• News
• 2024-04-30

AI Boosts Fintech Efficiency, Expands Overseas Amid Profit Slump

As Lexin recently "handed in its exam paper," the semi-annual performance of listed fintech companies has gradually come to light. According to the financial report data disclosed by eight institutions, in the first half of this year, the overall trend among listed fintech companies was an increase in operating income year-on-year while net profit decreased year-on-year. The scale of loans they empowered also shrank, and the overdue rate of M3+ (more than 90 days) loans they empowered continued the upward trend from the first quarter.

Among them, Lufax Holdings, which is still in the "transformation maze," suffered a net loss of 1.56 billion yuan in half a year, with operating income decreasing by 33.12% year-on-year to 12.94 billion yuan, and the loan balance decreased by 44.8% year-on-year to 235.2 billion yuan.

Against the trend of overall contraction in the scale of loans they empowered and the downward trend in asset quality, listed fintech companies, on the one hand, increased the application of artificial intelligence (AI) and large models, refined customer operations, and increased the proportion of repeat borrowings in order to achieve cost reduction and efficiency enhancement. On the other hand, they increased their layout in emerging markets such as Indonesia, Mexico, Malaysia, and the Philippines to obtain new space for performance growth.

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Contraction in scale, increased revenue, and decreased profit

From the financial report data, Lufax Holdings, the former industry leader, is still in the recovery stage. In the first half of this year, Lufax Holdings' operating income decreased from 19.348 billion yuan last year to 12.94 billion yuan; the net loss was 1.56 billion yuan, while it achieved a net profit of 1.736 billion yuan last year; the loan balance was 235.2 billion yuan, a decrease of 44.8% compared to the same period last year. Lufax Holdings' Chief Financial Officer (CFO) Zhu Peiqing stated that the company has just completed the transition to a 100% guarantee model, and the new business model requires the provision of risk reserves, which will affect short-term profitability.

In contrast, Qifutech and Xiaoying Technology delivered impressive results. Qifutech's operating income in the first half of the year was 8.313 billion yuan, a year-on-year increase of 10.64%; net profit was 2.536 billion yuan, a year-on-year increase of 25.38%. Xiaoying Technology's operating income increased by 15.96% year-on-year to 2.581 billion yuan, and net profit increased by 19.64% year-on-year to 778 million yuan.

However, the loan balances empowered by Qifutech and Xiaoying Technology have both declined. As of June 30, 2024, the loan balance empowered by Qifutech was 157.778 billion yuan, a decrease of 14.5% from 184.459 billion yuan in the same period last year. Xiaoying Technology's unpaid loan balance was 41.804 billion yuan, a decrease of 7.25% from 45.071 billion yuan in the same period in 2023.

Overall, the performance of listed fintech companies showed an increase in operating income year-on-year while net profit decreased year-on-year. Among them, Lexin achieved a revenue of 6.88 billion yuan in the first half of the year, a year-on-year increase of 13.1%. Xinye Technology achieved a revenue of 6.333 billion yuan in the first half of the year, a year-on-year increase of 3.38%. Jiayin Technology achieved a revenue of 2.951 billion yuan, a year-on-year increase of 22.96%. Yiren Zhike (formerly "Yiren Jinke") achieved a revenue of 2.878 billion yuan, a year-on-year increase of 24.59%. However, Yiren Zhike, Xinye Technology, Jiayin Technology, and Lexin all experienced a year-on-year decline in net profit in the first half of the year, with declines of 6.08%, 15.39%, 15.66%, and 53.20%, respectively.

Thanks to the one-time disposal income from the virtual banking business in the second quarter, OneConnect also delivered a good "mid-term exam paper." In the first half of 2024, OneConnect's continuing operations (excluding the virtual banking business segment data) achieved a revenue of 1.416 billion yuan, with a gross margin and adjusted gross margin of 37.1% and 39.4%, respectively. The net profit attributable to the parent company during the period was 139 million yuan, a year-on-year increase of 173%, and the net profit margin attributable to the parent company was 9.8%, an increase of 20.2 percentage points year-on-year.

Under the overall trend of increased revenue and decreased profit, contraction in scale, and pressure on asset quality, as of June 30, 2024, Xiaoying Technology's overdue rate for arrears between 91 and 180 days was 4.38%, an increase of 1.88 percentage points from 2.50% in the same period last year; Xinye Technology's overdue rate for arrears of more than 90 days was 2.65%, an increase of 0.97 percentage points from 1.68% in the same period last year; Yiren Zhike's loan overdue rate for arrears between 60 and 89 days was 1.6%, an increase of 0.2 percentage points from the same period last year; Lexin's overdue rate for arrears of more than 90 days was 3.7%, an increase of 0.7 percentage points quarter-on-quarter.Su Xiaorui, a senior researcher at Su Xi Zhi Yan, told reporters, "Listed fintech (assistance lending) companies mainly adopt the internet loan cooperation model. The overall trend in the consumer finance market in the first half of 2024 is a general decline in loan balances and other scales. Due to factors such as the macroeconomy still facing uncertainties and the weakening repayment ability of borrowers, the M3+ overdue rate continues to rise. More than half of the banks and licensed consumer financial institutions have adopted a reduction strategy, hence the listed fintech (assistance lending) companies have also reduced their scale. However, according to some institutions' leading indicators, such as the first overdue rate (the proportion of borrowers who are overdue for the first time), the situation has already improved, and it is possible to resume volume measures in the second half of the year."

AI Efficiency Enhancement and Refined Operation

Against the trend of overall empowerment of loan scale contraction and asset quality decline, listed fintech companies have increased the application of artificial intelligence (AI) and large models, refined customer operation, and improved the proportion of repeat borrowing to achieve cost reduction and efficiency enhancement.

Financial reports disclosed that since the launch of the AI-Copilot (artificial intelligence assistant) system by Qifu Technology, the efficiency of personnel has increased by 4.1%, the user conversion rate on the seat side has climbed by 5.6%, management efficiency has increased by 50%, and the business processing accuracy has also increased by 1.2% compared to before use. In terms of credit assessment, relying on the Argus risk control engine, based on 50,000 risk decision rules and 1,000 machine learning models, Qifu Technology assesses 120,000 risk characteristics, performs hundreds of millions of model calculations every day, and shortens the approval time to 44 seconds.

In the second quarter, Lexin's self-developed "Qidian" AI large model was further applied. The accuracy of real-time intent recognition of the large model has been further improved, and the accuracy rate of robot intent recognition in the telesales application scenario has reached as high as 98%. The AI large model has achieved 100% landing use by technical personnel in the code assistance application, comprehensively improving the efficiency and accuracy of programmers' code writing.

In order to continuously enhance user stickiness and improve the attractiveness of potential users, Yiren Zhike uses AI technology to deeply integrate the capabilities of multiple data sources. By implementing refined operation strategies and accurately building customer portraits, it has increased the proportion of high-quality customer groups in the overall customer base, achieving a revenue of 851 million yuan, a year-on-year increase of 46%; the number of monthly active users increased by 88% year-on-year, reaching 4.51 million.

In the second quarter, with the support of technologies such as vector knowledge base, natural language processing, and large models, Jiayin Technology independently developed an enterprise-level office assistant platform based on Retrieval-Augmented Generation (RAG) technology - "Lingxi" AI Agent Intelligent Center. The newly launched "Canglong" intelligent recommendation platform connects different business scenario resources through open API (Application Programming Interface) capabilities. With the help of the "Canglong" system, the content conversion rate has increased by 5 times, and the push efficiency has increased by 90%, greatly improving the level of operation refinement.

Lou Feipeng, a researcher at China Postal Savings Bank, told reporters that the progress of artificial intelligence, especially general artificial intelligence technology, is disruptive. It has an irreplaceable role in improving the efficiency and refinement level of financial services, innovating financial products faster and better, and improving the satisfaction of financial service customer experience. Financial institutions are actively promoting the application of artificial intelligence in management and operation, customer service, and other fields. In the future, they will continue to explore the field of artificial intelligence to promote high-quality development.

Wang Pengbo, the chief analyst of the financial industry at Broadcom Consulting, believes that it has not changed the actual business process, but can reduce relative costs. Big data analysis and machine learning technology can also quickly assess the credit risk of borrowers. Wang Pengbo told reporters that fintech companies still need to undergo digital transformation as soon as possible. Under the premise of slowing market growth, it is necessary to ensure cost savings and smoother business operations.

"By applying artificial intelligence technology, fintech companies can automate the processing of a large amount of data and information, improve business processing efficiency and accuracy, reduce manual intervention and error rates, and more accurately assess customer credit status and risk levels, thereby achieving the goal of cost reduction and efficiency enhancement." Wang Peng, a researcher at the Beijing Academy of Social Sciences, told reporters that there are not many companies that have truly implemented artificial intelligence technology in their business and achieved efficiency enhancement. This is mainly because the implementation of technology requires a large amount of resources and time for research and development and application testing.Looking Abroad for Growth Opportunities

Actively expanding into emerging overseas markets is a significant strategy for the development of listed fintech companies.

From financial reports, Lexin has positioned its overseas business as an important strategic direction, promoting accelerated growth in this area. Data indicates that its loan disbursement in the Mexican market increased by 61% quarter-over-quarter, with revenue growing by 113% over the same period.

Jiayin Technology also stated in its financial report that overseas business, as a key focus for subsequent development, achieved scale growth in multiple global markets during the second quarter of this year. In the Indonesian market, the overall performance and operational status of local business partners exceeded expectations set at the beginning of the year. In Nigeria, against the backdrop of basically stable risk indicators in the second quarter, the local business scale further increased compared to the previous quarter. In the Mexican market, Jiayin Technology is focusing on improving the infrastructure of various business operations and is attempting to explore longer-term products.

In the first half of 2024, OneConnect's revenue from overseas customers increased by 14.8% year-over-year, accounting for 21.2% of third-party revenue (excluding data from the virtual banking business segment), an increase of 5.6 percentage points year-over-year. To date, OneConnect's business has covered 20 countries and regions, including South Africa, Singapore, Thailand, Malaysia, Indonesia, the United Arab Emirates, the Philippines, and Vietnam, serving a total of 186 overseas financial institutions.

In terms of international markets, FinVast Technology has established deeply localized fintech platforms in Indonesia and the Philippines and has started technology service businesses in the Latin American region. In the second quarter of this year, FinVast Technology's international business achieved a transaction volume of 2.3 billion yuan, a year-on-year increase of 27.8%. Among them, the performance of the business brand in the Philippines exceeded expectations, with a transaction volume growing by 140% year-over-year in the quarter. In the first half of 2024, FinVast Technology's transaction volume in the international market rose to 4.5 billion yuan, a year-on-year increase of 32.4%. The outstanding balance in the international market reached 1.4 billion yuan, a year-on-year increase of 27.3%. As of June 30, 2024, the cumulative number of borrowers in FinVast Technology's international market reached 5.6 million, a 40% increase compared to June 30, 2023.

Su Xiaorui stated that fintech companies are actively laying out overseas because pioneers in fintech going abroad have been overseas for more than five years, achieving good overseas performance growth, which has a significant attraction for other peer institutions. On the other hand, it is also due to the fact that domestic consumer finance business is indeed in a state of volume reduction, and actively laying out overseas can also help create a second revenue growth curve, thereby boosting performance and confidence in the public market.

Wang Peng pointed out that in the face of the challenges of slowing domestic market growth and rising risks, fintech companies are actively seeking overseas markets as new growth points. By expanding into overseas markets, fintech companies can also diversify operational risks and reduce dependence on a single market. Chinese fintech companies have a leading advantage in fields such as big data and artificial intelligence, and these technologies also have broad application prospects in overseas markets.

Wang Peng suggested that listed fintech companies should continue to increase their R&D investment in cutting-edge technology fields such as artificial intelligence and big data, actively explore the application possibilities of artificial intelligence technology in different business scenarios, and promote technology implementation and business efficiency. While expanding overseas markets and promoting technological innovation, it is also necessary to strengthen compliance awareness and risk management capabilities to ensure the stable development of the business.