360 DigiTech, Inc. (QFIN) Q3 2021 Earnings Call Transcript

360 DigiTech, Inc. (NASDAQ: QFIN) Q3 2021 earnings call dated Nov. 15, 2021

Corporate Participants:

Mandy Dong — Investor Relations Director

Haisheng Wu — Chief Executive Officer and Director

Alex Xu — Chief Financial Officer and Director

Yan Zheng — Chief Risk Officer

Analysts:

Richard Xu — Morgan Stanley — Analyst

Zeyu Yao — CICC — Analyst

Alex Ye — UBS — Analyst

Thomas Chong — Jefferies LLC — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the 360 DigiTech Third Quarter 2021 Earnings Conference Call. Please also note today’s event is being recorded.

At this time, I would like to turn the conference over to Ms. Mandy Dong, IR Director. Please go ahead, Mandy.

Mandy Dong — Investor Relations Director

Thank you. Hello everyone and welcome to our third quarter 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. Zheng 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 may refer to forward-looking statements based on our current plans, estimate, and projections. Also, this call includes discussions of certain non-GAAP measures. Please refer to our earnings release for our reconciliation between non-GAAP and GAAP ones. Last, unless otherwise stated all figures mentioned are in RMB.

I will now turn the call over to our CEO, Mr. Wu Haisheng.

Haisheng Wu — Chief Executive Officer and Director

Thank you, Mandy. [Foreign Speech] Hello everyone, I’m very happy to report another strong quarter. This marks the sixth consecutive quarter of record-breaking results since the pandemic last year. During the quarter, total loan facilitation volume reached RMB97.6 billion through our platform, marking another record high, up 48% year-on-year and 10% Q-on-Q. Outstanding loan balance reached RMB133.4 billion, up 58% year-on-year and 13% Q-on-Q. Total revenue was RMB4.6 billion in Q3, up 25% year-on-year and 15% Q-on-Q. Non-GAAP net income was RMB1.63 billion, up 27% year-on-year and 1% Q-on-Q. We are in a fast changing world and the market hot topics come and go. Our results to all of that is to consistently deliver record-setting results quarter-after-quarter. We believe this fully demonstrates strong resilience of our team and the business.

[Foreign Speech] We got lot of questions about recent regulatory development. We have maintained strong dialog with regulators in recent months. So, let me first share some topics here.

[Foreign Speech] Rectification is the top priority for the 14 leading Internet platforms summoned by regulators earlier this year. Majority of the issues have to be addressed by the end of this year. On October 19, 2021, Mr. Guo Shuqing, CCP Chief of PBOC and Chairman of CBIRC stated publicly, in the process of rectification of the 14 leading Internet platforms, regulators raised over 1,000 issues. We have received a proactive response for majority of the issues and about half of the issues have been resolved. As such, we anticipate more substantive progress by the end of this year. Compared to other platforms with financial holding company structure, we don’t do payment business nor do we offer sophisticated one-stop financial service. Our business model is rather simple and straightforward that we have far fewer issues than most other platforms. Currently, we are progressing based on the regulatory timeline. This includes enhancing corporate governance, adjusting operation under various license and optimizing user experience, etc. We are very confident to complete this compliance related items by the regulatory deadlines.

[Foreign Speech] As for new regulations related to credit agencies, we have been in constant communications with regulators and prepared multiple proposals to cover different scenarios. First, we can further leverage various financial license on-hand and we also have sufficient cash to inject capital into our licensed entity if necessary. Second, we can actively in discussions with existing credit rating agencies to explore potential business arrangement. Of course, this is a rather complicated process from both operational and technology perspective. That’s why regulators keep a rather long grace period. Third, as a leading fintech company in Shanghai and a national one, we are also proactively participating applying for a new credit agency license when the opportunity presents. Fourth, we will continue to work with our strategic partner, PCB, leveraging the banking license. As you can see, we have multiple solutions to satisfy this requirement of new regulation and we might be the better prepared than most other peers.

[Foreign Speech] [Indecipherable] some financial institutions have been guided to lower their APR to below 24% by next June. We have proactively communicated with our financial partners to drive down prices on our platform. Our average pricing in Q3 dropped by more than 1% compared to Q2. As for October, more than 60% of loans from our platforms were priced below 24%. Going forward, we will continue to lower our average pricing in all three manner to meet capped 24% by Q2 next year. Meanwhile, [Indecipherable] of lower prices are gradually showing. We start to attract better quality customers and the larger financial institutions. New customers’ risk profile appear better than existing ones, meanwhile our operational efficiency is also enhancing.

[Foreign Speech] In addition to consumer loan users, our SME and the large ticket loan users have both grown nicely and the quality of our SME borrowers continue to improve. Average credit line of SME borrowers were at size 34% year-on-year. As such, CAC, i.e. customer acquisition cost is no longer a proper measure to evaluate our user acquisition efficiency. We have established a more diversified borrower matrix that has better quality and higher ROI. In addition, our embedded financed API model continue to grow rapidly and maintain leadership position. In Q3, more than half of our new consumer loan borrowers were acquired under this model.

[Foreign Speech] On the funding front, we will gradually expand our collaboration with national banks and a diverse beyond consumer finance company and urban commercial banks. Currently, we have a number of national banks in our pipeline, including Everbright Bank, Huaxia Bank and Pudong Development Bank among others. Expanding relationship with larger national banks will provide us with more stable funding source at a more attractive cost. In Q3, our overall funding costs remained at around 6.7%, near historical lows.

[Foreign Speech] Next, I would like to share some strategic development. First, for the tech-driven transition strategy, loan facilitation under the capital-light and other tech model increased to 56.8% in Q3, close to our full year target. Our smart marketing product, ICE, Intelligence Credit Engine, continue to grow with more innovative products rolling out. Transaction volume under ICE in October increased by 53% compared to June. For our customer acquisition system, we are piloting upgraders smart marketing models on some channels and AB test data shows average credit line rather increased by 20% per dollar we spend. We will continuously progress the test round and apply to more channels to obtain better quality customers. We have received a patent and have outstanding patent application in several cutting-edge areas such as federated learning perception and recognition and [Indecipherable]. So far we have acquired over 900 patent applications in fintech related areas. Recently, we have received multiple awards from the Asian Banker, three years in a row. We won the Best Risk Data and Analytics Technology Implementation of the Year in China, the Best Fraud Prevention Technology Implementation of the Year in China, Best Digital Lending Service in China. Among fintech companies, we had the most awards in the most categories for 2021.

[Foreign Speech] Our SME business continued to deliver solid results in Q3. Total amount of new approved credit lines increased 13% Q-on-Q to RMB8 billion. We are constantly refining our business process to roll-out more innovative products. For example, we leverage our technical strength to improve borrower experience. More than 30% of SME owners received their credit line within 10 minutes. Better user experience give us a clear competitive edge in marketing channels. We also established a process for the bank and the tax interaction model, our financing channel by which bank provide loans to SMEs based on their historical tax payments. We will also make breakthroughs in corporate credit rating and the credit approval. Last but not least, our offline direct sales team continue to ramp operations and it contribute about 20% new customer in Q3. Offline team can access better quality first-hand customer information to fit in our risk models. With these measures, we have gradually built up our competitive strength in SME finance in terms of risk management funding, user acquisition and products.

[Foreign Speech] As a leading fintech company, we regard ESG as a key component of our long-term business strategy. Under the guideline of China Association of Small and Medium Enterprise, CASME, we have launched joint loan product with over 100 partners, including [Foreign Speech]. These products serve different industries, including supermarket, suppliers and logistics. Meanwhile, we announced in November as the special SME month, during which we target to waive RMB10 million worth of interest for our SME customers. To support China’s carbon neutral commitment, we have rolled out consumer loans for electric vehicles. In addition, the World Economy Forum recently awarded us New Champions Community Award of Excellence in Agile Business Governance 2021. We are especially honored to be the only company in Asia to have received this award this year. This speaks to our increasing impact and commitment to social responsibility and the corporate governance.

[Foreign Speech] Finally, a note on our guideline for Q4. It’s already the middle of November. Based on our year-to-date performance and business momentum so far this year, we are confident that we we will deliver a solid Q4 and exceed our previous full year loan volume guidance. [Foreign Speech]

Alex Xu — Chief Financial Officer and Director

Okay. Thank you, Haisheng. Good morning and good evening everyone. Welcome to our quarterly earnings call. For the interest of time, I will not go over all the financial line items on the call. Please, refer to our earnings release for details.

As Haisheng mentioned, we delivered the sixth consecutive quarter, record-breaking quarterly results in both operational and financial terms for the third quarter of 2021 in a relatively muted micro backdrop. We saw continued strong consumer demand for credit and stable asset quality. Our faster than market growth suggests that we continue to gain shares in the targeted segments.

Total net revenue for Q3 was RMB4.6 billion versus RMB4 billion in Q2 and RMB3.7 billion a year ago. Revenue from credit-driven service, capital heavy was RMB2.62 billion compared to RMB2.4 billion in Q2 and RMB2.96 billion a year ago. The year-over-year decline was mainly due to facilitation volume mix change as capital heavy loan volume decreased significantly. Meanwhile, capital heavy facilitation revenue take rate improved modestly quarter-on-quarter. Revenue from platform service capital-light was RMB1.99 billion compared to RMB1.6 billion in Q2 and RMB748 million a year ago. The robust growth was mainly driven by continued progress we have made in capital-light and other technology solutions. During the quarter, capital-light and other tech solution contribute roughly 57% of total loan volume and capital-light facilitation revenue take rate also improved nicely.

During the quarter, average pricing was 26.1% compared to 27.2% in Q2 and 25.9% a year ago. As the 24% rate cap being implemented across the industry, gradually, we are expecting average pricing to trend down by about 1 percentage point each quarter through mid-2022 to satisfy the rate cap requirement. As we discussed in the past, even under a more restrictive and a steep rate cut scenario, we should still be able to maintain healthy growth and profitability in the transitional year of 2022 and resume to a more robust growth afterwards.

During the quarter, we continue to maintain healthy pace of customer acquisition, while focusing on attracting high quality borrowers. In particular, we significantly increased the number of customers with much larger credit line and relatively low risk. The average ticket size of these type of customers typically runs between RMB150,000 to RMB200,000 compared to the average of RMB10,000 for regular borrowers. As such, on a blended basis, average customer acquisition cost, which is calculated by dividing the sales and marketing cost with the total new credit line users. Customer acquisition cost per user with approved credit line was RMB305 in Q3 compared to RMB250 in Q2. However, excluding large ticket sized customers in both consumer and SME market, average cost per approved credit line was approximately RMB249 in Q3 compared to RMB224 in Q2. 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. So far in 2021, we have maintained healthy ROI and LTV trends, which in turn drives stable net take rate.

While overall risk metrics were relatively stable in Q3, we continue to take prudent approach in booking provisions against the potential credit laws. New provision for contingent liability for loans originated in the quarter was approximately RMB1.5 billion. Meanwhile, approximately RMB800 million of provisions for contingent liability of previous period loans was written back as actual performance of those loans was better than expected. Provision booking ratio, which is defined as new provision for contingent liability divided by capital-heavy loan facilitation volume remained stable.

With strong operating results and increased contribution from capital-light model, our leverage ratio, which is defined as risk-bearing loan balance divided by shareholders’ equity further declined to 4.3 times in Q3 from 4.8 times in Q2 and 7.4 times a year ago. We expect to see continued deleveraging in our business, driven by further movement towards capital-light and solid operating results.

We generate RMB1.74 billion cash from operation in Q3 compared to RMB1.3 billion in Q2 and RMB1.42 billion a year ago. Total cash and cash equivalent was RMB7.6 billion in Q3 compared to RMB8.8 billion in Q2. Non-restricted cash was approximately RMB4.2 billion in Q3 versus RMB5.2 billion in Q2. The decline in cash was mainly due to more proactive deployment of cash in our operations to support ABS and pre-ABS assets, which generates higher returns. As a result, during the quarter on-balance sheet loan volume increased to RMB12.8 billion from RMB9.8 billion sequentially. Meanwhile, a significant portion of our cash was also allocated to security deposit with our institutional partners and registered capital of different entities to support our daily operation.

As we continue to generate strong cash flow from operations, we believe our current cash position is more than sufficient to support the growth of our business to invest in key technologies and to satisfy potential regulatory requirements. Therefore yesterday, our Board of Directors approved a quarterly dividend policy and declared our first-ever quarterly dividend of $0.28 per ADS for Q3. Going forward, we will distribute approximately 15% to, 20% of quarterly net income after-tax in the form of cash dividends on a recurring basis. We believe it is appropriate way to generate additional return to our shareholders and to appreciate their long-term support

Finally, let me give you some update about outlook for the fourth quarter. The operating result for the first three quarters of the 2021 were very encouraging and we continue to see healthy business development in Q4, despite some seasonal headwinds and muted macro conditions. As such, we now expect Q4 total loan volume to be between RMB90 billion and RMB100 billion, which bring our 2021 total loan volume guidance to be between RMB350 billion and RMB360 billion compared to previous guidance of RMB340 billion and RMB350 billion. The revised guidance represents year-on-year growth of 42% to 46%. As always, this forecast reflects the company’s current and preliminary view, which is subject to material change.

With that, I would like to conclude our prepared remarks. Operator, we can now take some questions.

Questions and Answers:

Operator

Thank you, management. We will now begin question-and-answer session. [Operator Instructions] And first question is Richard Xu from Morgan Stanley.

Richard Xu — Morgan Stanley — Analyst

[Foreign Speech] My question is, basically, the management mentioned that there are 60% of loans already priced at below 24%. What’s the gross and net take rate and risk profile of these client base and that will give us probably better indicator of the profitability after the transition period? [Foreign Speech]

Haisheng Wu — Chief Executive Officer and Director

[Foreign Speech] Okay. I will translate for our CEO, Haisheng. First, thank you Richard for your question. I will give you some color about this take rate. Number one for net take rate, the asset below 24%, it’s 1% lower than our current total loan book, which is 3% net take rate. Secondly, as for the risk profile of this 24% cap asset, what we observe is in Q3, the new transaction has better risk performance than the existing asset. For example, in the day one delinquency result metrics, the new transaction is 4.2% and the total loan book is 5.1%.

Yan Zheng — Chief Risk Officer

[Foreign Speech] Okay. To add a little bit more. In the meanwhile, we have seen that there is a little bit fluctuations in risk performance. For example, the day one delinquency rate has declined for five consecutive quarters, while it’s 5.1% in this quarter, slightly higher than the second quarter and the 30-day recovery rate decreased slightly from 19% Q2 to less than 9%. However, we’re confident to say that such change is very controllable. We believe such kind changes are caused by the [Indecipherable] factors as well as regulatory policies, but they are short term and temporary and have relatively little impact on our customer base. At the same time, our customer acquisition team and risk management team has made some changes proactively, including firstly, for customer acquisition, we have improved our intelligent marketing strategy. We changed from improving efficiency and controlling cost to improving quality and controlling cost.

Taking information flow channel as an example, the proportion of RTA customer acquisition has further increased to more than 40%. In this quarter, the PRA [Phonetic] model was optimized focusing on user quality and the user acquisition efficiency. [Technical Issues] improved by 17% and the user acquisition efficiency was improved by 20%. So, as Haisheng has mentioned before, with the same customer acquisition cost, we are able to improve increase the credit line by 20%. Secondly, for potential risk customers, we have started risk reduction strategy in advance. We make full use of our self-developed advanced algorithm models such as GBSD to accurately identify risk successful groups and tighter risk management accordingly. For example, for people borrowing from multiple platforms we have lowered approval rate. Certainly, for existing peers customers we reduced prices while matching users consumption and business evolving needs so as to achieve the inflation of transferring balance to lower risk customers.

Eventually, as Haisheng has mentioned, we can see risks for new transactions is decreasing. Taking the first repayment of new loans in September as example, the delinquency rate decreased to 20%, which is lower than the average of the second quarter. In short, with a continuous improvement of our customer base and optimization risk management, we are very confident to keep the risks within expected range in the future.

Mandy Dong — Investor Relations Director

Richard, do you have any follow-ups, or we can move onto the next question?

Richard Xu — Morgan Stanley — Analyst

Just one quick follow-up. What’s the overall, I mean if you factor in the risks and client acquisition cost differences, any overall guidance on sort of the net take rate for this client base?

Alex Xu — Chief Financial Officer and Director

Well, let me take this one. We are still seeing the same logic as we mentioned after the second quarter results. If you recall, we have the sort of stress test under the 24% scenario. Basically, we still see 1 percentage drop. When everything being said and done when the entire portfolio moved down below 24%, the average pricing will probably sitting somewhere around 22.5% and the net take rate will drop from 4% roughly to about 3%. That’s still the outlook for the moment.

Richard Xu — Morgan Stanley — Analyst

Okay. So it’s consistent with our original estimates, the new data suggests, right? Okay, got it. Thank you.

Alex Xu — Chief Financial Officer and Director

That’s right. Yeah.

Operator

Next question is Zeyu Yao, CICC.

Zeyu Yao — CICC — Analyst

[Foreign Speech] Okay. Then I will translate my question. My question is regarding the risk metrics. I see some of our risks metrics are at about the level in Q3 during this quarter. I was wondering when we are looking forward, while interest rate gradually decline and the loan origination continue increasing, can we expect to see a better level operating matrix or as if what we can see now is almost the best that we can do? Thanks, management.

Yan Zheng — Chief Risk Officer

[Foreign Speech] Okay. We’ll take some time for adjustment. So when adjustment is finally done, we can say that as a proportion of new transactions and customers improved, eventually the risk performance will be improved. While during the process there will be cyclical and regulatory policies change, so there will be a little bit fluctuations in the process.

Mandy Dong — Investor Relations Director

Zeyu, do you have any follow-up?

Zeyu Yao — CICC — Analyst

[Foreign Speech]

Mandy Dong — Investor Relations Director

Thank you.

Operator

Next question is Alex Ye from UBS.

Alex Ye — UBS — Analyst

[Foreign Speech] So, my question is regarding regulation. So in your prepared remarks, you mentioned about considering different options of the company financial license. Could you give us some additional colors on that in terms of what you mean? And we saw from the news earlier that one of the micro loan license under QFIN has increased capital from RMB500 million to RMB1 billion. I’m wondering what’s your consideration behind? And is there any progress you have heard from the regulators about the national micro-loan license? And finally, so given the current regulatory progress or directions, have you considered a scenario where in the future your business model will need to be conducted through any kind of license? Thank you.

Mandy Dong — Investor Relations Director

Haisheng, you are online?

Haisheng Wu — Chief Executive Officer and Director

Okay, sorry. Was on mute. [Foreign Speech] Sure. Well, compared to other, let’s say peers, we are one of the fewer companies that had direct dialog with regulator. Therefore, we can proactively follow the regulatory guidance according to our first-hand information. Firstly, for the credit rating agency, we will be participating actively in applying for the new credit rating license. Secondly, for the current existing financial license on-hand, we will now consider carefully to inject capital into the license the entities. Of course, we’ll have abundant capital reserve to inject. Thirdly, according to the regulator requirements for the financing company that nowadays, we have shareholders in two guarantee companies in the discussion we might need to exit from one guarantee company, but there will be very muted impact to our operation.

Alex Xu — Chief Financial Officer and Director

Yeah. Sorry. I want to give a little bit clarification on this. So, we currently hold two financial guarantee licenses and according to the new regulatory guideline for any entity, you can only hold one. So, we will in the future consolidate the two into one license and because this license basically, the business is driven by the registered capital-light license, essentially we just need to move the registered capital from one license to another from the scale — in terms of scale of the business, we can do with this license, there is no impact because it’s based on the capital — registered capital. That’s just one add up there.

Haisheng, you can continue.

Haisheng Wu — Chief Executive Officer and Director

Okay. Thank you. [Foreign Speech] As for your second part question for outlook, possible business model change, I will address this question in two parts. First, for our self-funded business, we can further leverage our micro finance license and our guaranteed license. Both license are national-wide and they have enough leverage to be utilized. Second part for our loan facilitation business, first, we can actively cooperate with the current existing credit rating agencies. Secondly, the micro finance license can also play a vital role in the loan facilitation business.

[Foreign Speech] Last, KCB has a broader relationship with us. We can further license to fully [Technical Issues]

Alex Xu — Chief Financial Officer and Director

Sorry. Mandy was breaking up a little bit her line but basically, Haisheng said is that KCB is — even though it’s not our directly holding license, it’s a related party hold it, but we can still leverage the relationship with KCB and to use the banking license, conduct a series of business activities there. Thank you.

Haisheng Wu — Chief Executive Officer and Director

Thank you.

Alex Ye — UBS — Analyst

[Foreign Speech] So a quick follow-up from me. So, you mentioned that the micro loan license could pay a role in the future. So given that the regulation regarding the hand-out of micro loan license is still in the consultation status, do you have any expectation of when it’s going to be rolled out? And also you state if such an micro long license, part of your sales inspection and ratification progress for the 14 platforms? Thank you.

Haisheng Wu — Chief Executive Officer and Director

[Foreign Speech] Alex, to answer your question, first, we are not informed about the timeline of the gateway for micro finance license. We believe that may follow after some basic law about the non-financial institution guidance is released. Secondly, yes, you are right. The guidelines of micro finance licensing is within the interest of the 14 Internet platforms’ implication progress.

Alex Ye — UBS — Analyst

That’s all from me. Thank you.

Operator

The next question is Thomas Chong from Jefferies.

Thomas Chong — Jefferies LLC — Analyst

[Foreign Speech] Thanks management for taking my questions. My question is more about the 2022 outlook. So it is a bit early to talk about next year numbers, but given the fact that the macro headwinds and the uncertainties of the properties, how should we think about our business growth momentum into next year, qualitatively would be great? Thank you.

Haisheng Wu — Chief Executive Officer and Director

[Foreign Speech] Yes. Sure. First, understand that market has some concerns about macro economy next year. We stay very vigilant and closely monitor our operational metrics on every front. Nowadays, we’re still in the budgeting process. We do not have more concrete guidance to share with you, but we can ensure you that all the outlook color we give now it’s based on a very prudent approach. Secondly, I want to emphasize that our business and its team has experienced the cycle of regulation and pandemic last year. This is a very strong demonstration of the resilience of our business and the team. We don’t think next year the situation will be more severe than the previous regulator cycle or pandemic cycle, therefore, we are very confident.

Thomas Chong — Jefferies LLC — Analyst

[Foreign Speech] My follow-up question is about our different customer, our borrower, industry categories. Given that we are ramping up the SME business, just want to get some color about the industries that they are engaging in and whether they are impacted by the macro headwinds? Is there any categories that are doing okay, some are not doing, some are doing better or a bit below expectation? Can we talk about the key sectors that they are engaging in and the outlook? Thank you.

Haisheng Wu — Chief Executive Officer and Director

[Foreign Speech] Okay. Let me translate [Speech Overlap].

Alex Xu — Chief Financial Officer and Director

Go ahead, Mandy.

Haisheng Wu — Chief Executive Officer and Director

Sure. Okay. I will translate first. Currently, SME takes the small portion, takes a small portion in our business and our customers is tiny small business customers. Based on our first-hand information with them, we still see very good performance.

Zheng Yan, please, go ahead.

Yan Zheng — Chief Risk Officer

[Foreign Speech] So, as Haisheng has mentioned, as our volume for SME business is relatively small, we have a lot of space to choose the customers, the good ones. And for case study and risk performance-wise to say that risk is relatively steady, but for some cities that with the COVID problem, there is small fluctuations. Well, with the COVID is more or less and to ensure the risk performance will become steady again. And as I mentioned before, for customers acquired, the portion of direct sales is increasing and the risk performance of the direct sales customer acquisition is just like 80% to 90% of the average. So with the increasing of these channels, we can say our risk performance will be lower in future.

Thomas Chong — Jefferies LLC — Analyst

Got it. Thank you.

Alex Xu — Chief Financial Officer and Director

Thomas, I just want to add one color to your first question regarding the outlook for 2022. As Haisheng mentioned, yes, we — at this point, we can’t give you any official sort of guidance to the outlook. But if you recall, after the second quarter, we did the stress test, which related to the 24% rate cap. In that stress test, we consider the macro environment for 2022 as well as the regulatory change, in particular related to the credit agency connectivity issues, which we believe is a very complicated issue, involve a lot of the technology problem solving. And with that kind of assumption in that stress test, if we recall, we assume a 20% kind of volume growth for next year and then the net take rate, as I mentioned early in this call, will come down from 4% right now to about 3% in that stress test. So that assumption as well as the conclusion for that stress test still hold at this point, although I just want to emphasize again, this is not a official guidance. Thank you.

Thomas Chong — Jefferies LLC — Analyst

Got it. Thank you.

Operator

Thank you. This is the end of the question-and-answer session. Now, I hand back over to management for closing remarks.

Alex Xu — Chief Financial Officer and Director

Okay. Thank you everyone to join us for the call. If you have additional questions, please contact us directly. Thank you. Bye-Bye.

Haisheng Wu — Chief Executive Officer and Director

Bye-bye.

Operator

[Operator Closing Remarks]