Categories Finance, Interviews

Recovery in credit demand, consumer confidence will drive growth: 360 DigiTech CFO Alex Xu

The Chinese fintech firm aims to raise the share of the capital-light business in loan origination to 35-40% this year, leveraging the growing demand

Encouraged by the strong performance of its capital-light business, 360 DigiTech, Inc. (NASDAQ: QFIN) is transitioning into a low-risk business model. The company, a leading provider of online consumer finance, bets on the favorable regulatory environment and recovery in credit demand to meet its long-term growth targets.

In an interview with AlphaStreet, 360 DigiTech CEO Alex Xu said the company expects the share of its capital-light segment in loan origination to grow to 35-40% by year-end, the mid-point of which represents a 34% increase from the current levels.

Low-risk Model

The capital-light strategy assumes significance in China’s changing regulatory environment, where the focus is shifting to reducing potential risks to the financial system. The digital prowess inherited from its parent 360 Group makes 360 DigitTech well-positioned to offer technology-driven consumer financial services that match its long-term goals.

Our long term strategy and growth driver have always been providing technology and data solutions to empower financial institutions through more efficiently solving the mismatch of demand and supply of credit. The capital-light model is a technology-centric approach that perfectly matches our long term goals. As we gradually transition to the capital-light model, we are also lowering our risk exposure and enhancing our platform’s sustainability,” Xu said.

360 Finance Q3 2020 earnings infographic360 Finance Q3 2020 earnings infographic360 Finance Q3 2020 earnings infographic360 Finance Q3 2020 earnings infographic

Regulatory Boon

The company looks to remain unaffected by the new rules related to leverage restriction on micro-lending, which is expected to force most traditional players in the sector to scale back their business. That leaves additional market share for 360 DigiTech to grab. In a sign that consumer confidence has improved and the business environment changed for the better since the early days of the pandemic, the management recently raised its full-year loan origination guidance.


360 DigiTech Q3 2020 Research Summary


“Given what we have achieved in the three quarters of the year, it is natural to raise our full-year loan origination guidance to reflect the improving business trend. Since late March, we have seen a constant recovery of consumer demand for credit as the macroeconomy improves and consumer confidence rises post-COVID-19. Such a trend is encouraging and our business is benefiting from the trend,” he said.

According to Xu, the virus outbreak and the recent regulatory changes have polarized the fintech industry further, giving firms with core competitive edges an advantage. In general, the new regulations support the industry, creating the right backdrop for healthy and sustainable development. That bodes well for 360 DigiTech, which maintains high standards of regulatory compliance.

Provision Woes

An element of concern in the company’s latest financial report was high contingent liabilities that put pressure on profit – a trend that has continued since the beginning of the year. However, efforts are on to keep provisions in check and the impact on profitability is expected to ease as macroeconomic conditions improve.

“For sales and marketing expenses, the first three quarters of the year were abnormally low due to weak macro economy and slow demand for online traffic. As the economy recovers, we believe demand for online traffic will be back to normal trends,” Xu added.

Strong Q3

The company had an upbeat September-quarter when all the key operating metrics rose to record highs. Revenues increased in double digits to RMB 3.7 billion, which translated into a 70% growth in adjusted profit to RMB 1.3 billion. The bottom-line also benefited from a decline in operating expenses. The highlight of the quarter was a further sharp increase in the demand for credit under the Capital Light system.


Read analysts/management’s comments on 360 DigiTech’s Q3 results


Though 360 DigiTech’s market value moderated in recent months, the trend is gradually reversing. On Wednesday, the stock traded up 39% from the levels seen at the beginning of the year. It has gained 45% in the past six months.

Looking for more insights?

Read the full conference call transcript here. It’s free!

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