jfin-20f_20201231.htm
false FY 0001743102 --12-31 U.S. GAAP Pudong New Area Pudong New Area 0 0 2023-12-31 2025-12-31 0 0 P3Y P3Y 2018-01-31 2018-01-31 2018-02-28 2018-06-30 2019-07-31 Technology development and consumer finance services 2019-09-30 Technology development and consumer finance services 2020-04-30 2020-01-31 2020-04-30 2015-06-30 2019-07-31 Technology development and consumer finance services 2015-09-30 Technology development and consumer finance services 88.13 53.43 18.33 0.0157 0.0023 0.0169 0.0060 0.4286 0.4974 0.4528 0.5391 P0Y P0Y P3Y P3Y P2Y6M3D P2Y7M17D P2Y2M12D P2Y7M17D P1Y2M12D P1Y8M12D 0001743102 2020-01-01 2020-12-31 xbrli:shares 0001743102 us-gaap:CommonClassAMember 2020-12-31 0001743102 us-gaap:CommonClassBMember 2020-12-31 0001743102 dei:BusinessContactMember 2020-01-01 2020-12-31 0001743102 jfin:BusinessContactTwoMember 2020-01-01 2020-12-31 iso4217:CNY 0001743102 2019-12-31 0001743102 2020-12-31 iso4217:USD 0001743102 us-gaap:CommonClassAMember 2019-12-31 0001743102 us-gaap:CommonClassBMember 2019-12-31 iso4217:USD xbrli:shares 0001743102 2018-01-01 2018-12-31 0001743102 2019-01-01 2019-12-31 iso4217:CNY xbrli:shares 0001743102 us-gaap:CommonClassAMember 2017-12-31 0001743102 us-gaap:CommonClassBMember 2017-12-31 0001743102 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0001743102 us-gaap:RetainedEarningsMember 2017-12-31 0001743102 2017-12-31 0001743102 us-gaap:RetainedEarningsMember 2018-01-01 2018-12-31 0001743102 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-12-31 0001743102 us-gaap:CommonClassAMember 2018-12-31 0001743102 us-gaap:CommonClassBMember 2018-12-31 0001743102 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001743102 us-gaap:RetainedEarningsMember 2018-12-31 0001743102 2018-12-31 0001743102 us-gaap:CommonClassAMember 2019-01-01 2019-12-31 0001743102 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-12-31 0001743102 us-gaap:NoncontrollingInterestMember 2019-01-01 2019-12-31 0001743102 us-gaap:RetainedEarningsMember 2019-01-01 2019-12-31 0001743102 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-12-31 0001743102 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0001743102 us-gaap:RetainedEarningsMember 2019-12-31 0001743102 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0001743102 us-gaap:NoncontrollingInterestMember 2019-12-31 0001743102 us-gaap:NoncontrollingInterestMember 2020-01-01 2020-12-31 0001743102 us-gaap:RetainedEarningsMember 2020-01-01 2020-12-31 0001743102 us-gaap:AdditionalPaidInCapitalMember 2020-01-01 2020-12-31 0001743102 us-gaap:CommonClassAMember 2020-01-01 2020-12-31 0001743102 us-gaap:CommonClassBMember 2020-01-01 2020-12-31 0001743102 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-01-01 2020-12-31 0001743102 us-gaap:AdditionalPaidInCapitalMember 2020-12-31 0001743102 us-gaap:RetainedEarningsMember 2020-12-31 0001743102 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-12-31 0001743102 us-gaap:NoncontrollingInterestMember 2020-12-31 0001743102 jfin:ShanghaiCaiyinAssetManagementCoLtdMember 2019-12-31 0001743102 jfin:AmericanDepositaryShareMember 2019-05-10 2019-05-10 0001743102 2019-05-10 2019-05-10 0001743102 jfin:AmericanDepositaryShareMember 2019-05-10 0001743102 srt:SubsidiariesMember jfin:JiayinHoldingsLimitedMember 2020-01-01 2020-12-31 0001743102 srt:SubsidiariesMember jfin:GeerongHKLimitedMember 2020-01-01 2020-12-31 0001743102 srt:SubsidiariesMember jfin:JiayinSoutheastAsiaHoldingsLimitedMember 2020-01-01 2020-12-31 0001743102 srt:SubsidiariesMember jfin:ShanghaiKunjiaTechnologyCoLtdMember 2020-01-01 2020-12-31 0001743102 srt:SubsidiariesMember jfin:GeerongYunkeInformationTechnologyCoLtdMember 2020-01-01 2020-12-31 0001743102 srt:SubsidiariesMember jfin:GeerongYunShanghaiEnterpriseDevelopmentCoLtdMember 2020-01-01 2020-12-31 0001743102 srt:SubsidiariesMember jfin:ShanghaiChuangzhenSoftwareCoLtdMember 2020-01-01 2020-12-31 0001743102 srt:SubsidiariesMember jfin:AguilaInformationSAPIDeCVMember 2020-01-01 2020-12-31 0001743102 srt:SubsidiariesMember jfin:PTJayindoFintekPratamaMember 2020-01-01 2020-12-31 xbrli:pure 0001743102 jfin:VariableInterestEntityPrimaryBeneficiaryShanghaiJiayinFinanceTechnologyCoLtdMember 2020-01-01 2020-12-31 0001743102 jfin:VariableInterestEntityPrimaryBeneficiaryShanghaiJiajieInternetFinanceInformationServicesCoLtdMember 2020-01-01 2020-12-31 0001743102 jfin:VariableInterestEntityPrimaryBeneficiaryShanghaiNiwodaiInternetFinanceInformationServicesCoLtdMember 2020-01-01 2020-12-31 0001743102 us-gaap:PaymentGuaranteeMember 2019-12-31 0001743102 us-gaap:PaymentGuaranteeMember 2020-12-31 0001743102 jfin:ExclusivePurchaseAgreementmemberMember jfin:ShanghaiKunjiaTechnologyCoLtdMember 2020-01-01 2020-12-31 0001743102 jfin:EquityPledgeAgreementMember 2020-01-01 2020-12-31 0001743102 us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2019-12-31 0001743102 us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2020-12-31 0001743102 us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2018-01-01 2018-12-31 0001743102 us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2019-01-01 2019-12-31 0001743102 us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2020-01-01 2020-12-31 0001743102 us-gaap:CashAndCashEquivalentsMember country:CN us-gaap:NetAssetsGeographicAreaMember 2020-01-01 2020-12-31 0001743102 us-gaap:CashAndCashEquivalentsMember country:CN us-gaap:NetAssetsGeographicAreaMember 2019-01-01 2019-12-31 0001743102 us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember jfin:CustomerAMember 2020-01-01 2020-12-31 0001743102 us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember jfin:CustomerBMember 2020-01-01 2020-12-31 0001743102 us-gaap:CustomerConcentrationRiskMember jfin:AccountsReceivableAndContractAssetsMember jfin:CustomerCMember 2020-01-01 2020-12-31 0001743102 us-gaap:CustomerConcentrationRiskMember jfin:AccountsReceivableAndContractAssetsMember jfin:CustomerAMember 2020-01-01 2020-12-31 0001743102 currency:CNY 2019-12-31 0001743102 currency:CNY 2020-12-31 0001743102 us-gaap:EquipmentMember 2020-01-01 2020-12-31 0001743102 jfin:OfficeEquipmentFurnitureMember 2020-01-01 2020-12-31 0001743102 us-gaap:VehiclesMember 2020-01-01 2020-12-31 0001743102 us-gaap:LeaseholdImprovementsMember 2020-01-01 2020-12-31 0001743102 us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2020-01-01 2020-12-31 0001743102 jfin:PostOriginationServiceMember 2018-12-31 0001743102 jfin:PostOriginationServiceMember 2019-12-31 0001743102 jfin:AccruedExpensesAndOtherCurrentLiabilitiesMember 2020-12-31 0001743102 jfin:LoanFacilitationServicesMember jfin:CurrentLoanProductsMember 2018-01-01 2018-12-31 0001743102 jfin:PostoriginationServicesMember jfin:CurrentLoanProductsMember 2018-01-01 2018-12-31 0001743102 jfin:OtherRevenuesMember jfin:CurrentLoanProductsMember 2018-01-01 2018-12-31 0001743102 jfin:CurrentLoanProductsMember 2018-01-01 2018-12-31 0001743102 jfin:LoanFacilitationServicesMember jfin:OtherOnlineStandardLoanProductsMember 2018-01-01 2018-12-31 0001743102 jfin:PostoriginationServicesMember jfin:OtherOnlineStandardLoanProductsMember 2018-01-01 2018-12-31 0001743102 jfin:OtherRevenuesMember jfin:OtherOnlineStandardLoanProductsMember 2018-01-01 2018-12-31 0001743102 jfin:OtherOnlineStandardLoanProductsMember 2018-01-01 2018-12-31 0001743102 jfin:LoanFacilitationServicesMember jfin:OfflineAndNonstandardLoanProductsMember 2018-01-01 2018-12-31 0001743102 jfin:PostoriginationServicesMember jfin:OfflineAndNonstandardLoanProductsMember 2018-01-01 2018-12-31 0001743102 jfin:OtherRevenuesMember jfin:OfflineAndNonstandardLoanProductsMember 2018-01-01 2018-12-31 0001743102 jfin:OfflineAndNonstandardLoanProductsMember 2018-01-01 2018-12-31 0001743102 jfin:OtherRevenuesMember us-gaap:ServiceOtherMember 2018-01-01 2018-12-31 0001743102 us-gaap:ServiceOtherMember 2018-01-01 2018-12-31 0001743102 jfin:LoanFacilitationServicesMember 2018-01-01 2018-12-31 0001743102 jfin:PostoriginationServicesMember 2018-01-01 2018-12-31 0001743102 jfin:OtherRevenuesMember 2018-01-01 2018-12-31 0001743102 jfin:LoanFacilitationServicesMember jfin:CurrentLoanProductsMember 2019-01-01 2019-12-31 0001743102 jfin:PostoriginationServicesMember jfin:CurrentLoanProductsMember 2019-01-01 2019-12-31 0001743102 jfin:OtherRevenuesMember jfin:CurrentLoanProductsMember 2019-01-01 2019-12-31 0001743102 jfin:CurrentLoanProductsMember 2019-01-01 2019-12-31 0001743102 jfin:LoanFacilitationServicesMember jfin:OtherOnlineStandardLoanProductsMember 2019-01-01 2019-12-31 0001743102 jfin:PostoriginationServicesMember jfin:OtherOnlineStandardLoanProductsMember 2019-01-01 2019-12-31 0001743102 jfin:OtherRevenuesMember jfin:OtherOnlineStandardLoanProductsMember 2019-01-01 2019-12-31 0001743102 jfin:OtherOnlineStandardLoanProductsMember 2019-01-01 2019-12-31 0001743102 jfin:PostoriginationServicesMember jfin:OfflineAndNonstandardLoanProductsMember 2019-01-01 2019-12-31 0001743102 jfin:OtherRevenuesMember jfin:OfflineAndNonstandardLoanProductsMember 2019-01-01 2019-12-31 0001743102 jfin:OfflineAndNonstandardLoanProductsMember 2019-01-01 2019-12-31 0001743102 jfin:OtherRevenuesMember us-gaap:ServiceOtherMember 2019-01-01 2019-12-31 0001743102 us-gaap:ServiceOtherMember 2019-01-01 2019-12-31 0001743102 jfin:LoanFacilitationServicesMember 2019-01-01 2019-12-31 0001743102 jfin:PostoriginationServicesMember 2019-01-01 2019-12-31 0001743102 jfin:OtherRevenuesMember 2019-01-01 2019-12-31 0001743102 jfin:LoanFacilitationServicesMember jfin:CurrentLoanProductsMember 2020-01-01 2020-12-31 0001743102 jfin:PostoriginationServicesMember jfin:CurrentLoanProductsMember 2020-01-01 2020-12-31 0001743102 jfin:CurrentLoanProductsMember 2020-01-01 2020-12-31 0001743102 jfin:OtherRevenuesMember us-gaap:ServiceOtherMember 2020-01-01 2020-12-31 0001743102 us-gaap:ServiceOtherMember 2020-01-01 2020-12-31 0001743102 jfin:LoanFacilitationServicesMember 2020-01-01 2020-12-31 0001743102 jfin:PostoriginationServicesMember 2020-01-01 2020-12-31 0001743102 jfin:OtherRevenuesMember 2020-01-01 2020-12-31 0001743102 us-gaap:OtherIncomeMember 2020-01-01 2020-12-31 0001743102 srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 0001743102 jfin:CornerstoneManagementIncMember 2019-07-15 0001743102 jfin:FinanceReceivableUndueMember 2020-12-31 0001743102 jfin:FinancingReceivables1To14DaysPastDueMember 2020-12-31 0001743102 jfin:FinancingReceivables15DaysOrGreaterPastDueMember 2020-12-31 0001743102 us-gaap:LeaseholdImprovementsMember 2019-12-31 0001743102 us-gaap:LeaseholdImprovementsMember 2020-12-31 0001743102 us-gaap:VehiclesMember 2019-12-31 0001743102 us-gaap:VehiclesMember 2020-12-31 0001743102 us-gaap:EquipmentMember 2019-12-31 0001743102 us-gaap:EquipmentMember 2020-12-31 0001743102 jfin:OfficeEquipmentFurnitureMember 2019-12-31 0001743102 jfin:OfficeEquipmentFurnitureMember 2020-12-31 0001743102 us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2019-12-31 0001743102 us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2020-12-31 0001743102 jfin:KeenBestMember 2020-03-13 0001743102 jfin:KeenBestMember 2020-09-29 2020-09-29 0001743102 jfin:KeenBestMember 2020-09-29 0001743102 jfin:KeenBestMember 2020-01-01 2020-12-31 0001743102 jfin:SgFintechJointStockCompanyMember 2019-05-31 0001743102 jfin:SgFintechJointStockCompanyMember 2020-01-31 0001743102 jfin:SgFintechJointStockCompanyMember 2019-01-01 2019-12-31 0001743102 jfin:SgFintechJointStockCompanyMember 2020-01-01 2020-12-31 0001743102 jfin:SgFintechJointStockCompanyMember 2019-05-01 2019-05-31 0001743102 jfin:SgFintechJointStockCompanyMember 2020-01-01 2020-01-31 0001743102 jfin:ShanghaiCaiyinAssetManagementCoLtdMember 2020-01-01 2020-12-31 0001743102 jfin:ShanghaiCaiyinMember 2019-08-31 0001743102 jfin:ShanghaiCaiyinAssetManagementCoLtdMember srt:ScenarioForecastMember 2021-01-01 2021-12-31 0001743102 jfin:ShanghaiCaiyinAssetManagementCoLtdMember srt:ScenarioForecastMember 2022-01-01 2022-12-31 0001743102 jfin:ShanghaiCaiyinMember 2020-01-01 2020-12-31 0001743102 jfin:ShanghaiCaiyinMember 2019-12-31 0001743102 jfin:ShanghaiCaiyinMember 2020-12-31 0001743102 jfin:TwoThousandNineteenIncentivePlanMember 2019-11-01 2019-11-30 0001743102 jfin:TwoThousandNineteenIncentivePlanMember 2020-11-01 2020-11-30 0001743102 jfin:OriginationAndServicingMember 2018-01-01 2018-12-31 0001743102 jfin:OriginationAndServicingMember 2019-01-01 2019-12-31 0001743102 jfin:OriginationAndServicingMember 2020-01-01 2020-12-31 0001743102 us-gaap:GeneralAndAdministrativeExpenseMember 2018-01-01 2018-12-31 0001743102 us-gaap:GeneralAndAdministrativeExpenseMember 2019-01-01 2019-12-31 0001743102 us-gaap:GeneralAndAdministrativeExpenseMember 2020-01-01 2020-12-31 0001743102 us-gaap:ResearchAndDevelopmentExpenseMember 2018-01-01 2018-12-31 0001743102 us-gaap:ResearchAndDevelopmentExpenseMember 2019-01-01 2019-12-31 0001743102 us-gaap:ResearchAndDevelopmentExpenseMember 2020-01-01 2020-12-31 0001743102 us-gaap:SellingAndMarketingExpenseMember 2018-01-01 2018-12-31 0001743102 us-gaap:SellingAndMarketingExpenseMember 2019-01-01 2019-12-31 0001743102 us-gaap:SellingAndMarketingExpenseMember 2020-01-01 2020-12-31 0001743102 jfin:ShanghaiJiayinFinanceTechnologyCoLtdMember jfin:EmployeeIncentivePlanMember 2016-09-30 0001743102 jfin:ShanghaiJiayinFinanceTechnologyCoLtdMember 2016-09-01 2016-09-30 0001743102 jfin:ShanghaiJiayinFinanceTechnologyCoLtdMember us-gaap:ShareBasedCompensationAwardTrancheOneMember 2016-09-01 2016-09-30 0001743102 jfin:ShanghaiJiayinFinanceTechnologyCoLtdMember us-gaap:ShareBasedCompensationAwardTrancheOneMember us-gaap:EmployeeStockOptionMember 2016-09-01 2016-09-30 0001743102 jfin:ShanghaiJiayinFinanceTechnologyCoLtdMember us-gaap:ShareBasedCompensationAwardTrancheOneMember us-gaap:EmployeeStockOptionMember 2016-04-01 2017-03-31 0001743102 jfin:ShanghaiJiayinFinanceTechnologyCoLtdMember us-gaap:ShareBasedCompensationAwardTrancheOneMember us-gaap:EmployeeStockOptionMember 2017-04-01 2018-03-31 0001743102 jfin:ShanghaiJiayinFinanceTechnologyCoLtdMember us-gaap:ShareBasedCompensationAwardTrancheOneMember us-gaap:EmployeeStockOptionMember 2018-04-01 2019-03-31 0001743102 jfin:ShanghaiJiayinFinanceTechnologyCoLtdMember us-gaap:ShareBasedCompensationAwardTrancheOneMember us-gaap:EmployeeStockOptionMember 2019-04-01 2020-03-31 0001743102 jfin:ShanghaiJiayinFinanceTechnologyCoLtdMember us-gaap:ShareBasedCompensationAwardTrancheTwoMember 2018-10-01 2018-10-31 0001743102 jfin:ShanghaiJiayinFinanceTechnologyCoLtdMember us-gaap:ShareBasedCompensationAwardTrancheTwoMember us-gaap:EmployeeStockOptionMember 2018-10-01 2018-10-31 0001743102 jfin:ShanghaiJiayinFinanceTechnologyCoLtdMember us-gaap:ShareBasedCompensationAwardTrancheTwoMember us-gaap:EmployeeStockOptionMember 2018-04-01 2019-03-31 0001743102 jfin:ShanghaiJiayinFinanceTechnologyCoLtdMember us-gaap:ShareBasedCompensationAwardTrancheTwoMember us-gaap:EmployeeStockOptionMember 2019-04-01 2020-03-31 0001743102 jfin:ShanghaiJiayinFinanceTechnologyCoLtdMember us-gaap:ShareBasedCompensationAwardTrancheTwoMember us-gaap:EmployeeStockOptionMember 2020-04-01 2021-03-31 0001743102 jfin:ShanghaiJiayinFinanceTechnologyCoLtdMember us-gaap:ShareBasedCompensationAwardTrancheTwoMember us-gaap:EmployeeStockOptionMember 2021-04-01 2022-03-31 0001743102 2016-09-01 2016-09-30 0001743102 jfin:TwoThousandEighteenIncentivePlanMember 2018-10-01 2018-10-31 0001743102 2018-10-01 2018-10-31 0001743102 2019-11-01 2019-11-30 0001743102 2020-11-01 2020-11-30 0001743102 2018-10-31 0001743102 2019-11-30 0001743102 2020-11-30 0001743102 country:HK 2020-01-01 2020-12-31 0001743102 us-gaap:StateAdministrationOfTaxationChinaMember 2020-01-01 2020-12-31 0001743102 jfin:ShanghaiChuangzhenSoftwareCoLtdMember 2020-01-01 2020-12-31 0001743102 srt:ScenarioForecastMember jfin:ShanghaiChuangzhenSoftwareCoLtdMember 2021-01-01 2021-12-31 0001743102 country:MX 2020-01-01 2020-12-31 0001743102 country:ID 2020-01-01 2020-12-31 0001743102 country:ID srt:ScenarioForecastMember 2021-01-01 2021-12-31 0001743102 country:ID srt:ScenarioForecastMember 2022-01-01 2022-12-31 0001743102 us-gaap:StateAdministrationOfTaxationChinaMember 2020-12-31 0001743102 jfin:JiayinGroupIncAndSubsidiariesMember 2017-12-31 0001743102 2018-12-19 2018-12-19 0001743102 jfin:AdsMember 2020-05-10 2020-05-10 0001743102 us-gaap:CommonStockMember 2019-05-10 2019-05-10 0001743102 2019-05-10 0001743102 us-gaap:CommonClassAMember 2019-05-10 0001743102 us-gaap:CommonClassBMember 2019-05-10 jfin:Vote 0001743102 us-gaap:CommonClassAMember 2019-05-10 2019-05-10 0001743102 us-gaap:CommonClassBMember 2019-05-10 2019-05-10 0001743102 jfin:ShanghaiJiayinZhuoyueWealthManagementCoLtdMember jfin:ServicesProvidedByRelatedPartiesMember 2018-01-01 2018-12-31 0001743102 jfin:ShanghaiJiayinZhuoyueWealthManagementCoLtdMember jfin:ServicesProvidedByRelatedPartiesMember 2019-01-01 2019-12-31 0001743102 jfin:ShanghaiJiayinZhuoyueWealthManagementCoLtdMember jfin:ServicesProvidedByRelatedPartiesMember 2020-01-01 2020-12-31 0001743102 jfin:JiayinShanghaiFinanceInformationServiceCoLtdMember jfin:ServicesProvidedByRelatedPartiesMember 2018-01-01 2018-12-31 0001743102 jfin:JiayinShanghaiFinanceInformationServiceCoLtdMember jfin:ServicesProvidedByRelatedPartiesMember 2019-01-01 2019-12-31 0001743102 jfin:JiayinShanghaiFinanceInformationServiceCoLtdMember jfin:ServicesProvidedByRelatedPartiesMember 2020-01-01 2020-12-31 0001743102 jfin:ShanghaiJiayinFinanceServicesCoLtdMember jfin:ServicesProvidedByRelatedPartiesMember 2018-01-01 2018-12-31 0001743102 jfin:ShanghaiJiayinFinanceServicesCoLtdMember jfin:ServicesProvidedByRelatedPartiesMember 2019-01-01 2019-12-31 0001743102 jfin:ShanghaiJiayinFinanceServicesCoLtdMember jfin:ServicesProvidedByRelatedPartiesMember 2020-01-01 2020-12-31 0001743102 jfin:LiMahuiTechnologyCoLtdMember jfin:ServicesProvidedByRelatedPartiesMember 2020-01-01 2020-12-31 0001743102 jfin:KailiantongPaymentServiceCoLtdMember jfin:ServicesProvidedByRelatedPartiesMember 2018-01-01 2018-12-31 0001743102 jfin:KailiantongPaymentServiceCoLtdMember jfin:ServicesProvidedByRelatedPartiesMember 2019-01-01 2019-12-31 0001743102 jfin:ShanghaiShilupanTechnologyCoLtdMember jfin:ServicesProvidedByRelatedPartiesMember 2018-01-01 2018-12-31 0001743102 jfin:ShanghaiShilupanTechnologyCoLtdMember jfin:ServicesProvidedByRelatedPartiesMember 2019-01-01 2019-12-31 0001743102 jfin:JiayinCreditInvestigationServiceCoLtdMember jfin:ServicesProvidedByRelatedPartiesMember 2018-01-01 2018-12-31 0001743102 jfin:JiayinCreditInvestigationServiceCoLtdMember jfin:ServicesProvidedByRelatedPartiesMember 2019-01-01 2019-12-31 0001743102 jfin:GeerongYunShanghaiEnterpriseDevelopmentCompanyLimitedMember jfin:ServicesProvidedByRelatedPartiesMember 2018-01-01 2018-12-31 0001743102 jfin:ServicesProvidedByRelatedPartiesMember 2018-01-01 2018-12-31 0001743102 jfin:ServicesProvidedByRelatedPartiesMember 2019-01-01 2019-12-31 0001743102 jfin:ServicesProvidedByRelatedPartiesMember 2020-01-01 2020-12-31 0001743102 jfin:KailiantongPaymentServiceCoLtdMember jfin:ServicesProvidedToRelatedPartiesMember 2019-01-01 2019-12-31 0001743102 jfin:KailiantongPaymentServiceCoLtdMember jfin:ServicesProvidedToRelatedPartiesMember 2020-01-01 2020-12-31 0001743102 jfin:ServicesProvidedToRelatedPartiesMember 2019-01-01 2019-12-31 0001743102 jfin:ServicesProvidedToRelatedPartiesMember 2020-01-01 2020-12-31 0001743102 jfin:SubsidiaryShareholderMember jfin:LoansToRelatedPartiesMember 2020-01-01 2020-12-31 0001743102 jfin:SubsidiaryDirectorMember jfin:LoansToRelatedPartiesMember 2020-01-01 2020-12-31 0001743102 jfin:ChinaSmartpayGroupHoldingsLimitedMember jfin:LoansToRelatedPartiesMember 2019-01-01 2019-12-31 0001743102 jfin:GayangHongKongCompanyLimitedMember jfin:LoansToRelatedPartiesMember 2019-01-01 2019-12-31 0001743102 jfin:ShanghaiJiayinFinanceServicesCoLtdMember jfin:LoansToRelatedPartiesMember 2019-01-01 2019-12-31 0001743102 jfin:ShanghaiJiajieAssetsManagementCoLtdMember jfin:LoansToRelatedPartiesMember 2018-01-01 2018-12-31 0001743102 jfin:ShanghaiJiajieAssetsManagementCoLtdMember jfin:LoansToRelatedPartiesMember 2019-01-01 2019-12-31 0001743102 jfin:SgFintechJointStockCompanyMember jfin:LoansToRelatedPartiesMember 2019-01-01 2019-12-31 0001743102 jfin:GeerongYunShanghaiEnterpriseDevelopmentCompanyLimitedMember jfin:LoansToRelatedPartiesMember 2018-01-01 2018-12-31 0001743102 jfin:LoansToRelatedPartiesMember 2018-01-01 2018-12-31 0001743102 jfin:LoansToRelatedPartiesMember 2019-01-01 2019-12-31 0001743102 jfin:LoansToRelatedPartiesMember 2020-01-01 2020-12-31 0001743102 jfin:SubsidiaryShareholderMember jfin:LoansFromRelatedPartiesMember 2020-01-01 2020-12-31 0001743102 jfin:JiayinFinancialLeasingShanghaiCompanyLimitedMember jfin:LoansFromRelatedPartiesMember 2019-01-01 2019-12-31 0001743102 jfin:JiayinCreditInvestigationServiceCoLtdMember jfin:LoansFromRelatedPartiesMember 2018-01-01 2018-12-31 0001743102 jfin:JiayinCreditInvestigationServiceCoLtdMember jfin:LoansFromRelatedPartiesMember 2019-01-01 2019-12-31 0001743102 jfin:LoansFromRelatedPartiesMember 2018-01-01 2018-12-31 0001743102 jfin:LoansFromRelatedPartiesMember 2019-01-01 2019-12-31 0001743102 jfin:LoansFromRelatedPartiesMember 2020-01-01 2020-12-31 0001743102 jfin:SubsidiaryDirectorMember jfin:LoansToRelatedPartiesMember 2020-12-31 jfin:Instalment 0001743102 jfin:ChinaSmartpayMember 2019-12-31 0001743102 jfin:ChinaSmartpayMember 2020-09-30 0001743102 jfin:ChinaSmartpayMember 2020-09-01 2020-09-30 0001743102 jfin:SgFintechJointStockCompanyMember 2019-12-31 0001743102 jfin:SgFintechJointStockCompanyMember us-gaap:AdditionalPaidInCapitalMember jfin:ShanghaiZhundianEnterpriseServiceCoLtdMember 2020-04-22 2020-04-22 0001743102 jfin:SgFintechJointStockCompanyMember jfin:ShanghaiZhundianEnterpriseServiceCoLtdMember 2020-04-22 0001743102 jfin:SubsidiaryShareholderMember 2020-12-31 0001743102 jfin:SubsidiaryDirectorMember 2020-12-31 0001743102 jfin:ChinaSmartpayGroupHoldingsLimitedMember 2019-12-31 0001743102 jfin:GayangHongKongCompanyLimitedMember 2019-12-31 0001743102 jfin:ShanghaiJiayinFinanceServicesCoLtdMember 2019-12-31 0001743102 jfin:KailiantongPaymentServiceCoLtdMember 2019-12-31 0001743102 jfin:ShanghaiJiajieAssetsManagementCoLtdMember 2019-12-31 0001743102 jfin:JiayinCreditInvestigationServiceCoLtdMember 2019-12-31 0001743102 jfin:ShanghaiJiayinZhuoyueWealthManagementCoLtdMember 2019-12-31 0001743102 jfin:ShanghaiJiayinZhuoyueWealthManagementCoLtdMember 2020-12-31 0001743102 jfin:ShanghaiJiayinFinanceServicesCoLtdMember 2020-12-31 0001743102 jfin:JiayinFinancialLeasingShanghaiCompanyLimitedMember 2019-12-31 0001743102 jfin:JiayinCreditInvestigationServiceCoLtdMember 2020-12-31 0001743102 us-gaap:SubsequentEventMember jfin:AguilaInformationSAPIDeCVMember 2021-01-05 0001743102 us-gaap:SubsequentEventMember jfin:AguilaInformationSAPIDeCVMember 2021-01-05 2021-01-05 iso4217:MXN 0001743102 jfin:AguilaInformationSAPIDeCVMember 2020-01-01 2020-12-31 0001743102 us-gaap:SubsequentEventMember jfin:ShanghaiJiayinFinanceTechnologyCoLtdMember 2021-04-01 0001743102 us-gaap:SubsequentEventMember jfin:ShanghaiJiayinFinanceTechnologyCoLtdMember 2021-04-01 2021-04-01 0001743102 srt:ParentCompanyMember 2019-12-31 0001743102 srt:ParentCompanyMember 2020-12-31 0001743102 srt:ParentCompanyMember 2019-01-01 2019-12-31 0001743102 srt:ParentCompanyMember 2020-01-01 2020-12-31 0001743102 srt:ParentCompanyMember 2018-01-01 2018-12-31

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F

 

 

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020.

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

OR

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number: 001-38806

 

Jiayin Group Inc.

(Exact name of Registrant as specified in its charter)

 

N/A

(Translation of Registrant’s name into English)

Cayman Islands

(Jurisdiction of incorporation or organization)

18th Floor, Building No. 1, Youyou Century Plaza,

428 South Yanggao Road, Pudong

New Area, Shanghai 200122

People’s Republic of China

(Address of principal executive offices)

Bei Bai, Co-Chief Financial Officer

Jin Chen, Co-Chief Financial Officer

Tel: 86 21-6190-6826

E-mail: baibei@jiayinfintech.cn

chenjin1@jiayinfintech.cn

18th Floor, Building No. 1, Youyou Century Plaza,

428 South Yanggao Road, Pudong

New Area, Shanghai 200122

People’s Republic of China

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)


Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading
Symbol(s)

 

Name of each exchange on
which registered

 

American Depositary Shares, each representing

four Class A ordinary shares, par value US$0.000000005 per share

JFIN

The Nasdaq Stock Market LLC

Class A ordinary shares, par value US$0.000000005 per share*

 

The Nasdaq Stock Market LLC

*

Not for trading, but only in connection with the listing on The Nasdaq Stock Market of American depositary shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

 

Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

There were 216,100,000 ordinary shares outstanding, consisting of 108,100,000 Class A ordinary shares and 108,000,000 outstanding Class B ordinary shares, par value US$0.000000005 per share, as of December 31, 2020.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No  

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes      No  

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

Accelerated filer

 

Non-accelerated filer

Emerging growth company

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act.  

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  

International Financial Reporting Standards as issued

by the International Accounting Standards Board  

Other  

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    Item 17      Item 18  

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes      No  

 

  

 


table of contents

 

 

Page

 

 

INTRODUCTION

1

 

 

FORWARD-LOOKING STATEMENTS

3

 

 

PART I

4

 

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

4

 

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

4

 

 

ITEM 3. KEY INFORMATION

4

 

 

ITEM 4. INFORMATION ON THE COMPANY

47

 

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

75

 

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

75

 

 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

94

 

 

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

102

 

 

ITEM 8. FINANCIAL INFORMATION

105

 

 

ITEM 9. THE OFFER AND LISTING

106

 

 

ITEM 10. ADDITIONAL INFORMATION

106

 

 

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

117

 

 

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

117

 

 

PART II

120

 

 

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

120

 

 

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

120

 

 

ITEM 15. CONTROLS AND PROCEDURES

120

 

 

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

121

 

 

ITEM 16B. CODE OF ETHICS

121

 

 

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

121

 

 

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

122

 

 

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

122

 

 

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

122

 

 

ITEM 16G. CORPORATE GOVERNANCE

122

 

 

ITEM 16H. MINE SAFETY DISCLOSURE

122

 

 

PART III

123

 

 

ITEM 17 FINANCIAL STATEMENTS

123

 

 

ITEM 18 FINANCIAL STATEMENTS

123

 

 

ITEM 19. EXHIBITS

123

 

 

 

i


 

 

INTRODUCTION

Unless otherwise indicated or the context otherwise requires in this annual report on Form 20-F:

 

“ADSs” refers to our American depositary shares, each of which represents four Class A ordinary shares;

 

“Annual percentage rate of charge” or “APR” refers to the overall borrowing cost collected from borrowers, including interest, service fees and other charges to be collected from borrowers, excluding penalty fees for late payments, as a percentage of the loan principal, multiplied by the number of days of the loan as a percentage of 360;

 

“approval rate” refers to the percentage of loan applications approved in a certain period out of all loan applications during such period;

 

“China” or the “PRC” refers to the People’s Republic of China, excluding, for the purposes of this annual report only, Hong Kong, Macau and Taiwan;

 

“consolidated VIE” refers to Shanghai Jiayin Finance Technology Co., Ltd. (“Jiayin Finance”);

 

“investment volume” for a certain period refers to the sum of the principal amount of all investment transactions executed by investors, including institutional funding partners and individual investors, through our platform during such period. The calculation of the investment volume of an investment made by an investor through the automated investment program does not take into account automated reinvestments enabled by the automated investment program;

 

“investors” include our institutional funding partners and prior to the completion of our funding source transition to only institutional funding partners in April 2020, individual investors;

 

“loan origination volume” refers to the total amount of loans facilitated through our platform during a certain period;

 

“M3+ Delinquency Rate by Vintage” refers to the total amount of principal for all loans in a vintage for which any repayment was more than 90 days past due as of a particular date, less the total amount of past due principal recovered for such loans, and divided by the total amount of principal for all loans in such vintage. M3+ Delinquency Rate by Vintage for quarter vintage is calculated as the weighted average of M3+ Delinquency Rate by Vintage for each month in such quarter by loan origination volume;

 

number of “borrowings” for a certain period refers to the total borrowing applications which were funded during such period;

 

number of “borrowers” for a certain period refers to the total number of borrowers whose loans facilitated through our platform were funded during such period;

 

number of “investment transactions” for a certain period refers to the total number of investment transactions executed by investors, including institutional funding partners and individual investors, through our platform during such period. An investment through our automated investment programs is counted as a single investment transaction though the amount may be facilitated to match multiple loans, and the calculation does not take into account automated reinvestments enable by the automated investment program;

 

number of “investors” in a certain period refers to the total number of investors who executed investment transactions through our platform during such period;

 

“net payouts” refers to total amount of cash paid to investors upon borrower’s default, and net of the amount that is subsequently collected from borrower during a specific period of time;

 

“outstanding principal” refers to the aggregate principal amount of loans facilitated through our platform and historically loans covered by the investor assurance program that was acquired from Shanghai Niwodai Financial Information Services Co., Ltd., (“Niwodai Finance”) that were not repaid by borrowers or repaid by the investor assurance programs;

 

“registered users” refer to individuals who have registered on our platform;

 

“repeat borrowers” during a certain period refers to borrowers who borrowed in such period and have borrowed at least twice since such borrowers’ registration with us until the end of such period;

 

“ordinary shares” refers to our Class A and Class B ordinary shares, par value US$0.000000005 per share;

 

“RMB” and “Renminbi” refer to the legal currency of China;

 

“US$,” “U.S. dollars,” “$,” and “dollars” refer to the legal currency of the United States;

 

“vintage” refers to borrowings facilitated through our platform during a certain period;

1


 

 

“we,” “us,” “our company,” “our group” and “our” refer to Jiayin Group Inc., a Cayman Islands company and its subsidiaries, consolidated VIE, and its subsidiaries; and

 

“VIE and VIE’s subsidiaries” refers to Jiayin Finance and its subsidiaries.

Our reporting currency is the Renminbi because our business is mainly conducted in China and all of our revenues are denominated in Renminbi. This annual report contains translations of Renminbi amounts into U.S. dollars at specific rates solely for the convenience of the reader. The conversion of Renminbi into U.S. dollars in this annual report is based on the rate certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this annual report were made at RMB6.5250 to US$1.00, the noon buying rate on December 31, 2020 set forth in the H.10 statistical release of the U.S. Federal Reserve Board. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade.

 

2


 

FORWARD LOOKING STATEMENTS

This annual report on Form 20-F contains forward-looking statements that reflect our current expectations and views of future events. Known and unknown risks, uncertainties and other factors, including those listed under “Item 3. Key Information—D. Risk Factors,” may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigations Reform Act of 1995.

You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to:

 

our mission and strategies;

 

our future business development, financial condition and results of operations;

 

the expected growth of the online consumer finance market in China;

 

our expectations regarding demand for and market acceptance of our products and services;

 

our expectations regarding our relationships with borrowers and institutional funding partners;

 

competition in our industry;

 

general economic and business condition in China and elsewhere;

 

relevant government policies and regulations relating to our industry; and

 

the impact of COVID-19.

These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. You should thoroughly read this annual report and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. In addition, the rapidly changing nature of the online consumer finance industry results in significant uncertainties for any projections or estimates relating to the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

3


 

PART I

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.

KEY INFORMATION

A.

Selected Financial Data

The following selected consolidated statements of comprehensive income data and selected consolidated cash flows data for the years ended December 31, 2018, 2019 and 2020, and selected consolidated balance sheets data as of December 31, 2019 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this annual report beginning on page F-1. The following selected consolidated statement of operations and comprehensive income data for the year ended December 31, 2017 and selected consolidated balance sheet data as of December 31, 2017 and 2018 have been derived from our audited consolidated financial statements not included in this annual report. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results do not necessarily indicate results expected for any future periods. You should read this Selected Financial Data section together with our consolidated financial statements and the related notes and “Item 5. Operating and Financial Review and Prospects” below.

4


 

The following table presents our selected consolidated statements of comprehensive income data for the years ended December 31, 2017, 2018, 2019 and 2020.

 

 

 

Year ended December 31,

 

 

 

2017

 

 

2018

 

 

2019

 

 

2020

 

 

 

RMB

 

 

RMB

 

 

RMB

 

 

RMB

 

 

US$

 

 

 

(in thousands, except for share and per share data)

 

Net revenue

 

 

2,250,850

 

 

 

2,881,940

 

 

 

2,230,176

 

 

 

1,300,160

 

 

 

199,258

 

Operating cost and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Origination and servicing

 

 

(229,353

)

 

 

(401,679

)

 

 

(425,565

)

 

 

(239,199

)

 

 

(36,659

)

Sales and marketing

 

 

(884,866

)

 

 

(726,582

)

 

 

(606,049

)

 

 

(375,063

)

 

 

(57,481

)

General and administrative

 

 

(95,597

)

 

 

(150,465

)

 

 

(230,248

)

 

 

(154,963

)

 

 

(23,749

)

Research and development

 

 

(180,967

)

 

 

(184,302

)

 

 

(201,404

)

 

 

(151,550

)

 

 

(23,226

)

Allowance for uncollectible receivables, contract assets,

   loans receivable and others

 

 

(130,943

)

 

 

(265,978

)

 

 

(232,241

)

 

 

(77,278

)

 

 

(11,843

)

Provision for assets and liabilities from the investor

   assurance program

 

 

(42,463

)

 

 

(467,728

)

 

 

 

 

 

 

 

 

 

Total operating cost and expenses

 

 

(1,564,189

)

 

 

(2,196,734

)

 

 

(1,695,507

)

 

 

(998,053

)

 

 

(152,958

)

Income from operations

 

 

686,661

 

 

 

685,206

 

 

 

534,669

 

 

 

302,107

 

 

 

46,300

 

Gain from de-recognition of other payable

   associated with disposal of  Caiyin

 

 

 

 

 

 

 

 

 

 

 

117,021

 

 

 

17,934

 

Impairment of short-term investment

 

 

 

 

 

 

 

 

 

 

 

(67,169

)

 

 

(10,294

)

Interest income

 

 

1,922

 

 

 

169

 

 

 

5,720

 

 

 

7,716

 

 

 

1,183

 

Other income, net

 

 

12,609

 

 

 

20,298

 

 

 

23,425

 

 

 

6,711

 

 

 

1,029

 

Income before income taxes and income

    from investment in affiliates

 

 

701,192

 

 

 

705,673

 

 

 

563,814

 

 

 

366,386

 

 

 

56,152

 

Income tax expense

 

 

(161,647

)

 

 

(93,915

)

 

 

(37,007

)

 

 

(108,811

)

 

 

(16,676

)

Income(loss)  from investment in affiliates

 

 

 

 

 

 

 

 

378

 

 

 

(7,509

)

 

 

(1,151

)

Net income

 

 

539,545

 

 

 

611,758

 

 

 

527,185

 

 

 

250,066

 

 

 

38,325

 

Net loss attributable to noncontrolling

    interest shareholders

 

 

 

 

 

 

 

 

(562

)

 

 

(2,817

)

 

 

(432

)

Net income attributable to Jiayin Group Inc.

 

 

539,545

 

 

 

611,758

 

 

 

527,747

 

 

 

252,883

 

 

 

38,757

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- Basic

 

 

2.70

 

 

 

3.06

 

 

 

2.51

 

 

 

1.17

 

 

 

0.18

 

- Diluted

 

 

2.70

 

 

 

3.06

 

 

 

2.51

 

 

 

1.17

 

 

 

0.18

 

Weighted average shares used in calculating

    net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- Basic

 

 

200,000,000

 

 

 

200,000,000

 

 

 

210,409,863

 

 

 

216,100,000

 

 

 

216,100,000

 

- Diluted

 

 

200,000,000

 

 

 

200,000,000

 

 

 

210,409,863

 

 

 

216,100,000

 

 

 

216,100,000

 

Net income

 

 

539,545

 

 

 

611,758

 

 

 

527,185

 

 

 

250,066

 

 

 

38,325

 

Other comprehensive income, net of tax of nil

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

471

 

 

 

(13,366

)

 

 

(2,048

)

Comprehensive income

 

 

539,545

 

 

 

611,758

 

 

 

527,656

 

 

 

236,700

 

 

 

36,277

 

Comprehensive loss attributable

    to noncontrolling interests

 

 

 

 

 

 

 

 

(560

)

 

 

(2,897

)

 

 

(444

)

Total Comprehensive income

    attributable to Jiayin Group Inc.

 

 

539,545

 

 

 

611,758

 

 

 

528,216

 

 

 

239,597

 

 

 

36,721

 

 

 

5


 

The following table presents our selected consolidated balance sheet data as of December 31, 2017, 2018, 2019 and 2020.

 

 

 

As of December 31,

 

 

 

2017

 

 

2018

 

 

2019

 

 

2020

 

 

 

RMB

 

 

RMB

 

 

RMB

 

 

RMB

 

 

US$

 

 

 

(in thousands)

 

Selected Consolidated Balance Sheets Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

606,097

 

 

 

41,441

 

 

 

122,149

 

 

 

117,320

 

 

 

17,980

 

Accounts receivable and contract assets, net

 

 

799,291

 

 

 

539,929

 

 

 

139,164

 

 

 

158,064

 

 

 

24,224

 

Assets from the investor assurance program, net

 

 

270,276

 

 

 

5,525

 

 

 

 

 

 

 

 

 

 

Amounts due from related parties

 

 

517,685

 

 

 

 

 

 

130,722

 

 

 

542

 

 

 

83

 

Short-term investment

 

 

 

 

 

 

 

 

69,618

 

 

 

 

 

 

 

Total assets

 

 

2,530,532

 

 

 

801,879

 

 

 

701,072

 

 

 

525,372

 

 

 

80,517

 

Payroll and welfare payables

 

 

105,386

 

 

 

110,562

 

 

 

48,524

 

 

 

58,288

 

 

 

8,933

 

Liabilities from the investor assurance program

 

 

3,017,124

 

 

 

1,547,072

 

 

 

 

 

 

 

 

 

 

Refund liabilities

 

 

156,111

 

 

 

84,498

 

 

 

180,104

 

 

 

 

 

 

 

Other guarantee liabilities

 

 

701,228

 

 

 

4,060

 

 

 

 

 

 

 

 

 

 

Tax payables

 

 

203,990

 

 

 

422,177

 

 

 

179,421

 

 

 

279,383

 

 

 

42,817

 

Accrued expenses and other current liabilities

 

 

143,286

 

 

 

201,007

 

 

 

158,705

 

 

 

70,954

 

 

 

10,875

 

Other payable related to the

   disposal of Shanghai Caiyin

 

 

 

 

 

 

 

 

839,830

 

 

 

566,532

 

 

 

86,825

 

Total liabilities

 

 

4,462,074

 

 

 

2,453,885

 

 

 

1,442,671

 

 

 

989,137

 

 

 

151,592

 

Total net liabilities

 

 

1,931,542

 

 

 

1,652,006

 

 

 

741,599

 

 

 

463,765

 

 

 

71,075

 

 

The following table presents our selected consolidated cash flow data for the years ended December 31, 2017, 2018, 2019 and 2020.

 

 

 

Year ended December 31,

 

 

 

2017

 

 

2018

 

 

2019

 

 

2020

 

 

 

RMB

 

 

RMB

 

 

RMB

 

 

RMB

 

 

US$

 

 

 

(in thousands)

 

Summary Consolidated Cash Flow Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

 

104,752

 

 

 

(228,368

)

 

 

26,291

 

 

 

(35,505

)

 

 

(5,439

)

Net cash provided by (used in) investing activities

 

 

61,215

 

 

 

(16,423

)

 

 

(234,178

)

 

 

33,226

 

 

 

5,092

 

Net cash provided by (used in) financing activities

 

 

13,876

 

 

 

(433,600

)

 

 

244,674

 

 

 

10,595

 

 

 

1,624

 

Cash, cash equivalents and restricted cash at

    beginning of year

 

 

581,489

 

 

 

761,332

 

 

 

82,941

 

 

 

122,149

 

 

 

18,720

 

Cash, cash equivalents and restricted cash at end

    of year

 

 

761,332

 

 

 

82,941

 

 

 

122,149

 

 

 

119,320

 

 

 

18,287

 

 

B.

Capitalization and Indebtedness

Not applicable.

C.

Reasons for the Offer and Use of Proceeds

Not applicable.

D.

Risk Factors

Risks Relating to Our Business and Industry

We operate in China’s online consumer finance marketplace, an emerging and evolving industry, which makes it difficult to evaluate our future prospects.

China’s online consumer finance industry is relatively new and may not develop as expected. The regulatory framework for this industry is also evolving and may remain uncertain for the foreseeable future. China’s online consumer finance industry in general remains at a rather preliminary development stage and may not develop at the anticipated growth rate. It is possible that the PRC laws

6


 

and regulations may change in ways that do not favor our development. If that happens, there may not be adequate loans facilitated on our platform, and our current business model may be negatively affected. As a new industry, there are very few established players whose business models we can follow or build upon. Potential borrowers and investors may not be familiar with this new industry and may have difficulty distinguishing our services from those of our competitors. Attracting and retaining borrowers and institutional funding partners is critical to increase the volume of loans facilitated through our platform. The emerging and evolving online consumer finance market makes it difficult to effectively assess our future prospects. In addition, our business has grown substantially in recent years, but our past growth rates may not be indicative of our future growth.

You should consider our business and prospects in light of the risks and challenges we encounter or may encounter in this developing and rapidly evolving industry. These risks and challenges include our ability to, among other things:

 

navigate an evolving regulatory environment;

 

expand the base of borrowers and institutional funding partners served on our platform;

 

maintain our credit standards;

 

enhance our risk management capabilities;

 

improve our operational efficiency;

 

continue to scale our technology infrastructure to support the growth of our platform and higher transaction volume;

 

broaden our loan product offerings;

 

operate without being adversely affected by the negative publicity about the industry in general and our company in particular;

 

maintain the security of our platform and the confidentiality of the information provided and utilized across our platform;

 

cultivate a vibrant consumer finance ecosystem;

 

attract, retain and motivate talented employees; and

 

defend ourselves in litigation, and against regulatory, intellectual property, privacy or other claims.

If the market for our platform does not develop as we expect, if we fail to educate potential users and funding sources about the value of our platform and services, or if we fail to address the needs of our target customers, our reputation, business and results of operations will be materially and adversely affected.

The laws and regulations governing online consumer finance industry in China are developing and evolving and subject to changes. If we fail to comply with existing and future applicable laws, regulations or requirements of local regulatory authorities, our business, financial conditions and results of operations would be materially and adversely affected.

Due to the relatively short history of the online consumer finance industry in China, the PRC government has yet to establish a comprehensive regulatory framework governing our industry. Before any industry-specific regulations were introduced in mid-2015, the PRC government relied on general and basic laws and regulations for governing the online consumer finance industry, including the Civil Code of the PRC and related judicial interpretations promulgated by the Supreme People’s Court. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Online Consumer Finance Services.”

 

In July 2015, the People’s Bank of China, or the PBOC, together with nine other PRC regulatory agencies jointly issued a series of policy measures applicable to the online finance industry titled the Guidelines on Promoting the Healthy Development of Online Finance Industry, or the Guidelines. The Guidelines formally introduced for the first time the regulatory framework and basic principles governing the online finance industry, including the provision of online lending information services in China. Following the core principles of the Guidelines, a series of additional restrictions and affirmative obligations were imposed on online lending information intermediaries by the Implementation Strategies Targeted towards Risks related to Online Finance circulated by the General Office of the State Council in April 2016, the Interim Measures on Administration of Business Activities of Online Lending Information Intermediaries , or the Interim Measure, issued by the CBRC and other PRC regulatory agencies in August 2016, the Circular on Regulating and Rectifying of “Cash Loan” Services , or the Circular 141, issued by the Office of the Leading Group for the Special Campaign against Internet Financial Risks and the Office of the Leading Group for the Special Campaign against Peer-to-peer Lending Risks in December 2017, the Notice on the Improvement and Acceptance of P2P Online Lending Risks (“Circular 57”) and the Notice on Conducting Compliance Inspection on P2P Lending Platforms issued by the Office of the Leading Group for the Special Campaign against Peer-to-peer Lending Risks in December 2017 and in August 2018, respectively. In addition, in February 2017 and August 2017, the CBRC issued the Guidelines on Online Lending Funds Custodian Business, or the Custodian Guidelines, and the Guidelines on Information Disclosure of the Business Activities of Online Lending Information Intermediaries, or the Disclosure Guidelines, respectively. The Custodian Guidelines further clarified the requirement of setting up custody accounts with

7


 

commercial banks for the funds of individual investors and borrowers held by online consumer finance platforms, while the Disclosure Guidelines further specified the disclosure requirements for online lending information service providers. It has been reported that in January 2019, the Online Lending Rectification Office enacted the Circular on Further Implementation of Online Lending Intermediaries Compliance Inspection and Follow-up Work, or Circular 1, which has not been officially published. According to Circular 1, for each administrative region, the number of online lending intermediaries, the number of investors and the business volume therein shall be reduced, and for an online lending intermediary, the number of investors, business volume and number of borrowers thereon shall also be reduced.

The laws, regulations, rules and governmental policies are expected to continue to evolve in our industry. The growth in popularity of online consumer finance in China increases the likelihood for the government authorities to further regulate our industry. We are unable to predict with certainty the impact, if any, that future legislation, judicial interpretations or regulations relating to the online consumer finance industry, or the status and scrutiny of implementation thereof will have on our business, financial condition and results of operations. To the extent that we are not able to fully comply with any applicable laws or regulations, our business, financial condition and results of operations may be materially and adversely affected.

If our practice is deemed to violate any PRC laws and regulations, our business, financial condition and results of operations would be materially and adversely affected.

The PRC regulatory regime with respect to the online consumer finance industry is relatively new and evolving, and their interpretation and enforcement are subject to significant uncertainties, which result in difficulties in determining whether our existing practices may be interpreted to violate any applicable laws and regulations.

To comply with existing laws, regulations, rules and governmental policies relating to the online consumer finance industry, we have implemented various policies and procedures to conduct our business and operations. However, due to the lack of detailed implementation rules on certain key requirements of the regulations and different interpretation of the regulations by the local authorities, we cannot be certain that our existing practices would not be deemed to be in violation of any existing or future laws, rules and regulations that are applicable to our business.

Circular 141 requires banking financial institutions that participate in the “cash loan” business to ensure that no third parties will charge borrowers any interest or fees from borrowers and they themselves will not accept any credit enhancement services or other similar services from third parties without qualification to provide guarantee. Since the third quarter of 2019, we have proactively made an adjustment to our cooperation model with institutional funding partners through Geerong Yunke Information Technology Co., Ltd. (“Geerong Yunke”) and Geerong Yun (Shanghai) Enterprise Development Co., Ltd. (“Geerong Yun”, formerly known as “Jirongyun (Shanghai) Enterprise Development Co., Ltd.”). To comply with Circular 141, we cooperate with certain institutional partners such as banks and microcredit companies by having them charge fees directly from borrowers and pay service fees for credit assessment, borrower matching and information support to us. Additionally, we do not offer credit enhancement services directly to institutional partners for loans facilitated. Instead, the credit enhancement services are offered by licensed third-party credit enhancement service providers. However, due to the lack of interpretation and implementation rules and the fact that the laws and regulations are rapidly evolving, we cannot assure you that our business model will be in full compliance with existing and future laws and regulations.

Moreover, Circular 141 prohibits banking financial institutions from outsourcing core businesses, such as credit examination and risk control. Currently, loans facilitated by Geerong Yunke and Geerong Yun are directly funded to the borrowers. We refer to such institutional funding partners qualified credit applications from borrowers, and only provide initial screening, preliminary credit examination and technical services. They will then review the applications and conduct risk controls themselves. However, we cannot rule out the possibility that government authorities could consider our services to be in violation of Circular 141. If any of our services are deemed to be in violation of Circular 141, we could face penalties, including but not limited to suspensions of operation, orders to rectify and condemnation. If this is the case, our business, financial condition and results of operations could be materially and adversely affected.

In addition, on October 9, 2019, CBIRC issued the Notice on Printing and Distributing the Supplementary Provisions on the Supervision and Management of Financing Guarantee Companies (the “CBIRC Circular 37”), which explicitly provides that institutions providing customer promotion, credit assessment and other services for various lending institutions shall not provide financing guarantee services without approval. During our cooperation with certain institutional funding partners since the third quarter of 2019, the credit enhancement services have been provided by licensed third-party credit enhancement service providers (the “Licensed Credit Enhancement Providers”), the Licensed Credit Enhancement Providers also demand counter-guarantees by another company in some contracts. Meanwhile, we also provide commitment letter of balance complements to the institutional funding partners or the Licensed Credit Enhancement Providers as required by them. There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations. If the behavior of Jiayin Finance was deemed to be financing guarantee

8


 

services without approval according to CBIRC Circular 37, we might be subject to licensing requirements and might be subject to penalties such as suspension of relevant business.

As of the date of this annual report, we have not been subject to any material fines or other penalties under any PRC laws or regulations, including those governing the online consumer finance industry in China. If our practice is deemed to violate any laws, regulations and rules, we may face, among others, regulatory warning, corrective order, condemnation, fines and criminal liability. If such situations occur, our business, financial condition, results of operations and prospects would be materially and adversely affected.

The growth of our business is limited by PRC laws and regulations, and we have changed our business into loan facilitation platform.

The rapid growth of China’s online consumer finance industry has attracted a large number of market players. However, business failures of, or accusations of fraud and unfair dealing against, certain companies in the online consumer finance industry in China have surfaced in recent years, creating a negative public perception of online consumer finance market players. In an effort to manage risks and maintain market integrity, PRC regulatory authorities have issued various guidelines and policies that impose stricter requirements on online consumer finance platforms. Further, certain of these policies impose limits on the growth of the online consumer finance industry and market. In accordance with Circular 57, online lending marketplaces shall optimize their business portfolios continuously and manage the scale of their business. Marketplaces that have received rectification notices shall ensure steady decrease of the balance of non-compliant business on these marketplaces and shall not engage in any new non-compliant operations.

It has also been reported that according to Circular 1, for each administrative region, the number of online lending intermediaries, the number of investors and the business volume therein shall be reduced; with respect to each online lending intermediary, the number of investors, business volume and number of borrowers thereon shall also be reduced. We may, however, be encouraged by government authorities to convert into other types of online financing institutions such as online small loan companies or loan facilitation platforms. If we were to change the type of business we operate, our business, financial condition and results of operation might be materially and adversely affected. As of the date of this annual report, we have not received any notice from government agencies that sets any limit on our loan balance or number of investors. Based on our interpretation of these regulations, in order to stay compliant with these circulars, we closely monitor our outstanding principal and number of investors and lenders, and voluntarily manage these operating metrics so that they do not experience any significant increase since June 30, 2017.

Considering the regulatory environment on online lending information intermediaries, we ceased to offer new loans for online investors’ subscription since April 2020 and transitioned to a full institutional funding partner model. In November 2020, the outstanding loan balance of our legacy P2P lending business was reduced to zero.

As we transitioned to a full institutional funding partner model, we have worked with a diversified group of funding partners, which includes commercial banks, trusts and microcredit companies. We believe our capital-light strategy of pursuing diversified funding sources will support our continuous growth, allow us to offer or facilitate a wide variety of loans under changing market conditions and provide more affordable credit products. We will further optimize and diversify our funding sources by cooperating with additional entities, while also seeking to strengthen our mutually beneficial relationships with existing funding partners by leveraging our technology and data services to ensure the scalability, stability and sustainability of our funding. The growth and success of our future operations depend on the availability of adequate lending capital, at a commercially reasonable cost, to meet borrower demand for loans facilitated on our platform.

If the funding partners’ risk appetite changes due to changes in economic conditions, regulatory regime, any unexpected shortage of funds, availability of licensed third party credit enhancement service providers or other reasons, funding partners may choose to offer different investment terms, which are not acceptable to us, or choose to not invest in loans facilitated on our platforms. To the extent that it is necessary to obtain additional lending capital from funding partners, such lending capital may not be available to our platforms on acceptable terms or at all. If adequate funds are not available to meet borrowers’ demand for loans when they arise, our platforms may not be able to fulfill all loan requests and the volume of loans facilitated on our platforms may be significantly impacted. If our platforms are unable to provide potential borrowers with loans or fund the loans on a timely basis due to insufficient lending capital on our platforms, we may experience a loss of market share or slower than expected growth, in which case our business, financial condition and results of operations could be materially and adversely affected.

 

Our cooperation with institutional funding partners may expose us to regulatory uncertainties and we may be required to obtain additional government approval or license due to our cooperation with institutional funding partners.

We have expanded our institutional funding partner base and the volume of loans funded by our institutional funding partners in 2020 and since April 2020, we collaborate exclusively with institutional funding partners to fund our loans. Our collaboration with institutional funding partners has exposed us to and may continue to expose us to additional regulatory uncertainties faced by such institutional funding partners. For example, Circular 141 provides a series of guidance on the cash loan business of financial institutions. In July 2020, the CBIRC issued the Interim Measures for the Administration of Online Loans by Commercial Banks to

9


 

provide detailed rules on online loans provided by commercial banks. Further, on February 19, 2021, the CBIRC further issued the Notice of Further Regulating Online Loan Business of Commercial Banks, also known as Circular 24, which provides that the commercial banks shall independently carry out the risk management of online loans and are forbidden from outsourcing the material procedures of loan management. Circular 24 will also apply by analogy to branches of foreign banks, trusts, consumer finance companies and auto finance companies. To comply with such guidance, our institutional funding partners, such as banks and trusts, may need to change their cooperation model with their business partners, including us, which may adversely affect our business. In addition, we cannot assure you that the business operations of our institutional funding partners currently are or will be in compliance with the relevant PRC laws and regulations, and in the event that our institutional funding partners do not operate their businesses in accordance with the relevant PRC laws and regulations, they will be exposed to various regulatory risks and therefore, our business, financial condition and prospects would be materially and adversely affected.

In addition, CBIRC Circular 37 explicitly provides that institutions providing customer promotion, credit assessment and other services for various lending institutions shall not provide financing guarantee services without approval. During our cooperation with certain institutional funding partners since the third quarter of 2019, the credit enhancement services have been provided by the Licensed Credit Enhancement Providers, and the Licensed Credit Enhancement Providers also demand counter-guarantees by another company in some contracts. Meanwhile, we also provide commitment letter of balance complements to the institutional funding partners or the Licensed Credit Enhancement Providers as required by them. There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations. If the behavior of Jiayin Finance was deemed to be financing guarantee services without approval according to CBIRC Circular 37, we might be subject to licensing requirements and might be subject to penalties such as suspension of relevant business.

2020 is a year of comprehensive transformation for the marketplace lending industry and the laws and regulations in relation to the marketplace lending industry are still evolving. We are unable to predict with certainty the impact, if any, of future laws or regulations governing the marketplace lending industry will have on our business, financial condition and results of operations.

If we are unable to maintain and increase the number of our borrowers or the volume of loans facilitated through our platform, our business and results of operations will be adversely affected.

The total loan origination volume facilitated through our platform was RMB23.7 billion in 2018, RMB19.1 billion in 2019, and RMB 11.6 billion (US$1.8 billion) in 2020, respectively. To maintain the high growth momentum of our platform, we must continuously increase the volume of loans by retaining current participants and attracting more users whose financing needs can be met on our platform. If there are insufficient institutional funding sources, borrowers may not be able to obtain capital through our platform and may turn to other sources for their borrowing needs. If we are unable to attract qualified borrowers and sufficient institutional funding, or if borrowers do not continue to participate in our platform at the current rates due to any changes or other business or regulatory reasons, we may be required to modify the way we conduct our business to ensure compliance with existing or new PRC laws and regulations, we might not be able to increase our loan transaction volume and revenues as we expect, and our business and results of operations may be adversely affected.  

If we are unable to secure funding from institutional funding partners on terms acceptable to us, or at all, our reputation, results of operations and financial condition may be materially and adversely affected.

We collaborate with institutional funding partners to fund certain loans we facilitate. Our current institutional funding partners include banks, trusts and microcredit companies.

The availability of funding from institutional funding partners depends on many factors, some of which are out of our control. Some of our institutional funding partners have limited operating history, and there can be no assurance that we will be able to rely on their funding in the future. Our ability to cooperate with new institutional funding partners may be subject to regulatory or other limitations. In addition, regardless of our risk management efforts, loans facilitated by us may nevertheless be considered riskier and have a higher delinquency rate than loans provided by traditional financial institutions. In the event there is a sudden or unexpected shortage of funds from our institutional funding partners, or if our institutional funding partners have determined not to continue to collaborate with us, we may not be able to maintain necessary levels of funding without incurring high costs of capital, or at all. While we have managed to diversify our funding sources, there can be no assurance that our funding sources will remain or become increasingly diversified in the future. If we become dependent on a small number of institutional funding partners and any such institutional funding partner determines not to collaborate with us or limits the funding that is available, our business, financial condition, results of operations and cash flow may be materially and adversely affected.

Our institutional funding partners typically agree to provide funding to our users who meet their predetermined criteria, subject to their approval process. In addition, while our users’ loan requests are usually approved if they fall within the parameters set and agreed upon by us and our institutional funding partners, they may implement additional requirements in their approval process outside of our monitor and control. Thus, there is no assurance that our institutional funding partners could provide reliable, sustainable and adequate funding to support the required liquidity as they could decline to fund user loans originated on our platform. In addition, if PRC laws and regulations impose more restrictions on cooperation with institutional funding partners, these institutional

10


 

funding partners will become more selective in choosing cooperation partners, which may drive up the funding costs and the competition among online lending platforms to cooperate with a limited number of institutional funding partners as well as other non-institutional funding sources. Any of the above may materially increase our funding costs, which may adversely affect our results of operations and profitability. Furthermore, if PRC laws and regulations are issued that prohibit our cooperation with our institutional funding partners, our cooperation with our funding partners may have to be terminated or suspended, which may materially and adversely affect our business, financial condition and results of operations.

If our existing and new loan products and programs do not achieve sufficient market acceptance, our financial results and competitive position will be harmed.

We have devoted significant resources to, and will continue to emphasize, upgrading and marketing our existing loan products and programs and enhancing their market awareness. We also incur expenses and expend resources upfront to develop, acquire and market new loan products and programs that incorporate additional features, improve functionality or otherwise make our platform more desirable to borrowers. New loan products and programs must achieve high levels of market acceptance in order for us to recoup our investment in developing, acquiring and bringing them to market.

Our existing and new loan products and programs could fail to attain sufficient market acceptance for many reasons, including:

 

borrowers may not find terms of our loan products, such as costs and credit limit, competitive or appealing;

 

our failure to predict market demand accurately and provide loan products that meet this demand in a timely fashion;

 

borrowers and institutional funding partners using our platform may not like, find useful or agree with, any changes;

 

defects, errors or failures in our platform;

 

negative publicity about our loan products or our platform’s performance or effectiveness;

 

views taken by regulatory authorities that the new products or platform changes do not comply with PRC laws, regulations or rules applicable to us; and

 

the introduction or anticipated introduction of competing products by our competitors.

In addition, our platform features a high proportion of repeat borrowers. Out of the total loan volume facilitated through our platform in 2018, 2019 and 2020, 38.6%, 50.4% and 72.8%, respectively, was attributable to repeat borrowers who had successfully borrowed on our platform before. The loan size of repeat borrowing of repeat borrowers tends to be larger than that of first time borrowing. Repeat borrowing also generally contributes to a higher overall credit quality of borrowers on our platform as we only permit borrowers with positive repayment histories to become repeat borrowers. If our repeat borrowing rate decreases in the future, or if the repeat borrowing rate is not as high as our expectations, our overall profitability may be adversely affected. If we are unable to increase the number of repeat borrowers on our platform, the credit quality, amount of transaction and service fees and overall profitability of our platform may be adversely affected. If our existing and new loan products do not achieve adequate acceptance in the market, especially among our existing borrowers, our competitive position, results of operations and financial condition could be harmed.

If we are unable to provide a high-quality user experience, our business and reputation may be materially and adversely affected.

The success of our business largely depends on our ability to provide high-quality user experience, which in turn depends on a variety of factors. These factors include our ability to continue to offer loan products at competitive amount of financing interest and service fees and adequate credit limits, reliable and user-friendly website interface and mobile apps for users to browse, apply for credit, and further improve our online transaction process. If users are not satisfied with our loan products or our services, or our system is severely interrupted or otherwise fail to meet the borrowers’ requests, our reputation and borrower loyalty could be adversely affected.

In addition, if our user service representatives fail to provide satisfactory service, or if waiting time for our user service hotline is too long due to the high volume of inquiries from users and borrowers at peak times, our brands and borrower loyalty may be adversely affected. In addition, any negative publicity or poor feedback regarding our borrower service may harm our brands and reputation and in turn cause us to lose borrowers and market share. As a result, if we are unable to continue to maintain or enhance our borrower experience and provide a high-quality borrower service, we may not be able to retain borrowers or attract prospective borrowers, which could have a material adverse effect on our business, financial condition and results of operations.

11


 

Any negative publicity with respect to us, the online consumer finance industry in general and our third-party partners may materially and adversely affect our business and results of operations.

Reputation of our brand is critical to our business and competitiveness. Factors that are vital to our reputation include but are not limited to our ability to:

 

maintain the quality and reliability of our platform;

 

provide borrowers and funding partners with a superior experience in our platform;

 

enhance and improve our credit assessment and pricing models;

 

effectively manage and resolve borrower and investor complaints; and

 

effectively protect personal information and privacy of borrowers and funding partners.

Any malicious or negative allegation made by the media or other parties about the foregoing or other aspects of our company, including but not limited to our management, business, compliance with law, financial condition or prospects, whether with merit or not, could severely compromise our reputation and harm our business and operating results.

 

As the China online consumer finance industry is new and the regulatory framework for this industry is also evolving, negative publicity about this industry may arise from time to time. Negative publicity about China’s online consumer finance industry in general may also have a negative impact on our reputation, regardless of whether we have engaged in any inappropriate activities. The PRC government has recently instituted specific rules to develop a more transparent regulatory environment for the online consumer finance industry. Any players in China’s online consumer finance industry who are not in compliance with these regulations may adversely impact the reputation of the industry as a whole. Furthermore, any negative development in, or negative perception of, the online consumer finance industry as a whole, even if factually incorrect or based on isolated incidents, could compromise our image, undermine the trust and credibility we have established and impose a negative impact on our ability to attract new funding partners and borrowers. Negative developments in the online consumer finance industry, such as widespread borrower defaults, fraudulent behavior and/or the closure of other online consumer finance platforms, may also lead to tightened regulatory scrutiny of the sector and limit the scope of permissible business activities that may be conducted by online consumer finance platforms like us. For instance, there were a number of reports of business failures of, or accusations of fraud and unfair dealing against, certain companies in the online consumer finance industry in China. Although the market exits of these companies may result in more healthy and stable development of the overall online consumer finance industry, to the extent borrowers or funding partners associate our company with these companies, they may be less willing to initiate transactions on our platform. Our business, financial condition and results of operations were adversely affected by such unfavorable market developments. See “Item 5. Operating and Financial Review and Prospects.” There is still substantial uncertainty with respect to PRC regulatory policies in this field and the condition of the online consumer finance market, and we cannot assure you that similar negative news reports will not appear again in the future.

In addition, negative publicity about our partners, service providers or other counterparties, such as negative publicity about their loan collection practices and any failure by them to adequately protect the information of our funding partners and borrowers, to comply with applicable laws and regulations or to otherwise meet required quality and service standards could harm our reputation. If any of the foregoing takes place, our business and results of operations could be materially and adversely affected.

Changes in PRC regulations relating to interest rates for marketplace and microcredit lending could have a material adverse effect on our business.

According to the relevant PRC laws and regulations, in the context of lending activities between individuals, entities or other organizations that are not licensed financial institutions, if the interest rate of a loan exceeds 36% per annum, the exceeding part of the interest rate is invalid and void; if the interest rate of a loan exceeds 24% per annum but is no more than 36% per annum, the exceeding part will be treated as natural obligation—valid but not enforceable in the PRC judicial system, while the enforceability of the 24% per annum part will not be affected. In addition, on August 4, 2017, the Supreme People’s Court promulgated the Circular of Several Suggestions on Further Strengthening the Judicial Practice Regarding Financial Cases, which provides, among others, that (i) the claim of a borrower under a financial loan agreement to adjust or cut down the part of interest exceeding 24% per annum on the basis that the aggregate amount of interest, compound interest, default interest, liquidated damages and other fees collectively claimed by the lender is overly high shall be supported by the PRC courts; and (ii) in the context of online finance disputes, if the online lending information intermediary platforms and the lender circumvent the upper limit of the judicially protected interest rate by charging intermediary fee, it shall be ruled as invalid. In addition, under Circular 141, the overall borrowing costs charged to borrowers should be calculated by loan interest together with all relevant fees and presented in an annualized form.

On July 22, 2020, the Supreme People’s Court and the National Development and Reform Commission jointly released the Opinions on Providing Judicial Services and Safeguards for Accelerating the Improvement of the Socialist Market Economic System for the New Era. This document states that if the interest and fees, including interest, compound interest, penalty interest, liquidated damages and other fees, claimed by one party to the loan contract exceed the upper limit under judicial protection, the claim will not

12


 

be supported by the court, and if the parties to the loan disguise the financing cost in an attempt to circumvent the upper limit, the rights and obligations of all parties to the loan will be determined by the actual loan relationship.

On September 1, 2015, the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases came into effect and was then amended on August 20, 2020 and January 1, 2021. Under these amendments, if the service fees or other fees that we charge are deemed to be loan interest or fees related to loans (inclusive of any default rate and default penalty and any other fee), then in the event that the sum of the annualized interest that lenders charge and fees we and our business partners charge exceed four times the one-year Loan Prime Rate at the time of the establishment of the agreement, the borrower may refuse to pay the portion that exceeds the limit. In that case, PRC courts will not uphold our request to demand the payment of fees that exceed the limit from the borrower. The aforementioned one-year Loan Prime Rate refers to the one-year loan market quoted interest rate issued by the National Bank Interbank Funding Center. The one-year loan market quoted interest rate issued by the National Bank Interbank Funding Center on March 22, 2021 was 3.85%, and we cannot assure you that the one-year loan market quoted interest rate or the upper limit on interest and fee rates will not decrease in the future. As to the cases accepted by PRC courts of first instance on or after August 20, 2020 and in which the loan contracts were established before August 20, 2020, if the lender requests that the court apply the previous limits of 24% and 36% for calculating the loan interest accrued from the establishment of the loan contracts up to August 19, 2020, such request will be supported by the court, but the loan interest accrued from August 20, 2020 to the date of the loan repayment shall be calculated by applying the new limit of four times the one-year Loan Prime Rate at the time of the filing of the lawsuit.

On December 29, 2020, the Supreme People’s Court also issued the Reply Regarding the Scope of Application of the New Private Lending Judicial Interpretation, which provides that the two amendments are not applicable to disputes arising from the relevant financial business of microcredit companies, financing guarantee companies, and five other types of local financial organizations which are regulated by local financial authorities. However, there remain uncertainties in the interpretation and implementation of the two amendments, including their applicability in practice, the basis of the formula used to calculate the interest limit, and the scope of inclusion of related fees, as well as inconsistencies between the standard and the level of enforcement by different PRC courts. If we are unable to comply with such regulatory requirements, supervision or guidance or are deemed to be charging above the maximum interest rates permitted by the relevant laws, regulations, policies or guidance, we could be subject to orders of suspension, cessation or rectification, cancellation of qualifications, or other penalties, and our business, financial condition, results of operations and our cooperation with business partners could be materially and adversely affected as a result.

See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Online consumer finance Services—Regulations on Online Peer-to-Peer Lending Intermediary Information Services” for more details.

We are subject to credit cycles and the risk of deterioration of credit profiles of borrowers.

Our business is subject to credit cycle, which is in turn associated with the volatility of general economy. If economic conditions deteriorate, we may face increased risk of default or delinquency of borrowers, which will result in lower returns or even losses. In the event that the creditworthiness of our borrowers deteriorates or we cannot track the deterioration of their creditworthiness, the criteria we use for the analysis of borrower credit profiles may be rendered inaccurate, and our risk management system may be subsequently rendered ineffective. This in turn may lead to higher default rates and adverse impact on our reputation, business, results of operations and financial positions.

 

Broader macro, political and socio-economic factors and regulatory environment in China affecting market conditions can materially and adversely affect our business and operating results.

General economic, macro, political and socio-economic factors beyond our control and regulatory environment in China may deter borrowers’ interest in seeking loans through our platform, and similarly, funding partners’ willingness to lend. Such factors include the general interest rate, unemployment rates, residential home values and availability of other investment opportunities. If any of these risk factors should materialize, the volume of loans facilitated on our platform will necessarily decline, and our revenues and operating results may be adversely affected. For instance, from the second quarter of 2019, the loan origination volume on our platform decreased due to Circular 1, which requires an online lending intermediary to reduce the number of individual investors, business volume and number of borrowers. In view of the changing regulatory environment, we have stopped funding our loans with individual investors in April 2020, which negatively affected our business and financial performance in 2020.

We cannot guarantee that economic conditions will remain favorable for our business or industry and that demand and supply for consumer loans such as those we primarily facilitate over our platform will continue to be met at current levels. If demand or supply reduces, or if the default rate increases, our growth and revenue will be negatively impacted.

Credit and other information that we receive from prospective borrowers and third parties about a borrower may be inaccurate or may not accurately reflect the borrower’s creditworthiness, which may compromise the accuracy of our credit assessment.

For the purpose of credit assessment, we obtain from prospective borrowers and third parties certain information of the prospective borrowers, which may not be complete, accurate or reliable. The third parties whom we collaborate with include industry

13


 

anti-fraud service providers, Internet or wireless service providers, online shopping websites and payment service providers. A credit score assigned to a borrower may not reflect that particular borrower’s actual creditworthiness because the credit score may be based on outdated, incomplete or inaccurate borrower information. Additionally, once we have obtained a borrower’s information, the borrower may subsequently (i) become delinquent in the payment of an outstanding obligation; (ii) default on a pre-existing debt obligation; (iii) take on additional debt; or (iv) sustain other adverse financial events, making the information we have previously obtained inaccurate. We currently cannot determine whether borrowers have outstanding loans through other online consumer finance platforms at the time they obtain a loan from us. This creates the risk that a borrower may borrow money through our platform in order to pay off loans on other online consumer finance platforms and vice versa. If a borrower incurs additional debt before fully repaying any loan such borrower takes out on our platform, the additional debt may impair the ability of that borrower to make payments on his or her loan and the funding partner’s ability to receive returns associated with such loan. In addition, the additional debt may adversely affect the borrower’s creditworthiness generally, and could result in the financial distress or insolvency of the borrower. To the extent that a borrower has or incurs other indebtedness and cannot repay all of his or her indebtedness, the obligations under the loans will rank pari passu to each other and the borrower may choose to make payments to other creditors rather than to funding partners on our platform. The additional debt may adversely affect the borrower’s creditworthiness generally, and could result in the financial distress or insolvency of the borrower, impairing the borrower’s ability to repay the loan and the funding partner’s ability to receive investment returns associated with such loan. In addition, if a borrower incurs debt on other online lending platforms in order to repay our loans, the borrower’s ability to repay such loans is limited by the availability of funding sources subject to factors beyond the borrower’s control, which may adversely affect our results of operations. For instance, in the first half of 2020, the outbreak of COVID-19 pandemic increased market uncertainties and resulted in an unexpected short-term volatility of borrower credit performance across our industry, and in particular, we observed a slightly increase in our delinquency rate in the first quarter of 2020. Such inaccurate or incomplete borrower information could compromise the accuracy of our credit assessment and adversely affect the effectiveness of our risk management, which could in turn harm our reputation, and as a result our business and results of operations could be materially and adversely affected.  

 

We rely on our proprietary credit assessment model in assessing the creditworthiness of our borrowers and the risks associated with loans. If our credit assessment model is flawed or ineffective, or if we otherwise fail or are perceived to fail to manage the default risks of loans facilitated through our platform, our reputation and market share would be materially and adversely affected, which would severely impact our business and results of operations.

Our ability to attract funding partners and borrowers to, and build trust in, our platform is significantly dependent on our ability to effectively evaluate borrowers’ credit profiles and likelihood of default. To conduct this evaluation, we utilize our proprietary and open credit assessment model, which is built based on massive data collected through various channels and strengthened by our sophisticated artificial intelligence and advanced machine learning techniques. Our credit assessment model conducts in-depth anti-fraud and delinquency history analysis of the borrowers, assigns the borrowers a credit score based on their risk profile, which directly affect the interests rate and credit limit available to the borrower. However, our credit assessment model may not effectively assess the credit risk of the borrower or predict future delinquency rate and loan losses. If we are unable to effectively classify borrowers into the relative risk categories, we may be unable to effectively manage the default risks of loans facilitated through our platform, which may adversely affect our ability to accurately account for risk related to such loans, and furthermore, our ability to offer attractive interest rates for borrowers and returns for funding partners. Because investment in loans on our platform involves inherent risks, we are unable to completely eliminate borrowers’ default despite various preventive and funding partner protection measures we have taken or will take.

In addition, if a borrower’s financial condition worsens after his or her loan application is approved, we may not be able to take measures to prevent default on the part of the borrower and thereby maintain a reasonably low default rate for loans facilitated through our platform. Our credit assessment model may not be able to timely and accurately adjust down the credit rating assigned to a borrower if such borrower’s creditworthiness deteriorates. In addition, certain line items on our financial statements, including allowance for uncollectible receivables, contract assets, loans receivable and others and provision for assets and liabilities from the investor assurance program that we historically managed, are and were recorded based on the default rate that we estimate. Since our estimate of the risks might be inaccurate, our consolidated financial statements may be materially misstated.

While we continuously refine the algorithms, data processing and machine learning used by our credit assessment model to reduce the likelihood of mispricing loans or misclassifying borrower, our loan pricing and approval process could be negatively affected if any of these decision-making and scoring systems contain programming or other errors, are ineffective or the data provided by borrowers or third parties are incorrect or stale. If any of the foregoing were to occur in the future, borrowers may seek to revise the terms of their loans or reduce the use of our platform for financing, and our reputation and market share would be materially and adversely affected, which would severely impact our business and results of operations.

14


 

We have obligations to verify information relating to borrowers and detecting fraud. If we fail to perform such obligations to meet the requirements of relevant laws and regulations, we may be subject to liabilities. Our reputation may be harmed if information supplied by borrowers is inaccurate, misleading or incomplete.

Our business of connecting funding partners and borrowers constitutes an intermediary service, and our contracts with funding partners and/or borrowers are intermediation contracts under the Civil Code. Under the Civil Code, an intermediary that intentionally conceals any material information or provides false information in connection with the conclusion of an intermediation contract which results in harm to the client’s interests may not claim any service fee for its intermediary services, and is liable for any damage incurred by the client. Therefore, if we fail to provide material information to funding partners and are found to be at fault for our failure or deemed failure to exercise proper care to conduct adequate information verification or supervision, we could be subject to liabilities as an intermediary under the Civil Code. Furthermore, if we fail to complete our obligations under the agreements with institutional funding partners and borrowers, we could also be held liable for damages caused to borrowers or institutional funding partners pursuant to the Civil Code. In addition, the Interim Measures have imposed on online lending information intermediaries, including us, additional obligations to verify the truthfulness of the information provided by or in relation to loan applicants and to actively detect fraud. We leverage a large database of fraudulent account information and sophisticated rule-based detection technology to detect fraudulent behaviors. We update our database on a monthly basis based on new data collected and fraudulent behavior detected during the ordinary course of our business operations. As the Interim Measures are relatively new, it is still unclear to what extent online lending information intermediaries should exercise care in detecting fraud. Although we believe that as an information intermediary, we should not bear the credit risk for funding partners as long as we take reasonable measures to detect fraudulent behavior, we cannot assure you that we would not be subject to liability under the Interim Measures if we fail to detect any fraudulent behavior. Any such liability could materially and adversely affect our results of operations and financial condition.  

 

We do not impose restrictions on the use of our loans or prohibit our borrowers from incurring other debt or impose financial covenants on borrowers during the term of the loan, which will increase the risk of non-payment on our loans.

We are faced with the risk that borrowers borrow money from our platform to pay off loans on other online consumer finance platforms. Subject to credit assessment result, borrowers may take out new loans on our platform to pay off their other existing loans facilitated by others. We also do not prohibit our borrowers from incurring additional indebtedness, which may impair the borrower’s ability to observe his or her payment obligations on the loan product we facilitated and therefore adversely affect the relevant funding partner’s returns. Although we take certain measures to monitor our borrowers’ credit records and indebtedness, we may not be able to effectively prevent the occurrence of such behavior given the practical difficulty in tracking and controlling the usage of borrowed funds and the financial activities of our borrowers.

If a borrower becomes insolvent or otherwise run into financial distress, any unsecured loan (including those obtained through our platform) will rank pari passu to each other and the borrower may cherry-pick among his or her creditors and our funding partner may suffer losses. For secured loans, the ability of other secured lenders to exercise remedies against the assets of the borrower may impair the borrower’s ability to repay the loan to our funding partner. Funding partners may lose their confidence in us and our reputation and business may be adversely affected.

Fraudulent activity on our platform could negatively impact our operating results, brand and reputation and cause the use of our loan products and services to decrease.

We are subject to the risk of fraudulent activity both on our platform and associated with borrowers, funding partners and third parties handling borrower and funding partner information. Our resources, technologies and fraud detection tools may be insufficient to accurately detect and prevent fraud. Significant increases in fraudulent activity could negatively impact our brand and reputation, result in losses suffered by the funding partners, reduce the volume of loans facilitated through our platform and lead us to take additional steps to reduce fraud risk, which could increase our costs and expenses. High profile fraudulent activity could even lead to regulatory intervention and litigation, and may divert our management’s attention and cause us to incur additional expenses and costs. If any of the foregoing were to occur, our results of operations and financial condition could be materially and adversely affected.

Our risk management system comprising our policy framework, credit assessment and fraud detection technology and modules may not be adequate, which may adversely affect the reliability of our platform, and in turn damage our reputation, business and results of operations.

The success of our online platform relies heavily on our ability to detect, assess and control credit risk, and therefore to prevent fraud. Despite the measures we take to assess and manage risk, the information and data we collect may not be sufficient to allow us to adequately capture a borrower applicant’s credit risk. Such information and data include, among others, demographic information, credit history with us and with other financial institutions, and employment information and blacklists maintained by other forums and organizations. We constantly update and optimize our risk management system, but the system may have loopholes or defects which may prevent us from effectively identifying risks, or the data provided may be inaccurate or stale or insufficient, such that we may misjudge the risk and misalign the risk profile and loan price. The information may also not be sufficient for prediction of future non-

15


 

payment. Such risks and errors may erode funding partner confidence in our platform and therefore harm our reputation and adversely affect our business and results of operations.

Interim period results can vary significantly due to a host of variables and may not accurately reflect the underlying performance of our business.

Our interim period results of operations, including operating revenue, expenses, the number of loans and other key performance indicators, may fluctuate significantly such that comparisons of our operating results period-on-period may not be meaningful. Results of any interim period cannot accurately indicate future performance. Fluctuations may be due to any number of variables, including some beyond our control, such as:

 

our ability to grow our users base by attracting new and retaining repeat borrowers;

 

the volume, quality, mix of loans and the acquisition of funding partners and borrowers;

 

the level of operating expenses in the acquisition of funding partners and borrowers, the growth and maintenance of our business, operations and infrastructure and the timing;

 

disruptions to the telecommunications network or security breaches;

 

general macroeconomic and socio-political factors affecting the market and industry, particularly with respect to interest rates, consumer spending and levels of disposable income;

 

seasonality of our loan products, which are generally higher in the third and fourth quarters due to national holidays and consumer spending patterns;

 

our strategy with a focus on long-term growth instead of immediate profitability; and  

 

The incurring of expenses related to acquisitions activities of businesses or technologies and potential future charges for impairment of goodwill, if any.

Fluctuations in our interim period results may affect the price of our ADSs in an adverse manner.

We incurred net losses in the past and may incur net losses in the future. Furthermore, we experienced net cash outflows in the past and may experience liquidity pressure in the future.

Although we had net income of RMB611.8 million, RMB527.2 million and RMB250.1 million (US$38.3million) in 2018, 2019 and 2020, respectively, we have had net losses in the past. We had accumulated deficits of RMB2,047.5 million, RMB1,519.7 million and RMB1,266.8 million (US$194.1 million) as of December 31, 2018, 2019 and 2020, respectively. We cannot assure you that we will be able to continue to generate net income in the future.

Furthermore, we experienced net cash outflows from operating activities in 2020 of RMB35.5 million (US$5.4 million), we cannot assure you that we will be able to continue to grow our revenue and operating cash inflows. We generate a substantial majority of our total revenues from service fees we collect from our institutional funding partners. Any material decrease in our service fees would have a substantial impact on our profit margin and liquidity status. We may also experience an increase in our operating cash outflows as we anticipate that our operating cost and expenses may increase in the foreseeable future as we continue to grow our business, attract funding partners and borrowers and further enhance and develop our products, enhance our risk management capabilities and increase brand recognition. These efforts may prove more costly than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. There are other factors that could negatively affect our financial condition. For example, the delinquency rates of the loans facilitated may be higher than expected, which may lead to lower than expected revenue, additional expenses and higher provision for assets and liabilities from the investor assurance program. Furthermore, we have adopted share incentive plans in the past and may adopt new share incentive plans in the future, which have caused, and will result in, significant share-based compensation expenses to us, which will decrease our income. As a result of the foregoing and other factors, our net income margins may decline or we may incur additional net losses in the future and may not be able to maintain profitability on a quarterly or annual basis. Furthermore, our liquidity status may deteriorate. In addition, our ability to satisfy our liquidity and capital needs may be affected by additional factors and events that affects the online consumer finance industry, as well as other macroeconomic and socio-political factors that increase our cash needs making us face continuing or greater liquidity pressure.

Our failure to compete effectively could adversely affect our results of operations and market share.

The online consumer finance market is an emerging industry in China. We face competition from other online consumer finance platforms, online platforms that engage in online lending and traditional financial institutions. We compete with other online consumer finance platforms directly for both investors and borrowers. In addition, we compete with other online platforms that engage

16


 

in online lending businesses for borrowers. We also compete with traditional financial institutions, including credit card issuers, online consumer finance business units in commercial banks and other online consumer finance companies.

Our competitors operate with different business models, have different cost structures or participate selectively in different market segments. They may ultimately prove more successful or more adaptable to new regulatory, technological and other developments. Some of our current and potential competitors have significantly more financial, technical, marketing and other resources than we do and may be able to devote greater resources to the development, promotion, sale and support of their platforms. Our competitors may also have more extensive borrower or funding partner bases, greater brand recognition and brand loyalty and broader partner relationships than us. Additionally, a current or potential competitor may acquire one or more of our existing competitors or form a strategic alliance with one or more of our competitors. Any of the foregoing could adversely affect our business, results of operations, financial condition and future growth.

In addition, our competitors may be better at developing new products, responding faster to new technologies. When new competitors seek to enter our target market, or when existing market participants seek to increase their market share, they sometimes undercut the pricing and/or terms prevalent in that market, which could adversely affect our market share or ability to exploit new market opportunities. Also, since the online consumer finance industry in China is relatively new and fast evolving, potential funding partners and borrowers may not fully understand how our platform works and may not be able to fully appreciate the additional customer protections and features that we have invested in and adopted on our platform as compared to others. Our pricing and terms could deteriorate if we fail to act to meet these competitive challenges. Furthermore, to the extent that our competitors are able to offer more attractive terms to our business partners, such business partners may choose to terminate their relationships with us. If we are unable to compete with such companies and meet the need for innovation in our industry, the demand for our platform could stagnate or substantially decline, we could experience reduced revenues and our platform could fail to achieve or maintain more widespread market acceptance, any of which could harm our business and results of operations.

If we fail to promote and maintain our brand in a cost-efficient way, our business and results of operations may be harmed.

We believe that developing and maintaining awareness of our brand effectively is critical to attracting new and retaining existing funding partners and borrowers to our platform. This depends largely on the effectiveness of our marketing efforts and the success of the channels we use to promote our platform. If any of our current marketing channels become less effective, if we are unable to continue to use any of these channels, or if the cost of using these channels were to significantly increase or if we are not successful in generating new channels, we may not be able to attract new funding partners and borrowers in a cost-effective manner or convert potential funding partners and borrowers into active funding partners and borrowers on our platform.

Our efforts to build our brand have caused us to incur significant expenses, and it is likely that our future marketing efforts will require us to incur significant additional expenses. The costs of any such advertising campaign is likely to be considerable. These efforts may not result in increased revenues in the immediate future or at all and, even if they do, any increases in revenues may not offset the expenses incurred. If we fail to successfully promote and maintain our brand while incurring substantial expenses, our results of operations and financial condition would be adversely affected, which may impair our ability to grow our business.  

We operate in a market where the credit infrastructure is still at an early stage of development.

China’s credit infrastructure is still at an early stage of development. The nationwide financial basic credit reporting system operated by the Credit Reference Center, which was established by the People’s Bank of China in 2006, only records limited credit information, such as tax payments, civil lawsuits, foreclosure and bankruptcy. Moreover, this credit database is accessible to data owners themselves and data users who have obtained written authorization from the data owners. In 2015, the People’s Bank of China announced that it would open the credit reporting market to private sectors with a view to spurring competition and innovation, but it may be a long-term process to establish a widely- applicable, reliable and sophisticated credit infrastructure in the market we operate.

Our fee rates may decline in the future.

We generate a substantial majority of our total revenues from service fees we collect from our institutional funding partners. These fee rates may be affected by our product mix, the macroeconomic factors as well as the competition in the online consumer finance industry. We may be unable to offer attractive service fee rates while driving the growth and profitability of our business. Furthermore, our competitors may lower their fee rates in an effort to lure funding partners away from us. If we reduce our fee rates in order to compete more effectively, the profitability of our business could be adversely affected. If we do not reduce our rates, funding partners may leave our platform, and the total service fees we collect may decline. Any material decline in our fee rates or the fees we collect could have a material adverse effect on our business, results of operations and financial condition.

17


 

Our business depends on the continued efforts of our senior management. If one or more of our key executives were unable or unwilling to continue in their present positions, our business may be severely disrupted.

Our business operations depend on the continued services of our senior management, particularly the executive officers named in this annual report. While we have provided different incentives to our management, we cannot assure you that we can continue to retain their services. There have been departures of our senior management members in the past and we cannot assure you that our existing senior management members will not terminate their employment with us in the future. If one or more of our key executives were unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, our future growth may be constrained, our business may be severely disrupted and our financial condition and results of operations may be materially and adversely affected, and we may incur additional expenses to recruit, train and retain qualified personnel. In addition, although we have entered into confidentiality and non-competition agreements with our management, there is no assurance that any member of our management team will not join our competitors or form a competing business. If any dispute arises between our current or former officers and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may be unable to enforce them at all.

We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations

We are vulnerable to natural disasters and other calamities. Fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events may give rise to server interruptions, breakdowns, system failures, technology platform failures or Internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to provide products and services on our platform.

Our business could also be adversely affected by the effects of coronavirus, Ebola virus disease, Zika virus disease, H1N1 flu, H7N9 flu, avian flu, Severe Acute Respiratory Syndrome, or SARS, or other epidemics. Our business operations could be disrupted if any of our employees is suspected of having coronavirus, Ebola virus disease, Zika virus disease, H1N1 flu, H7N9 flu, avian flu, SARS or other epidemic, since it could require our employees to be quarantined and/or our offices to be disinfected. In particular, the outbreak of a novel strain of coronavirus, COVID-19, first reported in December 2019, has spread rapidly throughout the world. The World Health Organization declared the outbreak a “pandemic” on March 11, 2020. The global outbreak has caused market panics, which materially and negatively affected the global financial markets. Such disruption and the potential slowdown of China’s and the world’s economy has had and could continue to have a material adverse effect on our results of operations and financial condition. In particular, we, our institutional funding partners and third-party collection agencies have experienced business disruptions due to quarantine measures to contain the spread of this outbreak. In addition, our results of operations could be adversely affected to the extent that the outbreak harms the Chinese economy in general. The extent to which the COVID-19 pandemic affects our operations and financial performance will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain the coronavirus, such as the availability of effective vaccines or cure, among others. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this annual report, such as those relating to our level of indebtedness, our need to generate sufficient cash flows to service our indebtedness and our ability to comply with the covenants contained in the agreements that govern our indebtedness.

Our headquarters are located in Shanghai, where most of our directors and management and a large majority of our employees currently reside. In addition, most of our system hardware and back-up systems are hosted in leased facilities located in Shanghai. Consequently, if any of the abovementioned natural disasters, health epidemics or other outbreaks were to occur in Shanghai or other locations where we operate in, our operation may experience material disruptions, such as temporary closure of our offices and suspension of services, which may materially and adversely affect our business, financial condition and results of operations.

Our business operation could also be disrupted if any of our employees are suspected of having contracted any contagious disease or condition, since it could require our employees to be quarantined or our offices to be closed down and disinfected. All of these would have a material adverse effect on our results of operations and financial condition in the near terms. Additionally, if the outbreak persists or escalates, we may be subject to further negative impact on our business operations and financial condition. Our operation could also be severely disrupted if our users or business partners were affected by such natural disasters or health epidemics. 

Misconduct, errors and failure to function by our employees and third-party service providers could harm our business and reputation.

We are exposed to many types of operational risks, including the risk of misconduct and errors by our employees and third-party service providers. Our business depends on our employees and third-party service providers to interact with potential funding partners and borrowers, process large numbers of transactions and support the loan collection process, all of which involve the use and disclosure of personal information. We could be materially adversely affected if transactions were redirected, misappropriated or otherwise improperly executed, if personal information was disclosed to unintended recipients or if an operational breakdown or failure in the processing of transactions occurred, whether as a result of human error, purposeful sabotage or fraudulent manipulation of our operations or systems. In addition, the manner in which we store and use certain personal information and interact with funding

18


 

partners and borrowers through our platform is governed by various PRC laws. It is not always possible to identify and deter misconduct or errors by employees or third-party service providers, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses. If any of our employees or third-party service providers take, convert or misuse funds, documents or data or fail to follow protocol when interacting with funding partners and borrowers, we could be liable for damages and be subject to regulatory actions and penalties. We could also be perceived to have facilitated or participated in the illegal misappropriation of funds, documents or data, or the failure to follow protocol, and therefore be subject to civil or criminal liability. In addition to our own collecting team, we also use certain third-party service providers for loan collection services. Aggressive practices or misconduct by any of our third-party service providers in the course of collecting loans could damage our reputation.

Cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions of us or of a third-party, including events beyond our control, could result in disclosure or misuse of confidential information and misappropriation of funds of our funding partners and borrowers, subject us to liabilities, reduce the attractiveness of our platform and cause reputational harm and adversely impact our results of operations and financial condition.

Our platform collects, stores and processes certain personal and other sensitive data from our funding partners and borrowers. The massive data that we have processed and stored makes us or third-party service providers who host our servers a target and potentially vulnerable to cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions. While we have taken steps to protect the confidential information that we have access to, our security measures could be breached. Because techniques used to sabotage or obtain unauthorized access to systems change frequently and generally are not recognized until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any accidental or willful security breaches or other unauthorized access to our platform could cause confidential borrower and funding partner information to be stolen and used for criminal purposes. As personally identifiable and other confidential information is increasingly subject to legislation and regulations in numerous domestic and international jurisdictions, any inability to protect confidential information of our funding partners and borrowers could result in additional cost and liability for us, damage our reputation, inhibit the use of our platform and harm our business.

We also face indirect technology, cybersecurity and operational risks relating to the third parties whom we work with to facilitate or enable our business activities, including, among others, third-party online payment service providers who manage accounts for certain borrower and funding partner funds and external cloud service provider. As a result of increasing consolidation and interdependence of technology systems, a technology failure, cyber-attack or other information or security breach that significantly compromises the systems of one entity could have a material impact on its counterparties. Any cyber-attack, computer viruses, physical or electronic break-ins or similar disruptions of such third-party payment service providers could, among other things, adversely affect our ability to serve our users, and could even result in misappropriation of funds of our funding partners and borrowers. If that were to occur, both we and third-party payment service providers could be held liable to funding partners and borrowers who suffer losses from the misappropriation.

Security breaches or unauthorized access to confidential information could also expose us to liability related to the loss of the information, time-consuming and expensive litigation and negative publicity. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our technology infrastructure are exposed and exploited, our relationships with funding partners and borrowers could be severely damaged, we could incur significant liability and our business and operations could be adversely affected.

If we are unable to protect the confidential information of our users and adapt to the relevant regulatory framework regarding protection of such information, our business and operations may be adversely affected.

The PRC government authorities have enacted a series of laws and regulations on the protection of personal information, under which Internet service providers and other network operators are required to comply with the principles of legality, justification and necessity, to clearly indicate the purposes, methods and scope of any information collection and usage, and to obtain the consent of users, as well as to establish a user information protection system with appropriate remedial measures. We have obtained written consent from our users to use their personal information within the scope of authorization and we have taken technical measures to ensure the security of such personal information and to prevent any loss or divergence of personal information from. However, there is uncertainty as to the interpretation and application of such laws. If such laws or regulations are to be interpreted and applied in a manner inconsistent with our current policies and practices, changes to the features of our system may be required and additional costs may be incurred. We cannot assure you that our existing user information protection system and technical measures will be considered sufficient under applicable laws and regulations. If we are unable to address any information protection concerns, or to comply with the then applicable laws and regulations, we may incur additional costs and liability and our reputation, business and operations might be adversely affected. See ‘‘Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Internet Companies—Regulations on Privacy Protection’’ for more details.

19


 

On June 1, 2017, the Cyber Security Law of the PRC became effective. The law requires network products and services providers as we are, among other things, to strictly preserve the secrecy of user information they collect and to store within mainland China data that is gathered or produced by such network products and services provider in the country. If we are deemed to have violated the law, potential penalties include, depending on the nature of violation, forced shut down of our websites, revocation of business licenses, freezing of assets, and fines imposed on the company ranging from approximately RMB10,000 to RMB1 million or management personnel ranging from approximately RMB5,000 to RMB1 million.

Due to the relatively new nature of the Cyber Security Law of the PRC and the lack of clarity in the statutory law itself as to the circumstances and standard under which the law should apply and violations may be found, there are great uncertainties as to the interpretation and application of the law.

The law’s vagueness in its own statutory language also indicates that the Cyberspace Administration of China, or the CAC, the designated government enforcement agency, will have broad latitude to direct how the law is interpreted and enforced, thus creating greater uncertainties with regard to the interpretation and application of the law since the government enforcement agency has yet to provide further guidance on the enforcement mechanism of the law. If we are found to have violated the Cyber Security Law of the PRC in a government enforcement action, we may face severe penalties that may result in monetary losses, losses of access to assets essential for daily operation of our business or for the continuance of service provision, and temporary or total disruption of our business for an extended period of time. In addition, the finding of a violation of the Cyber Security Law of the PRC, even if later repealed, may cause damages to our reputation and our brand name, causing users to lose confidence in our service and to refrain from choosing or continuing to use our products and services. All of these consequences may have a material adverse impact on our business, financial condition and results of operations.

Furthermore, the stringent reporting obligation imposed by the Cyber Security Law of the PRC itself, without a finding of violation, may have a material adverse impact on our business and results of operations. As we are obligated by the law to inform our users of any security flaw or vulnerability as they are discovered, users may become wary of the existence or frequency of such reports and lose confidence in the security of our system, and thus may be discouraged from choosing or continuing to use our products and services, even if the security flaws or vulnerabilities are readily fixable and can be easily overcome.

In addition, the Personal Information Security Specification came into force in May 2018, and the final amended version of it came into force on October 1, 2020. Although the Personal Information Security Specification is not yet a mandatory regulation, it nonetheless has a key implementing role under China’s Cyber Security Law with respect to protecting personal information in China. Furthermore, it is likely that the Personal Information Security Specification will be relied on by Chinese government agencies as a standard to determine whether businesses have abided by China’s data protection rules. Meanwhile, under the Personal Information Security Specification, the data controller must provide the purpose of collecting and using personal information, as well as the business functions of such purpose, and the Personal Information Security Specification requires the data controller to distinguish its core function from additional functions to ensure the data controller will only collect personal information as needed.

In addition, on July 3, 2020, the Standing Committee of the National People’s Congress released the Data Security Law (Draft) to solicit public comments. The Data Security Law (Draft) sets forth specific provisions regarding establishing basic systems for data security management, including hierarchical data classification management system, risk assessment system, monitoring and early warning system, and emergency disposal system. It also clarifies the data security protection obligations of organizations and individuals carrying out data activities and implementing data security protection responsibility. On October 21, 2020, the Standing Committee of the National People’s Congress published a consultation draft of the Personal Information Protection Law, which takes revocable consent as its principal basis for processing personal information. It introduces extra-territorial effect and restrictions on international data transfers and imposes revenue-based fines as the principal penalty for non-compliance.

The relevant regulatory authorities in China continue to monitor websites and apps in relation to the protection of personal data, privacy and information security, and may impose additional requirements from time to time. We believe that we have conformed our practices in line with current requirements. However, we cannot assure that our existing user information protection system and technical measures will be considered sufficient under all applicable laws and regulations. There are uncertainties as to the interpretation and application of laws in one jurisdiction which may be interpreted and applied in a manner inconsistent to another jurisdiction and may conflict with our current policies and practices or require changes to the features of our system. If we are unable to address any information protection concerns, any compromise of security that results unauthorized disclosure or transfer of personal data, or to comply with the then applicable laws and regulations, we may incur additional costs and liability and result in governmental enforcement actions, litigation, fines and penalties or adverse publicity and could cause our users and clients to lose trust in us, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

20


 

The trend of tightening regulations on protection of data security also appear in other jurisdictions. For example, in May 2018, a new data protection regime, the European Union’s General Data Protection Regulation became applicable; the General Data Protection Regulation can apply to the processing of personal data by companies outside of the European Union, including where the processing of personal data relates to the offering of goods and services to, or monitoring the behavior of, individuals in the European Union. The General Data Protection Regulation and data protection laws in other jurisdictions may apply to our processing of personal data in the future. The application of these laws to our business would impose on us more stringent compliance requirements with more significant penalties for non-compliance than PRC data protection laws and regulations, and our compliance with such requirements could require significant resources and result in substantial costs, which may materially and adversely affect our business, financial condition, results of operations and prospects.

We collect, process and store personal information concerning our borrowers, as well as personal information pertaining to our business partners and employees. Compliance with applicable personal information and information security laws and regulations is a rigorous and time-intensive process. As global information protection laws and regulations increase in number and complexity, we cannot assure you that our information protection systems will be considered sufficient under all applicable laws and regulations due to factors including the uncertainty of the interpretation and implementation of these laws and regulations. Furthermore, we cannot assure you that the information we receive from our third-party data partners are obtained and transmitted to us in full compliance with relevant laws and regulations. Moreover, there could be new laws, regulations or industry standards that require us to change our business practices and privacy policies, and we may also be required to put in place additional mechanisms ensuring compliance with new information protection laws, all of which may increase our costs and materially harm our business, prospects, financial condition and results of operations. Any failure or perceived failure by us to comply with applicable laws and regulations could result in reputational damage or proceedings or actions against us by governmental entities, individuals or others. These proceedings or actions could subject us to significant civil or criminal penalties and negative publicity, result in the delayed or halted processing of personal information that we need to undertake to carry on our business, as well as the forced transfer or confiscation of certain personal information.

Any failure by our third-party service providers or institutional funding partners to comply with applicable anti-money laundering and anti-terrorism financing laws and regulations could damage our reputation.

Currently, we rely on our third-party service providers, in particular payment companies that handle the transfer of funds between borrowers and lenders, to have their own appropriate anti-money laundering policies and procedures. For institutional funding partners, they generally transfer the funds to borrowers directly. The payment companies and our institutional funding partners are subject to anti-money laundering obligations under applicable anti-money laundering laws and regulations and are regulated in that respect by the People’s Bank of China. If any of our third-party service providers or institutional funding partners fails to comply with applicable anti-money laundering laws and regulations, our reputation could suffer and we could become subject to regulatory intervention, which could have a material adverse effect on our business, financial condition and results of operations.

In addition, our platform is subject to anti-money laundering and anti-terrorism financing in PRC and other jurisdictions where we operate. While we are in the process of formulating policies and procedures, including internal controls and “know-your-customer” procedures, aimed at preventing money laundering and terrorism financing, we cannot assure you that we will be able to establish and maintain effective anti-money laundering and anti-terrorism financing policies and procedures to protect our platform from being exploited for money laundering or terrorism financing purposes or that such policies and procedures, if adopted, will be deemed to be in compliance with applicable anti-money laundering and anti-terrorism financing laws and regulations.

We have not been subject to fines or other penalties, or suffered business or other reputational harm, as a result of actual or alleged money laundering or terrorist financing activities in the past. However, our policies and procedures may not be completely effective in preventing other parties from using us, any of our users, clients or third-party partners as a conduit for money laundering (including illegal cash operations), terrorist financing or sanctioned activities without our knowledge. If we were to be associated with money laundering (including illegal cash operations), terrorist financing or sanctioned activities, our reputation could suffer and we could become subject to regulatory fines, sanctions, or legal enforcement, including being added to any “blacklists” that would prohibit certain parties from engaging in transactions with us, all of which could have a material adverse effect on our financial condition and results of operations. In addition, the laws and regulations on anti-money laundering and anti-terrorist financing might be tightened in the future, which may impose more obligations on us and our users, clients and third-party partners. Even if we, our users, clients and business partners comply with the applicable domestic and overseas anti-money laundering laws and regulations, we may not be able to fully eliminate money laundering and other illegal or improper activities in light of the complexity and the secrecy of these activities.

21


 

If we fail to implement and maintain an effective system of internal controls over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.

We are a public company in the United State subject to reporting obligations under the U.S. securities laws. Among other things, the Securities and Exchange Commission, or the SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, adopted rules requiring every public company, including us, to include a management report on the company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal control over financial reporting. We are required to include such report in our annual report on Form 20-F starting from the fiscal year ended December 31, 2020. In addition, once we cease to be an “emerging growth company,” as such term is defined in the Jumpstart Our Business Startups Act of 2012 (as amended by the Fixing America’s Surface Transportation Act of 2015), or the JOBS Act, our independent registered public accounting firm may be required to attest to and report on the effectiveness of our internal control over financial reporting.

Our management, with the participation of our chief executive officer and co-chief financial officers, has performed an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our management has concluded that our internal control over financial reporting was ineffective as of December 31, 2020 due to the material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal controls, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.  

One material weakness relates to lack of sufficient accounting staff with U.S. GAAP knowledge and SEC reporting experience related to the accounting and reporting of complex transactions. The other material weakness relates to our lack of formal risk assessment process and internal control framework over financial reporting. We lack of a formal group-wide risk assessment process to identify, assess, address or mitigate the risks identified, and internal control over financial reporting framework to maintain effective internal controls within the organization, which may increase risk of error, fraud, misstatement of financial reporting, or non-compliance with related regulations for a U.S. listed group. See “Item 15. Controls and Procedures—Internal Control over Financial Reporting.”

In response to the identified material weaknesses, we have implemented the following measures to address the material weaknesses that have been identified, including (i) participating in trainings and seminars provided by professional services firms on a regular basis, (ii) providing internal training to our current accounting team on U.S. GAAP knowledge, (iii)hiring a new reporting officer and an additional financial reporting manager with experience in U.S. GAAP accounting and SEC reporting to lead accounting and financial reporting matters, (iv) setting up a systematic accounting manual for U.S. GAAP and financial closing process and (v) hiring experienced internal auditors and setting up the internal audit department. We are also in the process of implementing the following measures, including (i) perform self-assessment of internal control effectiveness on a continuous basis, and (ii) engaging professional service companies to help implement SOX 404 compliance together with the establishment of internal audit function.

Although we have begun to implement measures to address the material weaknesses, the implementation of these measures may not fully address the material weaknesses and deficiencies in our internal control over financial reporting, and we cannot conclude that they have been fully remedied. In the future we may determine that we have additional material weaknesses, or our independent registered public accounting firm may disagree with our management assessment of the effectiveness of our internal controls. Our failure to correct the material weaknesses and control deficiencies or our failure to discover and address any other material weaknesses or control deficiencies could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. As a result, our business, financial condition, results of operations and prospects, as well as the trading price of our ADSs, may be materially and adversely affected. Moreover, ineffective internal control over financial reporting significantly hinders our ability to prevent fraud.

Furthermore, it is possible that, had our independent registered public accounting firm conducted an audit of our internal control over financial reporting, such accountant might have identified additional material weaknesses and deficiencies. As we are subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act, or Section 404, we are required to include a report from management on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report for the fiscal year ended December 31, 2020. In addition, once we cease to be an “emerging growth company” as such term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are designed, implemented and operated, or if it interprets the relevant requirements differently from us. In addition, as a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.

22


 

During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause funding partners to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.  

 

Borrower growth and activity on mobile devices depend upon effective use of mobile operating system, networks and standards, which we do not control.

Our loan products are mostly offered through mobile apps. As new mobile devices and platforms are released, it is difficult to predict the problems we may encounter in developing applications for these new devices and platforms, and we may need to devote significant resources to the development, support and maintenance of such applications. In addition, our future growth and our results of operations could suffer if we experience difficulties in the future in integrating our loan products into mobile devices or if problems arise with our relationships with providers of mobile operating systems or mobile app stores, or if we face increased costs to distribute or have users utilize our loan products on mobile devices. We are further dependent on the interoperability of providing our loan products on popular mobile operating systems that we do not control, such as iOS and Android, and any changes in such systems that degrade the accessibility of our loan products or give preferential treatment to competing products could adversely affect the usability of our loan products on mobile devices. In the event that it is more difficult for our users to access and utilize our loan products on their mobile devices, or if our users choose not to access or utilize our loan products on their mobile devices or to use mobile operating systems that do not offer access to our loan products, our user growth could be harmed and our business, financial condition and operating results may be adversely affected.

Our operations depend on the performance of the Internet infrastructure and telecommunications networks in China.

Almost all access to the Internet in China is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the MIIT. We primarily rely on a limited number of telecommunication service providers to provide us with data communications capacity through local telecommunications lines and Internet data centers to host our servers. We have limited access to alternative networks or services in the event of disruptions, failures or other problems with China’s Internet infrastructure or the fixed telecommunications networks provided by telecommunication service providers. With the expansion of our business, we may be required to upgrade our technology and infrastructure to keep up with the increasing traffic on our platform. We cannot assure you that the Internet infrastructure and the fixed telecommunications networks in China will be able to support the demands associated with the continued growth in Internet usage.

In addition, we have no control over the costs of the services provided by telecommunication service providers. If the prices we pay for telecommunications and Internet services rise significantly, our results of operations may be adversely affected. Furthermore, if Internet access fees or other charges to Internet users increase, our user traffic may decline and our business may be harmed.

Our platform and internal systems rely on software that is highly technical, and if it contains undetected errors, our business could be adversely affected.

Our platform and internal systems rely on software that is highly technical and complex. In addition, our platform and internal systems depend on the ability of such software to store, retrieve, process and manage immense amounts of data. In particular, we open credit assessment platforms to these expert consultants, where they have access to a limited amount of desensitized, grouped and tagged borrower data, based on which they use such data to develop their own credit assessment models. The software on which we rely may have contained, and may now or in the future contain, undetected errors or bugs. Some errors may only be discovered after the code has been released for external or internal use. Errors or other design defects within the software on which we rely may result in a negative experience for funding partners and borrowers using our platform, delay introductions of new features or enhancements, result in errors or compromise our ability to protect borrower or funding partner data or our intellectual property. Any errors, bugs or defects discovered in the software on which we rely could result in harm to our reputation, loss of borrowers or funding partners or liability for damages, any of which could adversely affect our business, results of operations and financial condition.

We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.

We regard our trademarks, domain names, know-how, proprietary technologies and similar intellectual property as critical to our success, and we rely on a combination of intellectual property laws and contractual arrangements, including confidentiality,

23


 

invention assignment and non-compete agreements with our employees and others to protect our proprietary rights. See also “Item 4. Information on the Company—B. Business Overview— Intellectual Property.” Despite these measures, any of our intellectual property rights could be challenged, invalidated, circumvented or misappropriated, or such intellectual property may not be sufficient to provide us with competitive advantages. In addition, because of the rapid pace of technological change in our industry, parts of our business rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties on reasonable terms, or at all.

It is often difficult to maintain and enforce intellectual property rights in China. Statutory laws and regulations are subject to judicial interpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory interpretation. Confidentiality, invention assignment and non-compete agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China. Preventing any unauthorized use of our intellectual property is difficult and costly and the steps we take may be inadequate to prevent the misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources. We can provide no assurance that we will prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors. To the extent that our employees or consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related know-how and inventions. Any failure in protecting or enforcing our intellectual property rights could have a material adverse effect on our business, financial condition and results of operations.

 

We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.

We cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate trademarks, patents, copyrights, know-how or other intellectual property rights held by third parties. We may be from time to time in the future subject to legal proceedings and claims relating to the intellectual property rights of others. In addition, there may be third-party trademarks, patents, copyrights, know-how or other intellectual property rights that are infringed by our products, services or other aspects of our business without our awareness. Holders of such intellectual property rights may seek to enforce such intellectual property rights against us in China, the United States or other jurisdictions. If any third-party infringement claims are brought against us, we may be forced to divert management’s time and other resources from our business and operations to defend against these claims, regardless of their merits. As the date of this annual report, the applications for certain trademarks filed by us are still pending. If we are unable to complete these registrations, we may not be able to prohibit unauthorized use or prevent other infringements of these trademarks. In addition, certain of the trademarks we use for the daily operation or promotion of our business have already been registered by independent third parties outside of our control, and such trademarks are currently subject to administrative or legal proceedings. In the event that these administrative and legal proceedings are resolved adversely to us, we may be prohibited from using such trademarks and subject to fines and other legal or administrative sanctions, and our business, financial condition and results of operations may be materially and adversely affected.

Additionally, the application and interpretation of China’s intellectual property right laws and the procedures and standards for granting trademarks, patents, copyrights, know-how or other intellectual property rights in China are still evolving and are uncertain, and we cannot assure you that PRC courts or regulatory authorities would agree with our analysis. If we were found to have violated the intellectual property rights of others, we may be subject to liability for our infringement activities or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our own. As a result, our business and results of operations may be materially and adversely affected.

We may be held liable for information or content displayed on, retrieved from or linked to our mobile applications, which may materially and adversely affect our business and operating results.

In addition to our website, we also offer online consumer finance products through our mobile applications, which are regulated by the Administrative Provisions on Mobile Internet Applications Information Services, or the app Provisions, promulgated by the Cyberspace Administration of China, or the CAC, on June 28, 2016 and effective on August 1, 2016. According to the app Provisions, the providers of mobile applications shall not create, copy, publish or distribute information and content that is prohibited by laws and regulations. We have implemented internal control procedures screening the information and content on our mobile applications to ensure their compliance with the app Provisions. However, we cannot assure that all the information or content displayed on, retrieved from or linked to our mobile applications complies with the requirements of the app Provisions at all times. If our mobile applications were found to be violating the app Provisions, we may be subject to administrative penalties, including warning, service suspension or removal of our mobile applications from the relevant mobile application store, which may materially and adversely affect our business and operating results.

24


 

We may from time to time be subject to claims, controversies, lawsuits and legal proceedings, which could have a material adverse effect on our financial condition, results of operations, cash flows and reputation.

We may from time to time become subject to or involved in various claims, controversies, lawsuits, and legal proceedings. Claims, lawsuits, and litigations are subject to inherent uncertainties, and we are uncertain whether the foregoing claim would develop into a lawsuit. Lawsuits and litigations may cause us to incur defense costs, utilize a significant portion of our resources and divert management’s attention from our day-to-day operations, any of which could harm our business. Any settlements or judgments against us could have a material adverse impact on our financial condition, results of operations and cash flows. In addition, negative publicity regarding claims or judgments made against us may damage our reputation and may result in a material adverse impact on us.