What Is Going On At 360 Finance Inc (QFIN)?

What Is Going On At 360 Finance Inc (QFIN)?
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This was supposed to be a sponsored interview with 360 Finance Inc. We spent many hours on this piece until their IR guy started hurling abuse at us and complaining about the quality of the article.  but they refused to pay and started hurling very nasty insults from their official company IR email address, publicly listed NASDAQ company of over $1 billion market cap. Was a highly unusual situation – we are publishing so when the debt collector asks for proof of work we have a live article to show, and readers can judge the quality. The PR and marketing departments were informed that this was never paid and their IR guy went on a total meltdown from his official company email. However, they shrugged it off which suggests this is not a rogue employee but a pattern of something possibly wrong under the surface at 360 Finance.

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What was so strange is that it was totally unprovoked yet he called us liars, idiots and much more. Some emails include

“I didn’t want to talk to you shameless man. But now I have to tell you, you’re just a mad dog. Whatever you do, I will keep the email as evidence of your threat to us.”

Without further to do see below.

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Companies like Google, Amazon, and Facebook are symbols of the new era of tech dominance. Specifically, fintech is the hot new trend, and this is far from an America-only phenomenon. ValueWalk recently sat down with Jiang Wu, CEO at 360 Finance Inc. (NASDAQ: QFIN), to talk about emerging technologies to better enable loan payments. The NASDAQ-listed firm, which has 139 patents and millions of customers, is focusing on the two largest Asian countries, India and China. Wu talks about topics such as connecting banks and users who want to lend money. He also discusses how they are different from their competitors, using AI to analyze customer data, and the integration of finance with science and technology.

Can you tell us about your background?

360 Finance, Inc. (NASDAQ: QFIN) (“360 Finance” or the “Company”) is a leading digital consumer finance platform and the finance partner of the 360 Group. The company connects over 1 billion mobile devices. Using funding from its partners, it provides online consumer finance products to underserved borrowers. The firm’s proprietary technology platform offers a unique user experience supported by strong risk management. When coupled with its partnership with 360 Group, the company’s technology offers meaningful advantages in borrower acquisition and retention and funding.

360 Finance’s core product is an affordable, unsecured line of credit that borrowers often use to supplement their credit card debt. Potential borrowers complete a simple online application to apply for a loan. In approximately 95% of credit applications, a credit decision is rendered automatically. Approved borrowers are provided access to funds, typically within five minutes. They may then select the loan structure that best fits their needs.

The company provides an intuitive platform that connects borrowers with its funding partners.

  • Borrowers – 360 Finance’s borrowers tend to be young people and small & medium-sized enterprises with demonstrated credit histories. Users are drawn to the platform for its instant access to credit and simple digital interface. Often the company can offer larger lines of credit at lower prices with more options than other online consumer finance platforms.
  • Funding partners – Most of the company’s funding comes from commercial banks, consumer finance companies, and trust companies. Lenders partner with the company for access to its high-quality borrower base and platform. 360 Finance provides tools for evaluating and matching borrowers. The company automates the workflow and offers enhanced risk management. The company also provides opportunities for repeat lending and cross-sales opportunities.

360 Finance has developed a proprietary technology platform supporting all parts of the transaction process from credit application to settlement of the loan. The credit decision process is fast and easy, thanks to the company’s data analysis. 360 Finance also takes steps to identify fraud, which represents about 50% of bad debts industry-wide, according to global management consulting firm Oliver Wyman. For instance, the company uses facial recognition to filter out fraudulent credit applications. Further, the company leverages behavioral and social data sets to assess a potential borrower’s ability and willingness to repay a loan.

Why did you decide to list on the NASDAQ?

We want to be a company that serves the world. Leveraging our cutting-edge technology, we hope more people and countries in the world can enjoy premium and fast financial services. Currently, we are exploring markets in North Asia such as India and Southeast Asia.

How do you make money?

We collaborate with over 100 banks in China, such as the Industrial and Commercial Bank of China and other state-owned banks and commercial banks. We help these banks filter out potential borrowers. Then these banks lend money to our users, and we share the profits on those loans with banks.

Also, banks pay to use our risk control and anti-fraud system, which is another source of profits for us.

In addition, I need to emphasize that we don’t offer peer-to-peer lending. Almost all of the money we are lending to users is from financial institutions.

What types of loans are you giving, and who is your typical borrower?

Our loans cover all kinds of needs people may have in their lives, such as education loans, car loans, and mortgages. The borrowers come from all social classes in China. Our borrowers also include small and micro business owners who need financial support.

What makes you stand out from your competitors?

Technology. 360 Finance originated from Qihoo 360, a security technology firm in China. Rooted in Qihoo 360, 360 Finance’s risk control technology is superior to that of its peers.

The main reasons for our success include our deep understanding of the Chinese consumer finance market and the ability to apply cutting-edge technologies to promote our business. Furthermore, we intend to expand our network of funding partners. We continue to receive a lot of interest from funding partners due to the strength of our technology, the risk-adjusted returns we facilitate, and our association with 360 Group. We also intend to diversify our institutional funding partner base, aiming to add two to three partners per month in the near term. We will continue to surround these partners with increasingly sophisticated technology tools. At the same time, we will continue to evaluate our retail funding strategy based on market conditions. In addition, we are experimenting with other funding sources, such as asset-based securities and off-shore funding.

We also have some great opportunities to expand our business. Our growth strategy focuses on delivering value for our constituents and supporting our funding partners. We want to move from supplementing credit card debt to replacing it. We will continue to invest in advanced technologies to enhance our risk management capability, increase traffic to our platform, and better enable our partners to deliver superior financial services to consumers.

Are you also using social data? Can you explain how that works? Is that like searching WeChat and seeing if customers brag about skipping a bill or something?

We never upload and store users’ data and information. My fellow colleagues have set up a model that can analyze users’ data and information automatically, and all this happens at the users’ end. AI takes over the job entirely; nobody at our company can access that data and information. Humans merely decide whether to lend money to one particular user or not.

What about behavioral analytics?

As I mentioned above, we use a model to analyze people’s spending behavior, but we will never obtain the data. We can only access is the results of machine analysis.

Can you give us an example of one?

In China’s online finance platforms, before users can lend money, they need to input their personal information, including ID number/phone number/address and their bank account. When users input this information on 360 Finance’s APP, our staff cannot review it. All they can get is the evaluation made by the model according to the users’ expense records and their bank credit records. All we can see on our end is whether we should lend money to this user, how much we should lend to him/her, and the rate we should charge them.

360 Finance never uploads users’ private data to the server, which is another significant difference with other peers in China.

What cutting-edge technologies are you working to deploy over the next few years, and what do you think will be the major upcoming trends in fintech?

We have deployed AI robots to improve the standardization of our operations and reduce operational risks and labor costs. As of June, 75% of our collection work, 77% of our telemarketing work, and 91% of customer service work is being performed by AI robots. The remaining work is performed by humans, although we also use AI robots there as well for quality inspection.

Do you foresee a future where almost all of your growth comes from robots and not from employees?

Yes, of course. AI has helped us save over 70% on labor costs while increasing efficiency significantly. In essence, we are a technology company. Currently, few fintech companies in China have realized the deep integration that’s possible between AI and finance. AI has helped fintech companies filter out users, increase efficiency and improve the depth of risk control. However, most companies have relegated AI to the role of an assistant, and high-order AI based on cognitive learning is not being utilized.

The next step is for our engineers to develop and research advanced AI to achieve autonomous identification and risk control.

I know 360 Finance just released its Third Quarter 2019 Unaudited Financial Results, so can you elaborate on your performance in the third quarter?

As a leading fintech company, we have always prided ourselves on our market position and sustainable growth. In the third quarter, we continued to achieve healthy and robust growth as we remain committed to executing our strategies. Our total registered users increased by 15% from last quarter to 126 million, and loan origination volume increased by 16% from the previous quarter to RMB26 billion. We transitioned from being a traditional loan facilitator to a technology enabler through our capital-light model. In this quarter, loans facilitated under the capital-light model accounted for 20% of total loan origination volume. That’s a significant increase from 8% in the last quarter.

Furthermore, as of the end of Q3, we had established relationships with 74 financial institutions, increased from 62 a quarter ago. Moreover, we have received approval from the People’s Bank of China to connect to its credit system, which will allow us to download and submit data on borrowers’ credit profiles. We believe this will enhance our risk management capabilities by increasing the effectiveness of credit underwriting and the borrower’s cost of default.

What trends do you see in Q3?

We believe that through technology, we can enjoy sustainable profit growth in the future while we continue to increase capital investment in technology development and research.

Has this impacted hiring yet, or do you foresee that going forward?

Yes, of course. In the future, we will hire more senior technical staff and reduce the number of workers in basic positions because machines can replace their work. Actually, at present, the proportion of technicians exceeds 50% in our company, which is much higher than other fintech companies in China. Next, we will enhance this proportion further.

What technologies of yours helped drive revenue growth?

As I mentioned above, risk cognition and control. The increase in efficiency brought by technology also drives revenue growth.

Can you break down the types of revenue you listed in your earnings filing?

To some extent, I think we can provide more services to banks in the future, and we are expanding our career map in the world. Of course, all our competitiveness hinges on our cutting-edge technology, so I confidently say that profit-sharing with banks and business expansion in the world will be our future profit growth points. In addition, I believe our current profit model is safer and healthier than that of other fintech companies, and it also has more space for further development. And I think this is the main reason why we can list in the U.S. only two years after opening for business.

For fintech companies, a healthy and straightforward capital structure is essential.

Are there any negative impacts on your tech from trade tensions?

The Sino-U.S. trade friction hasn’t impacted us. I genuinely think that multilateral trade is suitable for any economy and company. From our perspective, we are open, and we are pleased to do business with any country and any company as long as the market can bring convenience to people and promote the industry’s development in certain countries.

Also, we have been maintaining exchanges with many countries’ enterprises at the technical level, which is one of the driving forces of technological progress. I have always believed that technology should serve the convenience of all mankind.

Many U.S. technology companies are very worthy of respect, as they have been leading the world in technological innovation. We are pleased to learn from them and communicate with them.

Disclosure: The company was kind enough to provide compensation in return for our time preparing this interview.

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)www.valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
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