Qfin Holdings - Q3 2020
November 19, 2020
Transcript
Operator (participant)
Gentlemen, thank you for standing by, and welcome to the 360 DigiTech third quarter 2020 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 Miss Mandy Dong, IR Director. Please go ahead, Mandy.
Mandy Dong (Director of Investor Relations)
Thank you, Ray. Hello, everyone. Welcome to our third quarter 2020 earnings conference call. Our results were issued earlier today on our website. Joining me today are Mr. Haisheng Wu, our CEO and Director, Mr. Alex Xu, our CFO, and Mr. Yan Zheng, our CRO. Before we begin the prepared remarks, I'd like to remind you of the company's safe harbor statement. Except for historical information, the materials discussed here may contain forward-looking statements, which are based on our current plans, estimates, and projections. Therefore, you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution that a number of important factors could cause actual results to differ materially from those contained in forward-looking statements. For more information about potential risks and uncertainties, please refer to the company's filings with the SEC. Also, this call includes discussion of certain non-GAAP measures.
Alex Xu (CFO)
Please refer to our earnings release for a reconciliation between non-GAAP and GAAP one. 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 (CEO and Director)
Thank you, Mandy.
Alex Xu (CFO)
[Foreign language]
Speaker 9
Hello, everyone. I'm very happy to report another set of record-breaking results of key operational and financial metrics in the third quarter. Total loan origination reached RMB 66 billion during the quarter, up 12% on a sequential basis. Outstanding loan balance increased by 7.3% to RMB 84.2 billion, from RMB 78.5 billion last quarter. Total revenue was RMB 3.7 billion, up 10.9% from last quarter. Non-GAAP net income was RMB 1.29 billion, up 36.7% from last quarter.
Haisheng Wu (CEO and Director)
[Foreign language]
Speaker 9
It has been a very busy quarter in terms of regulatory change, which would create significant challenges for the fintech industry. Since the beginning of the year, when COVID-19 hit, we have now successfully navigated through three quarters under tremendous market uncertainties and volatilities, with consistent execution and steadily improving results. This is a strong testament to the soundness of our strategies and the sustainability of our business. In the wake of the pandemic and the regulatory trends, we believe the fintech industry has become further polarized as companies with core competitive edge continue to thrive with consistent performance across business cycles.
Haisheng Wu (CEO and Director)
[Foreign language]
Speaker 9
While we have tightened our policy in customer acquisition and risk management following the uncertainty created by the High Court rate cap ruling in Q3, we still achieved strong business growth, mainly benefiting from the noticeable recovery in macroeconomy. Let me elaborate in three aspects.
Haisheng Wu (CEO and Director)
[Foreign language]
Speaker 9
First, overall, we continue to generate consistent growth in the number of registered users, users with approved credit lines, and active borrowers. During the quarter, we added approximately 1.57 million with new users with approved credit lines, similar to that of last quarter.
Haisheng Wu (CEO and Director)
[Foreign language]
Alex Xu (CFO)
[Foreign language]
Speaker 9
Second, we have made noticeable progress in our new business initiative Embedded Fintech, where Fintech company provide their service in infrastructure as a service IaaS in short module. This is a new industry chance that started in the Silicon Valley, and is gradually accepted in China. A growing number of 2C platforms have embedded Fintech IaaS as a standard component into their offerings in order to better monetize their user base and serve their customers needs. We are in a strong position to benefit from this chance as our IaaS solutions offer better user experience and higher conversion. During the quarter, more and more 2C platforms took our IaaS solutions, including Xiaomi, Meituan, and iQIYI among 16 platforms in total, and we have another 10 in the pipeline, including JD, DiDi, and Baidu. This demonstrates the increasing recognition of market position by our partners.
Haisheng Wu (CEO and Director)
[Foreign language]
Speaker 9
Third, we continue to advance our Capital Light model as our long-term strategy. Capital Light and other tech-empowered models further increase to approximately 28% of total loan origination during third quarter. While we have been on a major pace to roll out Capital Light model so far this year, given the uncertain market conditions, we are fully confident that we will at least achieve our year-end target of 35%-40% as we expect to see acceleration in the rest of the year. During the quarter, we also made considerable progress in providing more tech-empowered SaaS solutions. To date, we have established a cooperation with 15 institutions with over 550 in pipeline.
Haisheng Wu (CEO and Director)
[Foreign language]
Speaker 9
As our business continue to grow, our asset quality also near the best levels ever. During the quarter, we continued to execute our prudent risk management strategy with a slightly tightening bias. Key leading indicators continued to improve since the end of second quarter. Day 1 delinquency rate further dropped to a record low of 5.3% and the Day 7 delinquency rate to only 0.8%, while M1 collection rate rose to about 90%. The strong risk management metric not only reflects continued improvement in macro economy, but also further validated the efficiency and capability of our risk management strategy and models.
Haisheng Wu (CEO and Director)
[Foreign language]
Speaker 9
As a leading Fintech player, we have always ensured that we maintain the highest standard of compliance in line with the latest regulations. This is critical for healthy and sustainable development of our business. Since the middle of this year, the regulators have rolled out a series of policies and guidance closely associated with the development of Fintech industry. Overall, we believe the regulators are promoting industry orders for healthy and sustainable development.
Haisheng Wu (CEO and Director)
[Foreign language]
Alex Xu (CFO)
[Foreign language]
Speaker 9
In early November, CBIRC issued the interim measures for the administration of Internet consultation paper, imposing a set of restrictions on micro lending and joint lending operations. We believe the regulators are aiming to further lower leverage and prevent systemic risk in financial markets. Currently, the outstanding balance of their funding loans issued through our micro lending subsidiary accounts for less than 1% of the total loan balance, and joint lending accounts for around 0.01%. Therefore, based on our personal evaluation, the new rules will have a little impact on our loan origination business. In addition, the leverage restriction may force some leading players to scale back their business, thus create opportunity for us to grab additional market share.
Haisheng Wu (CEO and Director)
[Foreign language]
Speaker 9
CBIRC recently also issued a notice on promoting the sustainable development capability of consumer finance and auto finance companies, and improving quality and efficiency of financial service. In our view, the notice will benefit consumer finance companies to expand their operations and to boost their business with loan facilitation platforms. In particular, it clearly set out specific practices for the cooperation between consumer finance companies and the loan facilitation platforms, which will benefit leading loan facilitation platforms like us.
Haisheng Wu (CEO and Director)
[Foreign language]
Speaker 9
We believe the busy regulatory movement in the past six months are a clear indication that Chinese fintech industry is entering a phase of comprehensive regulation. These policies also show that rather than a strong handed crackdown, the regulators are promoting industry orders by supporting good practices and cracking down not so good ones. This will drive the healthy development of the industry, and we are glad to see that.
Haisheng Wu (CEO and Director)
[Foreign language]
Speaker 9
Outside our core business of consumer finance, we were also proactively exploring new business opportunities and seeking more room for growth. Compared with roughly RMB 20 trillion consumer finance market, China's SME loan market is estimated to be around RMB 50 trillion, with over 50% of credit demand on that. We know that a few players already developed sustainable approach, some using banking license to access the SME tech to support risk management, and some use extensive offline channels to reach potential SME customers.
Haisheng Wu (CEO and Director)
[Foreign language]
Speaker 9
The early success of both strategies indicate that there are great opportunities for us as we have access to banking license through our affiliates, and we have also established a large offline sales network with over 1,000 representatives. In addition, we are very excited to find that a significant portion of our existing customers as SME owners, which could provide a large pool of potential customers for SME lending.
Haisheng Wu (CEO and Director)
[Foreign language]
Speaker 9
Despite the various challenges and difficulties related to macroeconomy, fintech industry, and our operation in the three quarters of 2020, we have successfully passed multiple stress tests with outstanding performance. For the rest of 2020, we will carry on implementing prudent business strategy and further exploring new business initiatives. We are highly confident to exceed key operational targets that were set at the beginning of this year. Now, I will pass the floor to Alex to offer some detail of our operational and financial performance.
Alex Xu (CFO)
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 the details. During the third quarter, we see continued rebound of our business momentum as consumer confidence and economic activities gradually recovered post COVID-19. Benefiting from such macro trend, we have experienced robust consumer demand for credit, along with noticeable improvement in asset quality. Total net revenue for Q3 reached RMB 3.7 billion, versus RMB 3.34 billion in Q2, and RMB 2.58 billion a year ago. The year-over-year comparison is somewhat distorted by the accounting standard change early this year.
Revenue from credit-driven service, which we call Capital Heavy, was RMB 2.96 billion, compared to RMB 3.08 billion in Q2. The sequential decline was mainly due to the decline in take rate as we lowered our average interest rate in later Q3 to, and the average take rate for the entire Q3 is 25.9%... Sorry, the interest rate for the entire Q3 is 25.9%, compared to 27.2% in Q2, following the Supreme Court ruling in late August. Revenue from platform service, which we call Capital Light, was RMB 748 million, compared to RMB 259 million in Q2. If you recall, in Q2, we took accounting charges against the revenue because the projected delinquency rate for certain assets exceeding performance benchmark set by revenue sharing agreement with our partners.
As the asset quality continued to improve, the actual performance of those assets turned out better than previously expected, and the delinquency rate fell below the benchmark. Therefore, from an accounting perspective, the charge should be reversed in Q3. Aside from these charges, the underlying take rate for the platform service also modestly improved in Q3. Total operating expenses, excluding provisions, were roughly flat Q-o-Q, but decreased 33% year-on-year. The year-on-year decline mainly reflects significant improvement in operational efficiency, particularly the reduction of customer acquisition costs. Sequentially, we were able to keep operating expenses stable as we grew our business substantially. Average customer acquisition costs per user with credit-approved credit line was RMB 172 in Q3, modestly higher than RMB 167 in Q2. As the macro economy recovers, demand for online traffic increased significantly.
Q4 is also a seasonally high demand period for online traffic, particularly around the intense online shopping events such as Double Eleven. Non-GAAP net income was RMB 1.29 billion, versus RMB 942 million in Q2, and RMB 756 million a year ago. Once again, the year-on-year comparison was negatively impacted by the accounting standard change. Nonetheless, this is the first time ever our quarterly net income exceeding RMB 1 billion mark. We are very proud for the achievement, particularly given the challenging market condition early in the year. The overall macroeconomic condition is improving, and the COVID-19 is largely contained in China. However, we will continue to take a prudent approach to expand our business and to manage overall risk.
With strong operating results and increased contribution from capital light model in Q3, our leverage ratio, which is defined as risk-bearing loan balance divided by shareholders' equity, further declines to 7.4 times from 8.3 times in Q2 and 9.5 in Q1. We expect to see continued deleveraging in our business, driven by accelerating movement towards capital light model and solid operating results. Meanwhile, our provision coverage ratio rebounds to 436% in Q3, compared to 321% in Q2, and 400% in Q1. The sequential improvement in provision coverage ratio was mainly because of significant decline in projected delinquency rate for risk-bearing loans and our conservative approach to estimate provisions. We note that recently, CBIRC lowered provision coverage ratio requirement for consumer finance companies to 130% from 150%.
Non-restricted cash balance reached a record high of approximately RMB 4.8 billion in Q3. This was largely driven by strong operating results and effective management of working capital. Total cash and cash equivalents were RMB 7.9 billion at the end of Q3. A significant portion of our cash was allocated to the security deposits with our institutional partners and registered capitals of different entities to support our daily operations. We believe that sufficient cash position will not only enable us to compete in the ever-changing market, but also position us to capture potential growth opportunities in the market recovery. Finally, let me give you some color about our outlook for the fourth quarter. After delivering strong operating results in the three quarters of the year, our previous full year loan origination guidance appears too conservative.
We now expect loan origination volume in the first quarter to be between RMB 64-66 billion, which implies full year loan origination guidance to be RMB 242 billion to RMB 244 billion, compared to our previous guidance of RMB 200-220 billion. The revised guidance reflects current business momentum as well as normal seasonality. With that, I would like to conclude our prepared remarks. Operator, we can now take some questions.
Operator (participant)
Thank you, management. So ladies and gentlemen, if you'd like to ask a question, please press zero one on your telephone keypad. To cancel, please press zero two. For those who can speak Chinese, please kindly ask your question in Chinese first, followed by English translation yourself. In addition, in order to have enough time to address everyone on the call, please keep to one question and one follow-up, and then return to the queue if you have more questions. Thank you. So as a reminder, if you'd like to ask a question, please press zero one on your telephone keypad. Our first question is from Jacky Zuo from China Renaissance. Please go ahead.
Jacky Zuo (Research Analyst)
[Foreign language]
Alex Xu (CFO)
I will translate my question. So congrats on the strong results. My question is related to regulation. So we observed that the new online micro lending rules requires actually a high capital requirements for the applicant. So, what is our view on the new lending license and any plan to apply this license jointly with other parties? And, in addition, do we expect any further tightening on the loan facilitation regulation, and what will be the timeline? Thank you.
Thank you, Jackie, for your question. I would like our CEO to answer your question. Hi, Haisheng.
Haisheng Wu (CEO and Director)
[Foreign language]
Alex Xu (CFO)
[Foreign language]
[Foreign language]. Andy。
Speaker 9
Oh, right. I will translate for our CEO. Just regarding your question about micro lending license, there are a few assets involved in this notice. One is about the joint lending. Actually, on this aspect, we merely have less than 1% of our total loan balance, which is a very, very small portion. Secondly, the notice mentioned some regional restrictions about micro lending and also the recurring facility. We barely have that part either. About the cap, registered capital, it require about RMB 1 billion for local lending and RMB 3-5 billion for the national lending.
Alex Xu (CFO)
Actually look at our whole business, we mainly use other funding source, rather than the micro lending license. Therefore, we are focused on the loan facilitation platform, not relying on the micro lending license, and we in the long term, we planning not to, leverage, the micro lending license. Furthermore, if we are please consider we have banking license, and if we want to, increase the registered capital, it's more easier for us to register in the banking license.
Haisheng Wu (CEO and Director)
[Foreign language]
Speaker 9
Jackie, regarding your question about regulation on loan facilitation business, please recall that in July, regulator released the online lending guidance of commercial banks and recently they issue notice about the consumer finance company and auto finance company loan facilitation business. Both notice indicate regulators view they legitimize loan facilitation business in law. In the long term, we do not think that regulator is tightening the loan facilitation business in China, is actually promoting industry order for healthy development and sustainable development. Also, if you look at China market, the traditional banking cannot develop the micro lending consumer finance capability on their own. The relationship between traditional institution bankings and loan facilitation platforms are complementary and collaborated. We can forge synergy and become the interoperable model.
Jacky Zuo (Research Analyst)
[Foreign language]
Alex Xu (CFO)
Thank you, very clear. So, can I follow up with another question? Just now, Haisheng Wu also mentioned our current cooperation with various traffic platforms. I would like to ask, what is the current proportion of this cooperation in our total loan volume? And what are our expectations going forward? So, my follow-up question is regarding the IaaS model. As we mentioned, we are cooperating with other traffic platforms.
So what is the percentage of these cooperation as of our loan volume currently, and what is the outlook?
Haisheng Wu (CEO and Director)
[Foreign language]. Andy。
Speaker 9
Well, in terms of the new acquire the users. The API model, or we call the embedded fintech model, takes account roughly 20%-30%. And we still continuing see the growth momentum in terms of this customer acquisition. The platform with consumption with consumption scenarios, when they choose loan facilitation platform, they require you need to have better user experience and high conversion rate, which are our strong competitive. That's why, that's why there are a lot other platforms lying in the pipeline.
Alex Xu (CFO)
Jackie, I want to add one point that is to your question, the 20% Haisheng just mentioned is actually for the new user acquisition percentage, but from a loan volume perspective, given the significant larger percentage is coming from old users, so the new format is only contribute roughly 2%-3% of the loan volume we're generating.
Jacky Zuo (Research Analyst)
All right, very clear. Thank you so much.
Alex Xu (CFO)
Thank you.
Operator (participant)
Thank you. Next question is from Daphne at Citi. Please go ahead.
Speaker 8
[Foreign language]
Alex Xu (CFO)
So I will translate my questions. So it's mainly regarding the loan origination and customer acquisition outlook. So first, when we look at the per quarter new borrowers number, it's still flatish QOQ. So just want to check whether it seems that the loan volume growth in the third quarter is mainly driven by a larger ticket size given to the existing borrowers. So if possible, can the management also share the average ticket size on borrowers on the third quarter? And per your guidance for fourth quarter, it only implies like a flatish loan volume QOQ.
So just wondering why the growth would not be stronger, given like that everything continues to improve, and whether there is any seasonality here? And lastly, like if you can share the outlook in terms of your loan origination for next year. Thank you.
Thanks, Daphne. I would like Haisheng to answer more kind of overview side of your question, then I will give you some detailed numbers. Haisheng.
Haisheng Wu (CEO and Director)
Okay.
Alex Xu (CFO)
[Foreign language]
Speaker 9
Okay, I will translate for our CEO. First of all, yes, you are right. We will see more contribution from existing customers in terms of loan origination in Q3. About the ticket size, yes, we see relatively stable compared to last quarter. About the Q4 outlook, there are a few reasons that we give this outlook. Number one is usually there are seasonality in the last quarter, especially considering some traffic pressure from e-commerce platforms, et cetera. Secondly, we are a very prudent company. We stay vigilant about any alert about the pandemic and the macro conditions down the road. And we don't think it's wise to give so aggressive approach in the fourth quarter.
Haisheng Wu (CEO and Director)
[Foreign language]
Alex Xu (CFO)
[Foreign language] Andy。
Speaker 9
Overall for next year outlook, I don't have very concrete number to share now, but I can give a rough idea that we expect to see continually improve the momentum next year. I will elaborate in a few aspects. Number 1, as we explore more new initiatives this year, we expect to see the growth showing up next year. Secondly, considering our affiliates stake in KCB, we expect to see the synergy and the co-developer product ramping up next year. Thirdly, about the small SME loan business I mentioned in my speech, we started already, and for example, for the channels To B, we have already covered most of them.
Alex Xu (CFO)
Daphne just want to. Haisheng, you continue.
Haisheng Wu (CEO and Director)
[Foreign language]
Yan Zheng (Chief Risk Officer)
[Foreign language]. Please translate.
Speaker 9
So to elaborate more on the contribution of the existing customers, so, so we have analyzed that 45% is due to the cross-selling product like V Pocket, that increase the customer activity and also the retention of the customers, and 25% is due to the operational efficiency improvement. For example, we have like increased the different touch points and do the model iterations. The last one is from the ticket size increase and credit line increase. For example, for the SME owners and for people with cars or property, we will increase the credit line. The ticket size is relatively stable in this month, it's around RMB 5,300-RMB 5,400.
Yan Zheng (Chief Risk Officer)
[Foreign language]. Alex。
Alex Xu (CFO)
Daphne, go ahead.
Speaker 8
[Foreign language]
Alex Xu (CFO)
So I just want to follow up regarding your partnership with Kincheng Bank and also the SME lending initiative you mentioned earlier. So first wondering that whether this SME loan is just mainly granting for your partnership with Kincheng Bank, and also if is there anything more that you can share regarding your current progress that partner with Kincheng Bank and your expected contribution into next year? Thank you.
Haisheng Wu (CEO and Director)
[Foreign language]
Alex Xu (CFO)
[Foreign language]. Mandy。
Speaker 9
Sure! Currently, we are implementing a few very effective customer channels in terms of SME loans. Number one, for our extensive existing users, after we analyze, we are happy to see roughly 20-25% of them are SME owners, and we have done some initial attempts to lend money to them. The asset quality turned out to be better than our total loan book. Secondly, we leverage the enterprises that service companies to cover SME owners. Those enterprises include tax and invoice related services. Thirdly, the offline channels turned out to be very effective, as is proven by Ping An, which is backed by Lufax. Nowadays, we have over 1,000 offline sales team.
Haisheng Wu (CEO and Director)
[Foreign language]. Mandy。
Speaker 9
Sure! Just give you a few updates on the our cooperation with KCB. Firstly, regarding the banking side, we are advanced the progress with them. Secondly, collaborate with KCB, we are able to tap into some better quality prime customers. Thirdly, KCB has banking license, which provide us to legitimately access tax data, which is the pivotal risk management data for SME loan. Thirdly, we are co-developing tax products with KCB. This will be the standardized module for our 2B business.
Alex Xu (CFO)
Thank you, Daphne. Next one.
Speaker 8
Okay, thank you。
Operator (participant)
Thank you. Next question is from Ethan Wang at CLSA. Please go ahead.
Ethan Wang (Equity Research Analyst)
[Foreign language]
Alex Xu (CFO)
Thank you. My question on take rate, especially on platform service take rate, which is quite strong in the third quarter. So just, if management can share some color on the reason behind this and the trend going forward. And really the question is on the APR level and the funding cost in the third quarter, and if there is some guidance for the future, for future quarters, that would be great. Thank you.
Sure, thank you. I think, I'll go the reverse order, in terms of questions. The first one, in terms of the funding cost, third quarter, we continue to see modest decline versus the second quarter. If you remember, second quarter, we are 7.2% on average. Third quarter, we are somewhere between 7% and 7.1%, so slightly lower. That's the funding cost. And secondly, regarding to interest rate, for the quarter, the average is at 25.9%. The second quarter average, as you recall, is 27.2%. So, you see that drop, the mainly because starting from September, we adjust our pricing for all the products, following the high court ruling, in terms of interest rate cap there. So that's for the interest rate question.
In terms of take rate for Capital Light model, it is, if you do the math, significantly higher than the second quarter and also probably higher than normal. The main reason is because, in my prepared remarks, I mentioned a little bit, if you recall, the second quarter, actually the Capital Light take model is quite low, was quite low, because, as I said, there is a batch of the assets, the projected performance or in terms of delinquency exceeded the benchmark we set with our partners. According to the agreement, mostly the early time sort of agreement we have with the partners, if the delinquency exceeding certain benchmark, our take rate will being reduced accordingly.
So that's the main reason for Q2's take rate for Capital Light dropped quite significantly. But that doesn't mean the actual loss for that batch of asset happened in Q2. It's just a projected kind of a delinquency. Now, as the macroeconomy improve, the asset quality continue to improve, so we'll get over the third quarter. That particular batch of assets, the actual loss is actually much better than previously expected, and making the delinquency lower than the benchmark we set in the agreement. So from accounting perspective, the whatever the charge you took in the second quarter has to be reversed back in the third quarter. So, you know, if you just look at the printed number, you see the third quarter's take rate are significantly higher than the second.
But if you get rid of all these kinds of noises, meaning adding back those charges to the second quarter and get rid of this right back in the third quarter, you would compare to the real core take rate for the capital-light model. For that number, we see very modest improvement in the third quarter versus the second quarter.
Ethan Wang (Equity Research Analyst)
Got it. Thank you, Alex. Just a quick follow-up. So the high take rate for capital light model in the third quarter may be partially contributed to a reversal of the charge in the second quarter. So, in the fourth quarter and forward, should we assume that this reversal is one-off, so it should be gone and take rate should go slightly lower to be normalized? Is that the correct understanding?
Alex Xu (CFO)
I think in general, that's probably the right assumption. Given the microeconomy continues to improve, we don't expect any sort of a piece of asset to exceed any of those benchmark anymore. So that's the noise will be gone either way. And overall, the... And remember that since September, our overall pricing coming down a little bit, that for cap lite model, the take rate also related to a certain degree of the pricing. So for the fourth quarter, we will see a flattish to slightly downward on the take rate for the cap lite model.
Ethan Wang (Equity Research Analyst)
Okay, thank you.
Alex Xu (CFO)
Yeah, no problem.
Operator (participant)
Thank you. Our next question is from Steven Chan at Haitong International. Please go ahead.
Steven Chan (Equity Research Analyst)
[Foreign language]
Alex Xu (CFO)
[Foreign language]
[Foreign language]
My question divided into two parts, one follow up on the lending rate APR. Just want to know the decline in APR, is it related to the pressure from the funding partner or from the market?
Do we see a stabilized trend in Q4? And then for micro finance, loan facilitation business, if you compare with, the business model of Lufax, actually the business model of Lufax is completely different from the consumer finance, loan facilitation model, especially one for acquisition cost. The cost per customer acquisition cost actually was very high. So, are we going to see similar pattern too, in terms of risk management system, they have to cater for bigger ticket size and then longer tenor. Is our current risk management system, can our current risk management system cater for these change in like ticket size and tenor? And finally, even in terms of like, guarantee model, they do not provide back-to-back guarantee to you the, you know, to the customer.
But currently, like for our guarantee business model, we provide back to back guarantee. So, are we going to follow this similar pattern, or do we have some unique, sort of like business model in terms of like guarantee or capital light business for the inclusive micro finance loan facilitation business? Thanks.
Thanks, Steven. I would like our CEO and CRO to take your question. Haisheng, ni xian lai ba.
Haisheng Wu (CEO and Director)
[Foreign language]
Speaker 9
I will translate for our CEO. For the reason of lower APR in Q3, the main reason is that we proactively lower APR to fully comply with the regulation. We pretty much have done this process in Q3, and there will be a stable situation in Q4.
Haisheng Wu (CEO and Director)
[Foreign language]
Speaker 9
About the customer acquisition cost of SME loan. In the market, there are two successful strategy from two of our peers. Number one is the Ping An from Lufax, it is offline coverage team. Secondly, is the way that backed by WeBank. Currently they have around RMB 100 billion loan balance, where they applied the online service provider to channel the SME owners. Both of them, the customer acquisition strategy are successful, and we apply the different the strategy. If we learn from that, the customer acquisition cost will vary a bit.
Haisheng Wu (CEO and Director)
[Foreign language]
Alex Xu (CFO)
[Foreign language]
Speaker 9
Regarding your question about SME loan guarantee model, since we have deeply cooperated with all our funding partners in the past few years, we have established deep-rooted cooperation and we trust each other very much. Currently, we have a few billion RMB balance in terms of SME loan, and we will advance the SME loan to Capital Light model without guarantee.
Haisheng Wu (CEO and Director)
[Foreign language]
Yan Zheng (Chief Risk Officer)
[Foreign language]
Mandy Dong (Director of Investor Relations)
Just that, I will turn the floor to our CRO regarding your risk question about SME loan.
Yan Zheng (Chief Risk Officer)
[Foreign language]
Speaker 9
Okay, I will translate. As Haisheng and Mr. Chen have mentioned before that historically, actually we have SME customers. Based on the different, different data sources we can achieve, we have different credit lines. For example, for SME owners with a license, we have around RMB 80,000-RMB 90,000, and for data of invoice, we have around RMB 140,000. And for the tax data, we have around RMB 300,000. And we can see that the risk performance is about 20% lower than the average of our total assets. For the duration is about 17-18 months, so there's no fundamental difference from 36 months period. So we can see that actually our risk management mechanism can work on this customer base.
Alex Xu (CFO)
Historically, we have also proved that every time if we do the refinement operation and improve our model, we can actually do and operate the customers. Yeah.
Haisheng Wu (CEO and Director)
Very clear, thank you. Xie xie, Haisheng Zong, and Zheng Zong.
Yan Zheng (Chief Risk Officer)
Thank you!
Operator (participant)
Thank you. That's all for today's Q&A session. Now I would like to hand it back to the management for closing remarks.
Alex Xu (CFO)
Thank you, operator. Thanks everyone to participate our call. If you have additional question, please feel free to contact us. Thank you!
Operator (participant)
That's the conclusion of today's conference call. You may disconnect. Goodbye. Bye bye.