FinVolution Group

Ladies and gentlemen, thank you for participating in the third quarter 2023 earnings conference call for Finvolution Group. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded. I'll turn the call over to your host, Jimmy Tan, head of investor relations for the company. Please go ahead.

Hello, everyone. Welcome to our third quarter 2023 earnings conference call. The company results were issued via newswire services earlier today and are posted online. You can download the earnings release and sign up for the company's email alerts by visiting the IRR section of our website at irr.fimpigroup.com. Mr. Tien-Chen Lee, our Chief Executive Officer and Mr. Chia-Yuan Xu, our Chief Financial Officer will start the call with their prepared remarks and conclude with a Q&A session during this call. We will be referring to several non-GAAP financial measures to review and assess our operating performance. These non-GAAP financial measures are not intended to be considered isolation or as a substitute for the financial information prepared and presented in accordance with US GAAP. For information about these non-GAAP measures and reconciliation of the GAAP measures, please refer to our earnings press release. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Security Statification Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties are included in the company filings with the U.S. Security and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable laws. Finally, here is a slide presentation on our IR website providing details of our results for the quarter. I will now turn the call over to our CEO, Mr. Tie Zheng Li. Please go ahead, sir.

Thanks, Jimmy. Hello, everyone, and thank you for joining our running call. This is Tie Zheng Li, CEO of Inversion Group. We are happy to speak with you today. During the third quarter, we steadily executed our local focus, Global Outlook Strategy. We are suggesting our efforts to build our business throughout the Pan-Asian region. Cumulatively, we are proud to have served over 29 million borrowers in China, Indonesia, and the Philippines. As we continue to expand our presence in these cultures, we have tapped more deeply into our leading resources. and we can now successfully deploy them across the large market in which we operate. One of our regional funding partners can now support our loan facilitation operations across different countries, greatly improving our capability to serve more borrowers in our market. We plan to leverage and replicate this success as we expand into additional countries, while strengthening our presence in existing markets. China's post-COVID economic recovery continues to progress gradually during the third quarter, with microdata reflecting uneven improvements in different areas. For instance, in September, the Consumer Confidence Index went up slightly to 87 points, but is still hovering at a relatively low level. Also, according to data from the National Statistical Bureau, our employment rate officially peaked at 5.3% in July, before trending down to 5% in September. Although there has been some moderate recovery in the consumption market, the bulk of the recovery has been in children's education, sports, medical, healthcare, domestic travel, and other offline activities. Purchase intention for big ticket items such as property, cars, and luxury goods remain relatively weak. Meanwhile, the overall microenvironment in Indonesia, our legacy overseas market, remained robust as the region is in a faster stage of development. For instance, Indonesia's consumer confidence index from August through October remained high at about 120 points, a positive indicator for increasing consumer spending. Its unemployment rate in September also declined by 5.3%, compared with 5.9% in the same period last year. its lowest level since the first quarter of 2020. Thus far, our tactical approach of maintaining prudent, progressive growth in China market, while pursuing rapid growth in the international market, has proven very effective under the current and even micro conditions we have observed. While waiting for China's economy to recover at a faster rate, We have been constantly investing in R&D to further streamline our processes, enhance customer experience, and achieve operational efficiency improvements. Since 2018, we have deployed around RMB 2.4 billion to develop cutting-edge technologies and implement them throughout our business operations. In particular, we made notable progress Progress with Blue BLU, our AI-powered chatbot, which now supports operations in six different countries with five language options, Chinese, English, Tagalog, Bahasa, and Spanish. Furthermore, by integrating Blue with our human loan collection personnel for device reminder calls, we have achieved cost saving of up to 80% while maintaining our per 10,000 cost efficiency levels. Blue's effectiveness once again showcases our R&D prowess as well as our ability to improve operational efficiency. It's a pragmatic yet innovative tech that can be seamlessly applied in our operation across different markets. Speaking of AI, We continue to leverage AIGC to boost social media engagement for our overseas business, increasing our campaign's audience targeting accuracy and achieving greater visibility on leading social media platforms. Thanks to our engaging AIGC-driven advertisement and inventive use of technology, our followers on Facebook surpassed 1 million milestone, while our followers on TikTok grew to around 740,000. As always, we continue to promote financial inclusion, a mission that reflects our commitment to social responsibility and supports our business goals. Our average borrowing rate in China maintained stable sequentially. making our products and services accessible to even more borrowers. I'm pleased to report that despite all the micro uncertainties, Finvolution's group's total transaction volume for the third quarter grew to RMB 51 billion, while our outstanding loan balance grew to RMB 686 billion, representing year-over-year increase of 13% and 9%. These results clearly demonstrate that our local focus, global outlook strategy, is not only variable, but it is also scalable, which is a critical factor for our future growth. On a related note, I would like to share a brief update on our recent ESG initiatives. Our dedication to sustainability and giving back to society remains at the heart of our corporate values and forms a core part of our identity. Over the last couple of years, the company has made several charitable trips to the Sichuan Daliang Mountains area. This year, we donated 350 renewable energy stream lamps to improve infrastructure for the local villagers. We also organized a unique schooling event for children at Finvolution Kindergarten, another of our long-standing community projects in the area. Going forward, we will continue to align our ESG and business goals to maximize our positive societal impact, while creating value for all of our stakeholders. To summarize, the third quarter of 2023 was not without challenges, but our firm and focused execution of our local focus, Global Outlook Strategy, alongside tech innovation empowered our steady progress and strengthened our foundation, supporting long-term sustainable growth. We will continue to embrace inclusion, accessibility, and technology as we seek to serve borrowers with better financial services. With that, I will now turn the call over to our CFO, Jiayuan Xu, who will discuss our operational and financial results.

Thank you, Li, and hello, everyone. Welcome to our third quarter 2023 earnings call. In the interest of time, I will not go through all of the financial line items on this call. Please refer to our earnings release for further details. As Li mentioned, The domestic macro recovery has been gradually and reflects uneven improvements in certain areas. For instance, the official Manufacturing Purchasing Managers Index PMI from August through October fluctuated between 49.7, 15.2, and 49.5 points, according to data released by the National Bureau of Statistics. on October 31, 2023. Meanwhile, total social financing data in October increased to RMB 1.8 trillion, up 9% from the same period last year. Total retail consumption in October increased to RMB 4.3 trillion, up 7.6%, compared with the same period last year. Our stable and better quality borrower base empowered us to maintain steadfast and resilient operational metrics domestically in the third quarter, despite the uneven microenvironment. Cumulatively, we have served around 25 million borrowers in China, with the number of unique borrowers remaining stable at around 2.3 million. Additionally, our domestic transaction volume reached RMB 49 billion, up 11% year-over-year and 8% sequentially. Meanwhile, our outstanding loan balance reached RMB 64.6 billion as of September 30, 2023, up 8% year-over-year and 3% sequentially. All these achievements demonstrate our solid standing in the China market and also highlight our unwavering commitment to serving our customers. We continue to employ prudent risk measurement tactics and effective fraud-detection technologies, resulting in only minor fluctuations in our risk levels during the quarter. Day one delinquency rate was 5.7%, while vintage delinquency rate is expected to be around 2.4% to 2.5% for the quarter. Going forward, we will continue to monitor the credit risk performance closely and make timely adjustments when necessary. Finally, boosted by the AI-powered chat booth we mentioned earlier, our loan collection team kept the loan collection recovery rate at around 89%. Furthermore, we continued to add new funding partners, bringing our cumulative number to 88 financial institutions with a strong pipeline of potential future partners in place. These operational achievements enabled us to maintain a healthy take rate of around 3.1% during the third quarter. Recognizing the critical role that small business play in our economy, we also upheld our commitment to small business owners with unwavering support during this bumpy recovery period. During the third quarter, we served around 448,000 small business owners and facilitated RMB 12.3 billion of loans for them, representing an increase of 9% compared with the same period last year and 7% sequentially. Now let me move on to our international expansion efforts. As Lee shared, Indonesia, our largest overseas market, enjoyed ongoing growth in its microeconomy during the third quarter. Sales of motorcycles, the most popular model of transportation in Indonesia, has also accelerated During the first nine months of 2023, motorbike sales were up 31% compared with the same period of 2022 reaching around 4.7 million units, a positive indication of growing customer spending Given these promising trends and data points, we anticipate that Indonesia's domestic consumption will remain robust. We were pleased to record another quarter of significant improvement in our overseas market across multiple operational and financial metrics. Cumulatively, we have served over 4 million borrowers in Indonesia and the Philippines and continue to rapidly attract new borrowers in these regions. The number of unique borrowers served during the quarter reached another new high at 928,000 of 27% year-over-year and 18% sequentially. We continue to increase the population of institutional funding in Indonesia as we strengthen our local presence and broaden our local network. For the third quarter, the percentage of loan facilitated for our local financial institutions reached 74% compared with 55% for the same period last year. As a result, International transaction volume surged by 99% year-over-year and 21% sequentially to RMB $2.2 billion for the third quarter. We also set new records in outstanding loan balance at RMB $1.3 billion, up 102% year-over-year and 16% sequentially. as well as revenue contribution of RMB 585 million, up 67% year-over-year and representing around 18% of total revenue. Leveraging our experience of shifting to better quality boroughs in China, we also take a proactive approach to acquiring better quality boroughs in the Indonesian market. Apart from the online lending business, we are also pilot testing an offline business model with different consumption scenarios to provide more holistic service for our borrowers. In addition, we are also actively exploring the acquisition of additional licenses to better support our local operations. Driven by what dedication to R&D innovation as well as our successful execution of our local focus global outlook strategy Net revenues for the third quarter go to RMB 3.2 billion, up 8% year-over-year and a secretion increase of 4% Sales and marketing expense increased by 13%, secretion rate to RMB 513 million as we increase our efforts to acquire better quality borrowers through diversified channels. Number of new borrowers in the China market increased by 7% year-over-year and 12% sequestered to 406,000. Notably, the number of new borrowers in the international market increased by 27% year-over-year and 36% sequestered to In total, we acquired around 829,000 new borrowers during the third quarter, up 16% year-over-year and 23% sequentially. Net income for the third quarter will be $575 million, a sequentially decrease of 2.6%. Our leverage ratio, which is defined as risk-bearing loans divided by shareholders' equity, remained stable at 4.1 times, indicating future growth potential as the overall microeconomy recovers to a healthy state. Our strong balance sheet and liquidity position continues to enhance shareholders' confidence while providing us optimal flexibility to execute our strategy. In particular, our cash position remains robust with over 8.5 billion of cash and short-term liquidity as of the end of September 2023, representing an increase of 58% year-over-year and 4% quarter-over-quarter. We believe our current cash position is sufficient to support our business expansion and return value to our shareholders. Before I conclude, let me briefly update you on our share repurchase program. For the first nine months of the year, we have deployed around US$66 million to repurchase our shares in the market. As of September 13, 2023, we have cumulatively returned US$511 million to our shareholders in the form of share repurchase and dividend distribution. reflecting our strong commitment to enhancing shareholder value. In summary, our solid results for the third quarter are testament to the effectiveness of our local workers' global outlook strategy, as well as our liberal business model and technological advantages. We have used our time wisely during China's uneven post-COVID recovery and are poised to be at four points of the industry when the recovery accelerates. Looking ahead, we will remain focused on developing and implementing cutting-edge technology while expanding our healthy customer base, driving growth and creating greater value by making financial services better. With that, I will conclude my prepared remarks. We will now open the call to questions.

Operator, please continue. We'll now begin the question and answer session. To ask a question, press star then one on your touch-tone phone. If you're using a speakerphone, please check up your handset before pressing the keys. To withdraw your question, please press star then two. This time, we'll pause momentarily to assemble the roster. For the benefit of all participants on today's call, if you wish to ask questions of management in Chinese, We ask that you kindly repeat your question in English. First question will be from Alex Yee of UBS. Please go ahead.

Hello, Mr. Kwong. Thank you for giving me a chance to ask a question. I would like to ask about the situation of asset quality. Can you please introduce the three-week period? We can see that the day-one and day-loss rate of domestic asset quality is rising. Can you please tell us the main reasons behind this? And what are the prospects for the next one to two weeks? In addition, the asset quality of the overseas market, Indonesia, Uh, So I'm asking about the security outlook for both domestic and international markets. So for the China's market, we have seen your day one delinquency pick up a bit in Q3. Could you share more color on the drivers and outlook for the coming one to two quarters? Also, similar question for your Indonesian market. any color on ethical trend and outlook. Thank you.

Thank you, Alex. Let me go back to the first question, which is about our domestic asset data. As I mentioned earlier, some of the domestic market data, whether it's PMI, social data, etc., are still in a phase of slow recovery. So, due to the influence of the red line data, we also observed that the risk is fluctuating in the third quarter. From some early indicators, like Day One, we were around 5.7%, and the return rate of 1 to 30 days was 89%. This data is similar to what we have seen in the last four weeks. The overall situation is relatively stable. In the case of this risk fluctuation, we have actually made some corresponding adjustments. For example, in Daiqian, we have made more detailed adjustments to our control model and strategy. In the third and fourth quarter, we have conducted a closer observation and adjustment for our different customers. We have further tightened the boundary of its model for some high-priced users. For a customer group with a relatively high number of customers, we have also adjusted its pass rate and turnover. We also re-evaluate the diversity of pure users and make adjustments to the relevant anti-fraud strategies. On the back end, we also use our own models and previous data analysis to fully utilize various tools to improve the efficiency of this strategy. For example, through micro-channels and strategic channels, we developed our own cutting-edge tools to do this combination and reminder in a differentiated way. After these strategies have been implemented, there is a clear distinction between the difference in the number of customers and the number of users. Currently, the expected rate of users can be reduced to around 0.5. At the same time, we will also remind users who are not used to it in advance. Based on the score of our historical collection, the user will be divided into different levels. Then, based on the changes that have been made, the data of the debt situation will be selected intelligently. After these strategies have been done, we see that the return rate has also increased significantly. There will be about 2% of such a situation. So in general, the current environment, we judge, is still in a phase of slow recovery, whether it is from an economic or financial point of view. So the risk quality is the core indicator that we are now very closely watching. Through the strategies we just introduced, such as bringing money in and out, we have basically realized our early

Hello Alex, this is Jimmy. Let me translate for Alexis. The overall economy in China such as the PMI, total social financing are recovering very slowly and being affected by these factors, our risk metrics have some fluctuations during the third quarter For example, during the third quarter, day one delinquency was around 5.7% and day one to 30 days loan collection recovery rate was around 89%, while 90 days particular delinquency was around 1.67%. And we have actually done several things, such as increasing the accuracy and update the model of our pre-loan models, such as Through the accurate positioning of data mining, data analysing and user behaviour analysing, we have increased, we have enhanced the credit limit accuracy and we have also accessed the user repayment willingness and probability of default rates. For post loan models, we have deployed different tools such as WeChat, Push, IVR and automated loan collection robots to design a combination of reminded strategy. Such combination strategies have proven to be effective with a deduction in delinquency rate of up to 0.5% in absolute amount. And for borrowers with probability of missing payments due to carelessness, we will also remind them in advance. Leveraging on our collection scores, we segment borrowers into different categories such as repayment behaviour, remaining of loan balances, and changes in debt borrowers' debt levels. And using all these strategies, our repayment rate actually increased by around 2%. The slow recovery in economy and slow recovery in consumer confidence is still weak. And thus, risk is an important metric for us. And based on all these strategies that we have deployed, our day one metrics in the fourth quarter has also remained at similar level with the third quarter.

I would like to answer the second question, which is the situation of the risk in Indonesia. I think the overall Hong Kong data in Indonesia should be better than that in China. Whether it is the unemployment rate or their residential consumption index, they are all in a very positive state. What is corresponding is that the overall risk performance of our customers in Indonesia is basically stable. In addition, because we are still in a relatively early stage of rapid development in Indonesia, we also maintain the corresponding flexibility and flexibility in the risk strategy. You can notice that in the third quarter, there is a lot of growth in the acquisition of new customers overseas. Here, we are looking at This is also divided into layers. Many customers will be tested for the corresponding amount. So from the current strategy, we will be very active in pursuing a faster growth under a more stable macro environment. At the same time, we also noticed that the overall increase of the U.S. economy should also enter the end of the year. Maybe it will also enter a downward cycle next year. This should actually be a potential advantage for our overseas business. So we expect that in the future, the entire Indonesian market should still be able to maintain a relatively healthy asset quality level.

Hello Alex, let me do the translation for Alexis. Indonesia overall macro economy is much more robust than the China market in terms of employment rate, consumer confidence index, etc. And the risk matrix for our Indonesia market has been stable over the last one year. In the third quarter, I believe you have also noticed that we have acquired many new borrowers to maintain rapid growth. And this is the reason why we are having more flexibility for our risk matrix. And we also segment our borrowers into different segments in order to achieve a better and more accurate risk profiling. And also, the U.S. interest rate increase is ending soon and which will be very beneficial for our international business.

Hi, Alex. I'm Tiezheng. Regarding the domestic credit risk you mentioned, I would like to add a few points to my point. The first one is what Mr. Xiaoyang mentioned. Our entire Hongwan China China China China China China Hello Alex, let me do the translation for Tim. As Alexis has mentioned earlier, China economy is recovering slowly and tasks have some fluctuation in the risk matrix.

And in Q3, there's sort of a small mini credit cycle ongoing. And going forward in 2024, we believe the credit risk will be better. And for Fintelution, all along, our asset quality has been better than most, which we believe will be very beneficial for us when the economy recovers.

Okay. Thank you, Alex.

Thank you. Next question will be from Yara Li of CICC. Please go ahead.

uh uh Then I'll do the translation. Hello, management. Thank you for taking my questions. This is Yada with CSEC. And my first question is regarding the low-in-demand. During 4Q23, we are observing kind of recovery of user demand and are looking forward to the end of next year. I was wondering how to view the overall growth trend and what are the circumstances that we may accelerate or slow down the pace of our loan growth. And the second question is about international business. What will be the volume, revenue, and profit contribution from the overseas branches this year and next year? and will Indonesia maintain the high growth trend, and how to view the profitability and the prospects of the other branches, such as the Philippines and Vietnam? That's all. Thank you.

Thank you, Adam. Let me answer your question about the domestic market. As I mentioned, the domestic market is relatively active. Here, I think the main reason is that we have always insisted on doing the same thing in terms of new customers. In the heart of the customer, our influence is constantly increasing. At the same time, we are also awakening the work of such a mature user like Lao Ke to improve the ability of the customer to refine the operation. It is constantly improving. I can share a few data here. As for the old customers, since the third quarter, except for October, because of the impact of the national long-term price, there has been some fluctuation. In the other months, we observed that the old customers had a steady growth. The ratio growth between the months was about 3%. The other is the data of the new customers. The data of the new customers In the past few months, the overall turnover has been between 4% and 7%. So our customers are more aware of our brand. The demand is relatively active. In the future, I think we still have to make a judgment on the environment. From the current environment, the whole economy or the credit system is still in a low range. The trend is to recover, but the recovery speed is still relatively slow and weak. So in this case, for us, it is not only to observe the needs of users, but more importantly, it is also the risk quality, the core indicators of these businesses. So we are still a Hello, Yadai, let me do the translate for Alexis.

Okay, from internal, we think that the demand is fine as we continue to invest in the acquisition of new borrowers and concurrently working to reactivate the inactive repeat borrowers. We can share a few data. From internal demand, the application rate for repeat borrowers has maintained a steady growth of around 3%. And from new borrowers, the application rate also showed an increase of between 4% to 7%. We think that consumers do recognize our brand and is much more active. Based on the current weakness on the recovery of the macro environment, we need to have a certain judgment. And we need to balance the growth in demand and also our risk metrics. And we believe we need to have more patience in the overall recovery as risk is our top priority metrics right now. And we would balance the risk metrics together with the loan demand of the consumers in order to achieve high quality growth.

This is actually a very strong support for the rapid development of us in those overseas countries. So you can see that in the third quarter, the total turnover of our international business has reached 220 million yuan, which is a growth of 99% in total. Taiwan has reached nearly 130 million yuan, which is a growth of 102% in total. And then the income has reached 5.85 billion yuan, which is a growth of 67% in total. And then I just mentioned that our third quarter is a customer in overseas. the number of new customers has reached 42.3 million, which has increased by 27%. This number is very high in our history, and it is also the first time that the number of new borrowers in our overseas business has exceeded the number of new borrowers in China. From the future, we think there is still a lot of space. First of all, the Indonesian market, you can look at Indonesia's The family infection rate in 2022 is about 16.2%. In fact, the infection rate in developed countries is much lower than that at a level of more than 50%. So we think this infection rate actually has a lot of room. In addition, in the P2P market, there are now about 100% of players. We are probably in the third position in the market. The市占率在6%左右,第一名大概在8%左右。 So regardless of the ranking or the spread of the market, I think we also have a lot of room for improvement in the market strategy. So regardless of the market growth angle or the market share angle, we are very confident that we can achieve higher development opportunities in the future. Let me briefly introduce the Philippines. Although we don't have a lot of data, the business is very healthy and growing very fast. We estimate that the business will grow three times more than last year. Finally, let's talk about the overall profit performance. We are very concerned about LTV in these countries. Our LTV is very healthy in Indonesia and Philippines. So from a business perspective, we will increase the market share as a more important target and direction of business. Profit will be affected by a lot of things. For example, the investment in goods in the third quarter will affect the performance of profit. Let me do the translation for the second question.

The macro environment of Indonesia and the Philippines is much more robust when compared to our China markets. And all these positive macro environment factors actually support our rapid development in these countries. You can see that our transaction volume during the third quarter was about $2.21 billion, while our outstanding loan balance was about $1.29 billion. outstanding balance was up 102% year-over-year and transaction volume was up 99% year-over-year. And the number of new borrowers also reached a record high of 423,000, up 27% year-over-year and 36% quarter-over-quarter. Please also note that this is the first time where the number of international new borrowers exceeds the number of new borrowers in China. we still think that there is a huge market potential. In the Indonesia market, there are over 100 P2P players and we are currently ranked number three in terms of outstanding loan balance with a market share of around 6%. Let me briefly touch on the Philippines market. We believe Philippines has very strong growth potential and the transaction volume for this year is expected to grow around three times. And Indonesia, right, I forgot to mention just now that Indonesia household debt ratio is way below those of the developed countries and there's a lot of potential. Regarding profitability, we are in a stage of rapid development with healthy LTV and our main priority now is to grow rapidly and increase market share. Increasing the market share is of a much more important priority for us now. Profit is being affected by many factors such as our continued investment in customer acquisition and the time difference created by accounting principles. We believe that as long as we are able to maintain healthy development, profits will be a natural result of our operations.

Okay, thank you, Yada.

Thank you. Again, if you have a question, please press star then 1. Next question will be from Sydney Wang of China Renaissance. Please go ahead.

Okay. Do you see that there is a good opportunity to take advantage of the market rate? If we look at the mid-term, how should we look at the overall strategy of the Indonesian market and the overall growth of the loan size? The second question is about your marketing cost. I saw that the marketing cost has a double growth in the third quarter. Thank you for taking my question. I have two questions. First question is related to Indonesia. So as one of your competitor has been restricted by no pay later services in Indonesia, so any opportunity to further gain market shares from here? And do you have any color in terms of like need to long term for the Indonesia business strategy and the new loan facilitation outlook? The second question is regarding to marketing expenses. As we see, the marketing expenses Thank you, Cindy. I would like to answer the question about the Indonesian market.

Yes, as I mentioned earlier, regardless of the development space of the market in Indonesia and the overall market share of the players, there is definitely room for improvement. In fact, you can see that as the management of Indonesia is becoming clearer and clearer, And then, in fact, the players' requirements will also be improved a lot. For example, now the entire registered capital will be increased by 25 times. So in the future, there should be technical strength, capital strength, and practical experience in the market, so that players can develop better in the market. From the company's perspective, in addition to running our current business model well, we are very sure that another thing is that we will continue to serve the people and provide our products and services to the more advantageous users. Here I can briefly introduce some of the things we are doing now. One is that in terms of channels, in addition to the online information flow that we are doing now, we will also look at the offline smart exhibition. Then from the product point of view, in addition to the cash flow we are doing, we will also look at the 31.7% Binaural Pay. and combine it with the scene, such as the scene with the mobile phone, the scene with the electric two-wheeled car, the scene with the family, the scene with the house, to reach our Indian users. The feature of the Indian market is that the young people have a very high percentage. People who have a certain income, economic strength, and consumption ability at around 30 years old actually grow very fast, and the demand for consumption is also very abundant. For example, mobile phones. The frequency of mobile phone exchange is very high after they are released. We are now collaborating with well-known mobile phone brands such as OPPO. We are also providing a 3C consumption service product. These are all products that will be available in the future in the Indonesian market, Hello Cindy, let me translate the question.

Indonesia has huge opportunities to grow from multiple different aspects. As regulation tighten, the players will be affected but we believe the market will consolidate to the better quality players. From the company perspective, I was saying that the entry barrier will also increase when regulations tighten. For example, the registered capital for new players increased to 25 billion RP from just 1 billion RP. We can share what we are currently doing. Apart from online information feeds, we are also doing offline customer acquisitions, multi-products, installment loans, electronics, installments, and buy now, pay later, coupled with multiple scenarios such as mobile phone, electric bike, home electronics and furniture to read the borrowers. Indonesia has this trend of large young population and they tend to change mobile phones whenever there is a new release. Thus, we have also begun operation with OPPO, a well-known mobile phone manufacturer to provide such services for them.

Then the second one is about the cost of goods and services. The total cost of goods and services is about 70% of our domestic cost of goods and services, and the rest is about 20% to 30% overseas. If we look at it from the perspective of CPS, if we simply calculate the total CPS, Q3 is compared to Q2, about 6% of improvement. Then back to domestic and international, domestic improvement will be greater, about 7% improvement. Then overseas CPS, we basically maintain a level of almost stability. From the perspective of the future, I think it still depends on the big environment and the strategy we put in place. From the perspective of the CAPS, we think it will remain in a stable state. Of course, we will also use our own internal precision operation Hello, Cindy.

Let me do the translation. For S&M costs, about 70% of them are for China, while about 20% to 30% is for the international markets. From the CPS perspective in the Q3, the overall CPS optimized about 6%, while China market optimized about 7%. International CPS maintains stable. Going forward, depending on the macro environment and the company-owned strategy, we believe our sales and marketing costs will remain stable. And we, through the company strategies of upgrading the models on customer acquisition and all those, we believe all these costs will be further optimized.

Okay, thank you, Cindy.

Thank you. There's no further questions. We'll conclude our question and answer session now and turn the call back over to management for closing remarks. Thank you.

Thank you all for joining the call. If you have any other further questions, please reach out to Finvolution Investor Relations team. Thank you all. Conference is now concluded. Thank you for attending today's presentation. You may now