Yan, our CRO. Before we begin the prepared remarks, I'd like to remind you of our safe harbor statement in our earnings press release, which also applies to this call. We refer to forward-looking statements based on our current plans, estimates, and projections. Also, this call includes discussions of certain non-GAAP measures. Please refer to our earnings release for a reconciliation between non-GAAP and the GAAP ones. Thus, unless otherwise stated, all figures here are in RMB. I will now turn the call over to our CEO, Mr. Wu Haisheng.
Wu Haisheng
Hello. The number of tests in four and three quarters has reached 96.9 billion, which is 40% of the total growth. The number of tests in three quarters has also grown to 1,420 billion, which is 54% of the total growth. In 2021, amidst many difficult years, our business has also been hit by external factors such as the economic crisis and industry policy. Hello everyone, I'm very happy to report another solid quarter that kept off a strong year. In 2021, total loan facilitation through our platform reached RMB.
Mandy Dong
357.1 billion, up 45% year-on-year. This is the midpoint of our raised full-year guidance. In Q4, total loan facilitation reached RMB 96.9 billion, up 40% year-on-year. Outstanding loan balance reached RMB 142 billion, up 40%. 54% year-on-year. Our business overcomes multiple challenges related to macroeconomy uncertainty, sporadic outbreak of COVID, and fast-changing regulatory environment in a rather volatile year of 2021. While maintaining stable asset quality and further demonstrating the resilience and the flexibility of our business.
Wu Haisheng
Now, let me walk you through some updates for Q4. There is still a wide market space for the consumer and small and medium-sized companies. Chongqing has already launched a 14-5 financial reform and development plan to support the expansion of the consumer financial system, and the consumer financial institutions to properly expand the financing conditions, etc. Yanhan and other departments have launched a financial technology development plan to confirm the positive impact of financial technology. Financial institutions cooperate with technology companies to promote digital transformation. There is still a lot to do. In addition, multiple departments such as Yanhan and others Regulation remains an area that draws a lot of attention. So let me first share some updates here. The overarching theme of the government policy for 2022 is very clear.
Mandy Dong
which is to achieve steady economic growth by driving consumption, suggesting more supportive to the development of consumer finance. We expect the policymakers to introduce additional measures to drive consumption and support SMEs, as China's State Council has made the above-mentioned policy theme as a higher priority. For example, in its municipal level 14th five-year plan for the financial industry reform. City of Chongqing supports the expansion of consumer finance industry through a proper loosening of financing restrictions for consumer finance companies. At the central government level, PBOC has acknowledged the value of FinTech in its FinTech development plan for 2022 to 2025. There are tremendous opportunities for financial institutions and the tech companies to work together and contribute to the digital transformation of financial sector. In addition, the PBOC and other national regulators are promoting innovation in financial standardization, outlined in the 14th Five-Year Plan for the Financial Standardization. We actively participate in policy design-related discussions organized by regulators and contribute our industry know-how to support efforts.
Wu Haisheng
In the fourth quarter, we actively promote all kinds of reformation work according to the requirements of the financial supervision department. The governance structure of the company is further improved, and business development is more focused. As mentioned in the discussion of Chairman Guo's reformation process a few days ago, In the future, we will stick to direct service and indirect service. On the one hand, we will use small and medium-sized companies to directly manage and increase the support for small and medium-sized companies. On the other hand, we will cooperate with individual credit institutions to help consumers of financial institutions that are better served. From the point of view of monitoring policy, the prerequisite for continuing to promote business failure management is clear and logical. The key focus is to pay attention to the implementation of the report, and the key focus is on the standardization of business.
Mandy Dong
In Q4, we started to implement rectification measures in accordance with the regulatory requirements. We have enhanced our corporate governance structure and further focused on our core business. At a recent briefing, Guo Shuqing, chairman of CDIRC, stated that The self-check part of rectification work has been largely completed. Overall progress of rectification has been smooth so far and are confident to complete the rectification work very well. Based on the regulatory guidelines and our own business needs, we increased the registered capital of our micro-lending subsidiary in Fuzhou to RMB 5 billion. This enhanced our capabilities to serve users and manage risk. Going forward, we will continue our strategy on both direct and indirect loan service. On one hand, we'll offer loan through our micro-lending company directly to target customers and industries. On the other hand, we'll work with credit agencies and help financial institutions better serve consumers. We believe that financial regulators will continue to work on the implementation of the previously released general regulatory principles, such as financial service can only be undertaken with proper financial license. They will focus on the execution of the rectification plan and the regular monitoring of the progress. We are entering the late stage of manual rectification process and waiting for the review and certification by the regulators.
Wu Haisheng
In terms of data and rules, we continue to increase security investment, and enhance the security of information. In addition, we have added a third-party app, which is a security certification book for China's network security inspection technology and certification center. This is a national-level certification that we have obtained again in the field of personal information protection. We have also obtained the international well-known standard certification institution, SGS, to issue the ISO 27701 privacy information management certification. In Q4, we also made progress in a few other compliance-related areas,
Mandy Dong
Average API for loan facilitated through our platform declined 2% from previous quarter, effectively brought down the cost for our borrowers. In terms of the data-related compliance, we continue to increase investment in data security and data protection. The China Cybersecurity Review Technology and Certification Center, CCRC, awarded its security certification to our flagship product, the 360 Jietiao APP, adding another national certification for privacy protection to our product. We also obtained the ISO 27701 certification, Privacy Protection Management System, issued by SGS, a well-known international standard certification organization This is the second important international standard certification in privacy and information protection area we received following the ISO 27001 information security management system a few months ago. In addition, the Cybersecurity Management Bureau under the Ministry of Industry and Information Technology, MIIT, issued a written recommendation acknowledging our excellent performance in the special campaign for app users' privacy protection.
Wu Haisheng
In Q4, we also achieved excellent results in several operational areas. Second, In order to reduce the demand for capital and quickly return to the market, through a simplified audit process, the operating industry has settled down in a way that is unbeatable. It has grasped the potential of the industry and greatly improved the overall sales volume of Yan Shan Dai and acquired excellent Yan Shan Dai customers. The total sales volume of Yan Shan Dai's operating customers is over 20% of the overall sales volume. The trading volume has increased by 106% compared to the previous year. At the same time, from today onwards, we will further integrate business capabilities to achieve the differentiated service level and service efficiency for small and medium-sized users and consumers. We have launched the integration work of small and medium-sized products. Through the new upgraded app, we will operate the collection for new small and medium-sized customers, and achieve the differentiated service of the existing three-wheeled chain brands. Based on the original pure financial attribute service, we will further explore more management products and services that support small and medium-sized enterprises.
Mandy Dong
On the product front, our consumer loan business achieved high quality growth throughout the year. Our SME loan products, which we launched last year, grew rapidly and delivered a satisfactory result. In Q4, total amount of new approved credit line for SME loan accelerated and grew by 16%, sequentially to RMB, 9.3 billion. As of the end of 2021, The outstanding loan balance of SME loan accounted for 13% of our total loan book. Meanwhile, we continue to refine SME products and expand to better quality customer group by offering larger ticket size products targeting specific SME group offline. For example, we expanded our collaboration with banks to access corporate credit records This allows us to offer bigger ticket-sized credit products and attract more high-quality SME borrowers. Another effective approach is that we offer customized products to the tobacco and alcohol retail borrowers during Chinese New Year when their funding needs surge and turnover increases. To capitalize such opportunities, we simplify approved procedures and increase direct sales for these customers' groups. In December, credit line granted to the tobacco retail borrower acquired by our direct sales team accounted for more than 20% of the total SME and the transaction volume increased by 106% on a monthly basis. Meanwhile, starting off this year, to offer differentiated service to SME and consumers and to improve efficiency, We will serve SME users through an upgraded app separate from 360G account. In addition, on top of the credit service we currently provide, we will actively explore other services and products to better support SME's business operations.
Wu Haisheng
In terms of financial institution cooperation, we continue to play the advantage of the technology platform and join more and more strong financial institution cooperatives. to further optimize the structure of our partners, to create a more balanced and resilient financial institution and partner community. The comprehensive strength of the new financial institutions is greater, and it is reflected in the fact that they are less restricted by the hell, more strong in control, and more diversified in the industry. We use smart engine products to adapt to the needs of the internal rules of the bank to form a fixed solution for the future more banks to join. In collaboration with financial institutions, we leverage our technology advantages and expanded partnership with stronger financial institutions.
Mandy Dong
This enabled us to further optimize the mix of our financial institution partners and establish a more balanced and resilient partner network. Newly added financial institution partners have broad regional coverage, strong risk management capability, and a diverse business line. Moreover, our ICE product offers a competitive edge to better fit in the compliance requirements of some banks. This will enable us to develop standard solutions to work with more banks in the future. Meanwhile, we continued ABS insurance in Q4 with a total of RMB 1.1 billion at a low coupon rate of 5.7%. This brought our total ABS insurance for the full year to RMB 6.5 billion up by 282% year-on-year. Our overall ABS funding cost for 2021 was 5.47%.
Wu Haisheng
In terms of customer service, with the decline in pricing, our overall customer service quality continues to improve. The value of customer service quality will gradually be released in the future. Since the price drop, the customer service quality indicators of multiple dimensions have significantly improved, including the ratio of our customer service users. As for our customer base,
Mandy Dong
The overall quality of newly acquired customers gradually improved, coming along with lower pricing. The value of those high-quality customers will be gradually released over the lifecycle. As price declines, we note some key indicators of user quality improved significantly, such as the ratio of users with multiplatform credit lines, users with mortgage and car loans, users with a stable income, and users with tangible assets. Based on the A-B group test we conducted, the drawdown ratio and return from rate are both higher for borrowers at lower pricing. We expect these customers will generate higher LTV as well.
Wu Haisheng
We expect these customers will generate higher LTV as well. We always strive to become a platform for technology, because of our AI and big data capabilities, in a large number of customer data and a lot of funding information, we can efficiently carry out standardized and intelligent modern technology services, realize large-scale, high-quality customer images and risk identification levels.
Mandy Dong
In Q4, we also made noticeable progress to enhance our tech capabilities on multiple fronts as we remain committed to become a tech-empowered loan facilitating platform serving our financial institution partners and borrowers. We leverage our AI and big data tech to effectively identify customer risk profiles and then match borrowing needs and funding resource-based massive data inputs
Wu Haisheng
Our smart marketing system has achieved a major model framework upgrade, significantly improved the client's recognition ability and processing scale, and increased the average user quality by more than 20%. User acquisition efficiency has increased by more than 20%, and the recognition user scale has increased by 300%. Our Agas smart remote control platform in the field of deep AI applications has achieved innovative breakthroughs in the field of community discovery, First, we made major upgrades to the framework of our smart marketing system.
Mandy Dong
This significantly improved our ability to better identify users and enlarge our processing capacity. Our average user quality was up by over 20%. Our efficiency in user acquisition was also improved by over 20%. The scale of our identifiable user base increased by threefold. Second, we continue to make key innovations by deepening integration of AI application with our other risk management systems in the areas of community detection, hierarchical federated learning, and risk management strategy automation. These have strengthened our ability to identify potential borrowers and manage risk. Third, as for AI-powered operation technology, Our proprietary production diagnostic platform provides one-stop smart diagnostic service, which in-app efforts experience into automated tours. These tours ensure the stability and accessibility of our service. The platform can identify problems within 30 seconds and boost our diagnostic efficiency by 90%.
Wu Haisheng
Looking ahead of 2022, considering the macro uncertainties, we will continue to take prudent operating strategy as always. From what we have learned from past success,
Mandy Dong
We believe that holding prudence and steady approach in day-to-day operations is the golden standard for the think tank business when macro uncertainties arise.
Wu Haisheng
After 2021, the financial technology industry in 2022 will have a relatively stable market share. Companies will have more energy to focus on long-term development under a stable framework. We will focus on our financial technology strategy, continue to invest in more technical research, make the company's technology more powerful, or cooperate with financial institutions to provide different products and services according to different needs of institutions. At the same time, structurally optimize the quality of our partners, introduce institutions with higher funding efficiency, and improve the continuity of service overall. In the 2C section, we will add more technology, optimize models, and better identify high-quality customers, and improve our customer experience in a structural way. At the same time, we will explore services for high-quality customers, extend the value of life cycle, and increase the flow rate. Some of the work we did last year is undergoing a very good change, which makes us look forward to the future. In terms of funding, we have already invested 5 billion yuan in small and medium-sized brands. We will also fully utilize it. This is a very important strategic resource for us.
Mandy Dong
After all the rectification in 2021, we expect to see a much clearer regulatory framework for the fintech industry in 2022, which should allow industry participants to be more focused on long-term business development. We will prioritize our technology-driven strategy and continue to invest in R&D, further pursuing innovative solutions and business models For 2B business, we'll explore more diverse products and service for different financial institutions. Meanwhile, we'll collaborate with stronger financial institutions to optimize the mix and the quality of our partnership network, and ultimately to boost our services' sustainability. For 2C business, we will continue to upgrade our technology and models to better identify high-quality borrowers and optimize our user-based matrix. We will roll out more products catering to these high-quality customers. This will bring higher customer LTV and retention rate as well. We are in very positive change in our business following all the hard work we did last year. Thus, we are quite looking forward to the year ahead. For our own balance sheet loan business, we have increased the registered capital of our licensed micro-lending subsidiary to RMB 5 billion. This is a crucial strategy resource that we definitely will capitalize on. With these structural upgrades and improvements, I believe we will serve our customers, partners, and society more efficiently in 2022, making us a healthy, a more resilient, and a more sustainable company. This will enable us to better serve the real economy and contribute to China's global war strategy for steady economic growth. Now I will turn to our CFO Alex for more financial details.
Li Yada
Thank you, Haisheng. Good morning and good evening, everyone. Welcome to our quarterly earnings call. As Haisheng mentioned, despite facing multiple micro-challenges, we delivered solid Q4 results in both operational and financial fronts and finished 2021 with a series of record-setting annual numbers on the book. During the quarter, we saw continued healthy consumer demand for credit, while asset quality was fluctuating in Q4 mainly as a result of a season. We are glad to see improvement in the new year as funding becomes ample. Net revenue for Q4 was $4.4 billion versus $4.6 billion in Q3 and $3.3 billion a year ago. Revenue from credit-driven service, capital-heavy, was $2.71 billion compared to $2.62 billion in Q3 and $2.56 billion a year ago. The year-on-year and sequential increase was mainly due to growth in unbalanced loans and releasing guaranteed liability on previous loan balance, more than offsetting the decline in capital-heavy facilitation volume and the revenue take rate. The trade take rate decline was as expected, as the average prices of our loans were lowered by 200 basis points during the quarter, while the offsetting factors yet to kick in. Revenue from platform service, Capital Light, was $1.71 billion, compared to $1.99 billion in Q3 and $780 million a year ago. The strong year-over-year growth was mainly driven by a significant increase in capitalized loan volume. The sequential decline was due to a decrease in capitalized loan volume, along with a modest decline in revenue take rate in Q4. During the quarter, capitalized and other technology solutions contribute roughly 54% of total loan volume. Cap-like loan volume was negatively impacted by seasonal shortage of overall funding supply, as well as the 24% rate cap-related tightening from traditional funding sources. At least for the first half of 2022, we expect cap-like percentage contribution to our total volume to remain fluctuating around current level as the industry gradually adjusts to the new rate cap. At the core of our long-term growth strategy, we will continue to pursue tech-driven business model. After this transitional period in 2022, we expect CapLight to become a larger portion of our business in the long run. During the quarter, average pricing of our loan portfolio dropped by 200 basis points, and by the end of 2021, average interest rate of loans on our platform were already below 24%. the 200 basis point cut in Q4 was faster than previous trajectory and we did it proactively. We believe this will give us a great flexibility in Q1 and Q2 of 2022 to be in compliance with the regulatory requirements and ultimately hit our rate cut target by mid-year deadline. During the quarter, On a blended basis, average customer acquisition cost per user with proved credit line was 319, compared to 305 in Q3. As we elaborated in last quarter's earnings call, we continued to focus on attracting high-quality borrowers, those with much larger credit lines and relatively low risks. The average ticket size of these customers typically run between $150,000 to $200,000 compared to average of $10,000 for our regular borrowers. The unit cost to acquire those high quality customers are justifiably much higher than the regular borrowers. So to compare things apple to apple, excluding large ticket size customers in both consumer and SME markets average cost per approved credit line of regular borrowers was approximately $246 in Q4 compared to $249 in Q3. As we discussed in the past, average cost per approved credit line is a calculated number with limited value in our internal decision-making process. We will continue to use lifecycle ROI and LTV as key metrics to determine the pace and scope of our customer acquisition strategy. Throughout 2021, we have maintained healthy ROI and LTV trend, which in turn drives stable net take rates. As overall risk metrics fluctuating in Q4, we continue to take prudent approach in booking provisions against potential credit loss. New provisions for contingent liability for loans originated in the quarter was approximately $1.6 billion. Meanwhile, approximately $400 million of provisions from contingent liability of previous period loans was written back, as actual performance of those loans was better than expected. Effective tax rate for Q4 was approximately 14.8%, which brought full-year ETR to approximately 17.3%. Going forward, we expect ETR to normalize to around 15%, which will be sustainable in the foreseeable future based on our current tax planning schedule. With strong operating results and stable contribution from cap-like model, our leverage ratio, which is defined as a risk-bearing loan balance divided by shareholders' equity, remain at a historical low of 4.3 times in Q4. compared to 6.6 times a year ago. We expect to see rather stable leverage ratio for the time being until cap light contribution resume growth in the future. We generate $2 billion cash from operation in Q4 compared to $1.8 billion in Q3 and $1.2 billion a year ago. Total cash and cash equivalent was $9.6 billion in Q4 compared to $7.6 billion in Q3. Non-restricted cash was approximately $6.1 billion in Q4 versus $4.2 billion in Q3. The meaningful increase in cash was in part due to the timing of the registered capital increase for a micro-lending subsidiary, which resulted in large cash balance sitting in bank accounts at the year-end as opposed to being deployed in normal course of a business. As always, a significant portion of our cash would normally be allocated to support our on-balance sheet loans and security deposit with our institutional partners. As we continue to generate healthy cash profile operations, we believe our current cash position is sufficient to support the growth of our business, to invest in key technologies, to satisfy the potential regulatory requirements, and to return to our shareholders. If you recall, our board of directors approved a quarterly dividend policy in Q3, allowing us to distribute approximately 15 to 20 percent of quarterly net income after tax in the form of cash dividends on a recurring basis. In accordance with this dividend policy, we declared another quarterly dividend of U.S. dollar 26 cents per ADS for Q4. This cash dividend represents a approximately 20% of our Q4 earnings. Finally, let me give you some update about our outlook for 2022. As we communicated to the market previously, we believe 2022 will be a transitional year for the industry as the participants are adjusting to the new regulatory settings as well as some micro uncertainties. As such, We expect total loan volume for the year to be between RMB 410 billion, RMB 450 billion, representing year-on-year growth of 15% to 26%. We view this transitional year as an opportunity for us to optimize our operation, strengthen our technology platform, and upgrading our customer base to build an even stronger foundation for our future growth. As always, this forecast reflects the company's current and preliminary views, which is subject to material change. With that, I would like to conclude our prepared remarks. Operator, we can now take some questions.
Operator
Thank you, management. For those who can speak Chinese, please kindly ask your question in Chinese first, followed up by English translations. In addition, in order to have enough time to address everyone on the call, please keep it to one question and one follow-up and return to the queue if you have more questions. Thank you. So please press 01 on your telephone keypad now to ask a question and 02 to cancel. So once again, 01 on your telephone keypad now to ask a question. Our first question is Yada Li from CLCG. Please go ahead.
Yada Li
Okay, thank you for giving me the opportunity to ask this question. I'm Li Yada from the central company. First of all, congratulations to the company for achieving such a brilliant performance. I also have a small question to ask the management. First of all, I would like to ask about the progress of our current price adjustment. I would like to ask about the ratio of the new loan in the fourth quarter to the price below 24. Okay, then we'll do the translation. The first one is, I'd like to know the progress of the pricing adjustment. What's the proportion of loans in 4Q21 that are priced under the 24% and how much this proportion can reach up to for the first quarter this year? And when the pricing going downward and the target customers sort of get strong, I was wondering how are we shifting our customer acquisition strategy? Thanks.
Li Yada
Sure. Thanks, Yada. I will take the first part of the question and then Haisheng will do the second part. So in the fourth quarter, over 70% of our customers are priced below 24. And as I mentioned in the prepared remarks, by year-ending, the average price is already below 24 and this quarter in q1 we're expecting a even larger portion of customers being priced and below 24 and we are pretty confident that we will get the targeted rate cut go by the mid-year deadline on before
Wu Haisheng
Yes, let me translate for our CEO. As for your question, the customer acquisition strategy to access the higher quality customer groups
Mandy Dong
We will leverage three approaches. Number one, further invest more in R&D to improve our tech and AI models to better identify the customer risk profiles. Particulate in Q4. Second approach, we adjust our API customer acquisition approach with our platform partners. We will expand the offline team, which historically shows is a much better approach, especially for the high-quality customers.
spk07
Our next question is Yi Xiaoxu from Morgan Stanley.
Yi Xiaoxu
Hello, Mr. Guan. I'm Xu Ran, an analyst at Morgan Stanley. I'd like to ask about the source of our funds, or our cooperation with various banks. As Mr. Guan mentioned, the proportion of our ABS is also increasing, and our small and medium-sized companies are also doing well. We can see that the proportion of Capital Light and Capital Heavy is relatively stable. I'd like to ask, Basically, my question is on the funding front, there is been increasing in ABS. Also, the small loan company capital injection is also completed. I just want to see whether there's a credit line with banks or cooperation with the banks is still expending, and what will be the long-term mix in terms of the funding between Capital Light, Capital Heavy, and then there are different funding sources. Okay, that's it.
Wu Haisheng
Thank you, Mr. Xu. Yes, you are right. We are gradually increasing the size and quantity of the banks we are cooperating with. We are gradually increasing the size and quantity of the banks This is the credit line. Secondly, regarding our new ideas for the future of real estate, we will indeed have more to explore. As the number of banks is increasing, their needs are also very diversified. There are some services that require a relatively large number of services, while some only require a limited number of services. For example, some services require more control, some services require more marketing, and some services require more support. Therefore, we will explore the different needs of banks in the green market this year to provide more limited and standardized technical services.
Mandy Dong
Yes, to answer your question, Richard, you are very correct. First, we will continuously expand our number of financial institution partners by introducing stronger banks. As this comes along, we can offer larger ticket sites to better quality customers. Second, as for the capital light volume, we will explore more diverse projects catering to different needs of financial institutions. Their needs include marketing surveys, risk management surveys, and loan collection surveys.
Richard
I just want to add one point.
Li Yada
So from a longer-term perspective, the capital contribution, as I mentioned in the prepared remarks, will be moving higher from current level. If you recall, in the past, we were at some point targeting like, you know, two-thirds or 70%. I think from a longer-term perspective, that's probably still be the target. This year will be fluctuated around this current level just because the whole industry is adjusting to the new environment. And when we're done with this adjustment, the trend line will start to move to the higher direction for CapLine.
spk07
Okay, thank you very much, Mr. Wu.
Operator
Thank you. Next question is Ethan Wong, CRSA.
Ethan Wong
Hello, Mr. Wang. I would like to quickly follow up on Richard's question. I would like to ask Mr. Wang, what is the total cost of the four-week period? And what are the expectations for the total cost of this year? I'm worried that the management is strengthening the management of local or non-national financial institutions. This may lead to two problems. One is when we cooperate with these small and medium-sized businesses, OK, I have two questions. First, a quick follow-up, just wondering, the funding cost for the fourth quarter and the management's view on the funding cost for this year. The second question is on the market concern on the tightening regulation for the local financial institutions or quality financial institutions. So for the regional banks who are collaborating, I'm just wondering whether they have a concern on this front and whether that's going to impact our business. And for the guaranteed companies, does that mean they will set up various institutions across the country so we can cooperate with them to land nationwide. Thank you.
Li Yada
Okay. Thank you, Ethan. I will take the first part again, and then Haisheng will take care of the second one. So for the funding cost for the Q4, it was approximately 7%, and the Q4, as you know, it's always been a very tightening period from a money supply perspective in the financial system. So normally that's reflecting the funding cost. And for moving into this year, as we sort of gradually transition to new institutional partners, the overall funding supply were getting more sufficient. But during this transitional period, we are expecting a rather stable funding cost around 7%. And after we're done with this transitional, we'll probably start to see a gradual, although modest, kind of decline in funding cost in the long run. Thank you.
Wu Haisheng
Okay. The second one is about The financial institutions are concerned about this issue. This issue comes from a rule set by the Chengjiang Bank's Internet Banking Management Method. The release date of this document is relatively early. It gives the industry a long enough period of time. The industry generally requires itself to make changes on January 1st of this year. From our current data, basically all the institutions that are serving on the scene have already done this. Thank you.
Mandy Dong
To answer your question, number one, your question comes from the very early requirement that the online loan business for urban commercial banks, this is quite early regulation and the regulator gives a rather long grace period for all the market participants. The cutoff date issue is January 1st this year. Currently, all our financial institution partners are within the compliance. Secondly, looking at the matrix of our financial institution partners network, most of them are national wide operation. Therefore, we are very limited impact from this regulation.
spk06
Thank you, Mr. Wu.
Ethan Wong
I was just wondering if the insurance company will have this local limit?
Wu Haisheng
In terms of the insurance company, there are still national insurance companies. And the insurance company can also do something similar to the bank. So the insurance company is supposed to say
Mandy Dong
Yeah, as the second part of your question, the regional restriction for guaranteed companies. Guaranteed company can set local branch national wide to satisfy these requirements. It's comparatively easy compared to the banks to cover national wide.
spk06
Thank you.
Operator
Thank you. Our next question is Thomas Cheung from Jefferies.
Thomas Cheung
早上好,謝謝管理層介紹我的提問。 我的問題主要是關於我們中小企的戰略的。 看到我們也開了另外一個新的APP, 在Further Penetrate,在這個領域那邊。 想問一下我們對未來這個SME的占比, Thanks management for taking my questions. I have two. My first question is about the SME strategies. Can management comment about how we should think about the contribution over the future, as well as the borrowing cost and the loan size going forward, together with the industry categories that we are working with? And my second question is more about the MAPCO headwinds that we are facing these days, an outbreak of COVID. Are we seeing any changes in terms of the consumer behavior in terms of the use of the policies? Thank you.
Wu Haisheng
Thank you. I will answer a few questions first, and then I will express my opinion on SMEs. First, we are now This product, from the point of view of quality size, we can now make a profit of 250,000 yuan for this kind of tax product. For the relatively better-off small businesses, for example, if we make this kind of online e-commerce user into an SME, the average profit may be about 50,000 yuan. So the size is different in different contexts. From the perspective of cost, we can see that the product of the tax return may contribute more in the offline and through the agent channel cooperation. So from the perspective of the entire tagger, it may account for 2% of the marketing cost. The purpose of these users is Well, first, regarding your question about SME business,
Mandy Dong
The average ticket size for SME products, the overall is about 50, 5-0 K RMB. For some tax loans, which is larger ticket size, usually we provide products over 250 K RMB. For the tax loan, we estimate the marketing expense is around 2%. Secondly, for your question about the use of loan, As most of our consumers work in the industry that are less impacted from the COVID and the macroeconomy, we are seeing their use of loans is consistent with previous.
Wu Haisheng
And I would like to express our thoughts on SMEs. We are actually very restrained in this business, because we actually see that the demand is very high, and the national policy is also very encouraging. However, we chose to do only a small part of it. In terms of the image of our company, we chose the image of manufacturing, retail, and trade industries. We think it will be more resilient compared to the current situation. Then we, um, in this year, we will still not go to the big picture to do this SME, but will relatively choose to go through a longer, a more complete life cycle, and then we will go to adjust some of our bigger strategies. So we I want to add more color for our operating strategy for SME business line. Even under the tremendous demand from any borrower and the supportive policy from government,
Mandy Dong
we take a very prudent strategy in this business. We focus on those industries that are less impacted by the macro economy, such as manufacturing and retail. This year, we do not expect to accelerate exponentially in this business line. Again, we will take a very conservative role. Also, we will explore more capital light and more tax-driven solutions for financial institutions in this SME business.
spk06
Thank you.
Thomas Cheung
Thank you.
Operator
Thank you. This is the end of our question and answer sections. Now I give it back to the management for closing remarks. Thank you.
Li Yada
Okay. Thank you again for participating in the call. And if you have any additional questions, please contact us offline and we will discuss that.
Richard
Thank you.
spk07
This concludes our conference call. You may disconnect now. Goodbye.
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