Earnings Call Transcript - LX Q1 2021

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the LexinFintech First Quarter 2021 Earnings Conference Call. I must advise you that this conference is being recorded today. I'd now like to hand the conference over to your first speaker today, Mr. Tony Hung, Senior Director of Capital Markets. Thank you, and please go ahead, sir.

Tony Hung, Senior Director of Capital Markets

Thank you, operator. Hello, everyone, and welcome to Lexin's First Quarter 2021 Earnings Conference Call. The company's results were issued earlier today and are posted online. Joining me today on the call are Mr. Jay Xiao, our Founder, Chairman and Chief Executive Officer; Mr. Craig Zeng, our Chief Financial Officer; Mr. Yang Qiao, our Vice President; Ms. [indiscernible], our Senior Financial Director and other members of our team. For today's agenda, Mr. Xiao will provide an overview of our recent performance and highlights. Mr. Zeng will discuss our core results, and Mr. Qiao will discuss our credit performance. Before we continue, I refer you to our safe harbor statement in the earnings press release, which applies to this call as we will make forward-looking statements. Also, please note that this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in renminbi. I will now turn the call over to our CEO, Mr. Xiao, whom I will translate for.

Jay Xiao, CEO

I will now turn the call over to our CEO, Mr. Xiao, whom I will translate for.

Tony Hung, Senior Director of Capital Markets

I'm pleased to announce to everyone that this quarter, we have once again achieved a record of high-growth in our financial results. China has already become the world's largest consumption market and our new consumption strategy will allow us to seize the benefits from this opportunity. In the first quarter, this strategy enabled us to grow both our user base and business scale rapidly. In the first quarter, Lexin's newly registered users reached 14 billion, continuing 7 straight quarters where our newly registered users increased by over 10 million, leading the industry. At the end of the quarter, Lexin's total registered users reached 132 million, an increase of 56.5% year-on-year. Users with Credit lines reached 30.3 million, an increase of 46.5% year-on-year and new active customers for the quarter reached 1.8 million, an increase of 88% year-on-year. In the first quarter, Lexin's platform facilitated RMB 53.8 billion in loans, an increase of 57.8%.

Jay Xiao, CEO

Our newly registered users have increased by over 10 million for seven consecutive quarters, leading the industry. By the end of the quarter, Lexin's total registered users grew to 132 million, reflecting a 56.5% year-on-year increase. Users with credit lines reached 30.3 million, up 46.5% year-on-year, and we gained 1.8 million new active customers this quarter, marking an 88% increase year-on-year. In the first quarter, Lexin's platform supported RMB 53.8 billion in loans, an increase of 57.8%.

Tony Hung, Senior Director of Capital Markets

The continued refinement of our risk management systems allowed our asset quality to continue to improve. At the end of the first quarter, our 90-day plus delinquency is at 1.84%. And FPD 30 for new loan originations has been below 1% for 8 months now, the lowest since the pandemic.

Jay Xiao, CEO

Tony Hung, Senior Director of Capital Markets

Both our user base and our scale continue to grow rapidly and our risks continue to stabilize and decline. This dual rise and one decline allow many of our core financial metrics to reach record highs. In the first quarter, Lexin's revenues were CNY 2.9 billion. Gross income was CNY 1.37 billion and non-GAAP net income reached CNY 771 million with EBIT, non-GAAP, reaching CNY 911 million. I anticipate this positive trend will continue in the following quarters. And we are fully confident in our ability to reach our loan origination target of CNY 240 billion to CNY 250 billion.

Jay Xiao, CEO

In the first quarter, Lexin's revenues were CNY 2.9 billion. Gross income was CNY 1.37 billion and non-GAAP net income reached CNY 771 million with EBIT, non-GAAP, reaching CNY 911 million. I anticipate this positive trend will continue in the following quarters. And we are fully confident in our ability to reach our loan origination target of CNY 240 billion to CNY 250 billion.

Tony Hung, Senior Director of Capital Markets

Next, I'd like to share with everyone several of our current strategies on our financial technology services and new consumption. On the financial technology services side, we're in the process of diversifying our assets and specifically, towards micro business owners. We have worked with multiple scenarios to develop a series of pure operating credit products. In the first quarter, these products served nearly 200,000 customers, primarily from machinery equipment, electronics and related manufacturing, light manufacturing and wholesale, generating CNY 2.1 billion in transactions. At the same time, after analyzing our existing customer base, we discover that over 15% of our customers fit within this category of operating and financing need. And in the future, we will increase efforts to fully uncover the potential of these assets.

Jay Xiao, CEO

In the first quarter, these products served nearly 200,000 customers, primarily from machinery equipment, electronics and related manufacturing, light manufacturing and wholesale, generating CNY 2.1 billion in transactions. At the same time, after analyzing our existing customer base, we discovered that over 15% of our customers fit within this category of operating and financing need. In the future, we will increase efforts to fully uncover the potential of these assets.

Tony Hung, Senior Director of Capital Markets

Currently, many banks, particularly small and medium-sized regional banks, are facing similar challenges regarding traffic acquisition, operating models, and other issues, leading them to become overly dependent on external channels and a single partner model, which is difficult to maintain. It has become essential to establish a self-operated product group, enhance operational self-sufficiency, stability, and compliance. With our strong internet product experience, operational capabilities, and financial technology expertise, we are well-positioned to assist financial institutions in addressing these challenges. Consequently, we have started our co-development plan with regional banks and joint operations services to help them create a self-operated product group, allowing for localized development. On May 13, we entered into strategic cooperation agreements with the Bank of Nanjing, the Bank of Guangzhou, ZhongAn Bank, the Bank of Queensland, indiscernible Bank, the Bank of Urumqi, and nine other banks.

Jay Xiao, CEO

We are in a unique position to assist financial institutions in addressing key challenges due to our financial technology capabilities. Consequently, we have started our co-development with regional banks plan and joint operations services to support banks in establishing a self-operated product group that facilitates localized development. On May 13, we signed strategic cooperation agreements with the Bank of Nanjing, the Bank of Guangzhou, ZhongAn Bank, the Bank of Queensland, an indiscernible bank, the Bank of Urumqi, and 9 other banks.

Tony Hung, Senior Director of Capital Markets

In addition, our financial technology output services have experienced significant growth. Our online micro loan credit products and risk products currently have over 30 participating institutions, generating tens of millions in financial technology revenues.

Jay Xiao, CEO

With the Bank of Nanjing, the Bank of Guangzhou, ZhongAn Bank, the Bank of Queensland, the Bank of Urumqi and 9 other banks, our financial technology output services have also achieved noteworthy growth. Our online micro loan credit products and risk products already have over 30 participating institutions, generating tens of millions in financial technology revenues.

Tony Hung, Senior Director of Capital Markets

On our new consumption strategy, our Buy-Now-Pay-Later product, Maiya, is growing rapidly. In the first quarter, Maiya achieved over CNY 60 million in gross merchandise volume. Today, Maiya has served over 510,000 customers and 1,575 merchants, generating a total GMV of over CNY 237 million. Maiya is already established in key shopping and business areas, creating opportunities for merchants to increase their revenues and demonstrating the viability of the operating model. Next, Maiya will develop along three strategic directions, rapidly expanding potential use cases. First, we will leverage our Fenqile e-commerce platform to target existing users and promote the online Maiya business; second, we will continue collaborating with major consumer brands, malls, and outlets; and third, we will engage with offline businesses in fitness, health and beauty, education, and other sectors to utilize Maiya as a business solution. To support this, we are actively building our business development team, integrating service providers, and creating a joint development model for both online and offline applications of Maiya. In the second quarter, we expect to achieve CNY 300 million in GMV. Through Maiya, we aim to provide China's vast online and offline merchants with a completely new sales tool, enhancing their operating capabilities and contributing to the real economy.

Jay Xiao, CEO

We are working hard to build our business development team, integrate service providers, and create a joint development model for Maiya, both online and offline. In the second quarter, we expect to reach CNY 300 million in GMV. We aim to provide China's merchants with a new sales tool through Maiya, which will enhance their operating capabilities and support the real economy.

Tony Hung, Senior Director of Capital Markets

Our local service and lifestyle products, Le Card and Lehua, have also established relationships with leading nationwide vendors to provide benefits and privileges. Increasing and gathering benefits and advantages to transfer to financial institution partners and also increase the stickiness of our consumers. In high-frequency consumption scenarios, Le Card and Lehua are already exhibiting good growth potential. Current numbers indicated that in May, after rolling out the Lehua model in participating movie theaters, CNY 3.65 million in GMV was generated in a single month.

Jay Xiao, CEO

We have established relationships with leading nationwide vendors to offer benefits and privileges. We are focused on increasing these benefits to transfer to financial institution partners, which will enhance customer loyalty. In high-frequency consumption scenarios, Le Card and Lehua are already showing significant growth potential. Recent data shows that in May, after the launch of the Lehua model in participating movie theaters, we generated CNY 3.65 million in gross merchandise value in just one month.

Tony Hung, Senior Director of Capital Markets

In the future, these new consumption products connecting both online and offline consumption scenarios will expand nationally to every city and industry. Not only will it contribute revenues to us, but it can also help financial institutions, especially local financial institutions, to acquire customers more cheaply and to more effectively manage high-quality local customers, creating a new driver of growth for Lexin's businesses. I believe that these new initiatives will enable us to further diversify, open new areas of even greater growth and create stable growth for the future.

Jay Xiao, CEO

Option scenarios will expand nationally to every city and industry. Not only will it contribute revenues to us, but it can also help financial institutions, especially local financial institutions, to acquire customers more cheaply and to more effectively manage high-quality local customers, creating a new driver of growth for Lexin's businesses. I believe that these new initiatives will enable us to further diversify, open new areas of even greater growth and create stable growth for the future.

Craig Zeng, CFO

Thank you, Jay. We are very proud to announce our best quarter ever. In addition to achieving our highest loan origination, we are also pleased to report our highest adjusted net income, which reached CNY 771 million. A key factor in our success this quarter is the improvement in our credit statistics, which reflects our progress indicated earlier in January. We expect these positive financial trends to continue throughout the year. Our loan origination trends remain strong, and we anticipate meeting our guidance of CNY 240 billion to CNY 250 billion in loan originations for the year. Additionally, our cost of capital has decreased to 7.46% from 7.7% as we lower our funding costs, a trend we expect to maintain. For the quarter, our revenue's profit-sharing performance remained relatively steady as we focused more on profitability and cash flow. We maintain an industry-leading position in profit sharing, allowing us to adjust the portion of our funding from this source based on market conditions. This year, we plan to refine our risk measurement operations while enhancing our efficiency, which will further boost our profitability. At the same time, we will continue investing in new initiatives and technology to support long-term growth. The strong performance of our credit team is central to our success this quarter. Now, I would like to turn the call over to [indiscernible] to discuss our credit performance.

Unidentified Company Representative, Representative

Thank you, Craig. As previously mentioned, we have continued our stable credit performance in the first quarter, and we expect this trend to continue. Our 90-days plus delinquency ratio is now at 1.84% in the first quarter, and our credit performance continues to be stable as our lifetime charge-off ratio has stabilized at between 3.5% to 4% rate, which we expect to continue for the year. Our 30-day delinquency is at 3.6%. In addition, as you can see from the graphs disclosed with our latest earnings release, our first payment default rate, 30-days plus for new loan originations have been at well under 1% and continue to improve. Through continuous improvements and refinements of our risk management systems, we have been able to work continuously with financial institutions to enable them to tap into their preferred customer segments for new loans. To further differentiate the risk levels for these high-quality borrowers, thereby optimizing the overall asset mix, whether in terms of risk assessment, loan pricing, or loan size, we have made additional improvements in efficiency in all areas, reducing the expected delinquency rates. In terms of portfolio management, we have developed more accurate and differentiated strategies to manage overdue bottles while enhancing collection rates through high-efficiency and intelligent tools and more refined business management policies, enabling us to keep our overall collection rates and delinquency levels at a consistently healthy and stable level. As a result, I fully expect our strong credit performance to continue throughout the year. With that, I conclude our prepared remarks. Operator, please proceed with the questions-and-answer session.

Operator, Operator

Your first question comes from Jacky Zuo from China Renaissance.

Jacky Zuo, Analyst

Congrats on the strong results. I have three questions. First is about our Maiya business. I noticed that management set a target GMV of CNY 300 million for the second quarter. Can you provide a breakdown of online and offline channels? What are the current unique economics for Maiya? Who is responsible for managing credit risk? What is our long-term target for this business? My second question is regarding regulation. We are aware that regulators have addressed 13 fintech platforms at the end of April and required loan facilitation businesses to work through a licensed credit bureau. How will this impact our loan facilitation business moving forward? Lastly, I would like to know our SME loan target for this year.

Jay Xiao, CEO

Given the economic conditions, who is responsible for constructing this credit risk, and what are our long-term goals for this business? Additionally, regarding regulation, we are aware that regulators will review 13 fintech platforms by the end of April and will require the loan facilitation business to interact with a licensed credit bureau. How will this affect our loan facilitation business in the future? Lastly, I would like to clarify our loan target for SMEs this year.

Tony Hung, Senior Director of Capital Markets

So Jacky, on your first two questions. First, with regards to the BNPL, our Maiya product. I think, obviously, we started in the first quarter, and there is a big difference between what this product does and what we've done traditionally, not the least of which, of course, is that it's a 0% interest product to the customers. We collect the fee from the merchant. Now when we created this product and we set out on these goals, we had a few principles in mind that this is not going to be, in any way, like traditional consumer finance, and it would not be structured that way. And in turn, it will require a new type of funding model. But that said, we have to say that all these things right now are very early. We were able to achieve CNY 60 million in terms of GMV in the first quarter, which was primarily driven by online transactions. In the second quarter, we can see that the offline has been growing very, very rapidly. We believe that most of the growth in the future is probably likely going to come from offline as opposed to online. That said, we're hesitant to say a very specific percentage right now or breakdown because it is early, it is a little bit unstable. Now similarly, for the asset quality, it's probably too early to say. That said, based on what we can see right now, it's clear that the customer quality is far better than what we've seen before, and in fact, it's better by a substantial level, and it's definitely much lower. Our goal here is to try to keep the losses down to, say, under 1% or so. Now also, I'd like to emphasize that for the BNPL, this is very, very early in terms of the model. So when it comes to the definitive model growth and otherwise, it's still early. But what we can see, and it depends on the sector or the industry. If, for example, we offer a 3-month product, charging 4% is no problem at all. Longer term, charging a higher percent wouldn't be too much of a problem. Now that said, the revenue model and exact percentage will no doubt depend on the sector. But I would like to hold up until later before giving everyone more details on the numbers and otherwise, essentially, the things that you would need to build a financial model. So that's on the BNPL product. Now on the regulation, we have to emphasize that our loan facilitation model was developed in a very stable manner under the regulators have seen. Within a regulatory framework that is actually fairly mature. So we're very confident in our model. What we do at the core is we give the banks a few services, including customer acquisition service and the ability to pay customers. The banks then provide the customers with your traditional financial service. So we have not provided credit scoring services, and we have not provided credit services. Hence, while we'll have to see how things develop on the regulators on the credit scoring and the credit bureau front, overall, we're definitely very, very positive on the outlook on the regulatory side.

Jay Xiao, CEO

What we do at our core is provide banks with services such as customer acquisition and the capability to make payments to customers. The banks then offer their customers traditional financial services. We do not offer credit scoring or credit services. Therefore, while we need to monitor developments regarding regulations on credit scoring and credit bureaus, we remain very optimistic about the regulatory outlook.

Tony Hung, Senior Director of Capital Markets

Yes. We would also like to comment about the event where 13 institutions or 13 companies were called in Beijing. I think based on our knowledge, it was mainly about, if you will, the post and regulatory situation and having a fair regulation, particularly targeting those businesses that are much more complicated with more platforms integrated. As an independent company, hence, we don't fall under, if you will, that level of regulatory risk or scrutiny.

Jay Xiao, CEO

We would like to comment about the event where 13 institutions or companies were called in Beijing. Based on our knowledge, it was mainly about the post and regulatory situation and ensuring fair regulation, particularly targeting businesses that are more complicated with multiple platforms integrated. As an independent company, we do not fall under that level of regulatory risk or scrutiny.

Tony Hung, Senior Director of Capital Markets

Yes. On the SMEs, right now, it is fair to say that it's pretty early. That said, as mentioned on the call, there's definitely a lot of customers and users on our platform that are either SME business owners or have similar backgrounds. So we feel that this could become a real good new growth engine for our business. But right now, it's probably too early to talk about some of the details of the numbers or to give guidance for this business.

Operator, Operator

Our next question comes from Ethan Wang from CLSA.

Ethan Wang, Analyst

I have two questions. The first is about the percentage of platform-based services out of the total platform-based loan origination in the first quarter. The second question is regarding take rates. I'm curious about the first quarter's take rate for credit rented and the platform-based business model.

Jay Xiao, CEO

I have two questions. The first is about the percentage of platform-based services out of the total loan origination volume in the first quarter. The second question is regarding the take rates. I would like to know the level of the first quarter's take rate for credit rented and the platform-based business model.

Tony Hung, Senior Director of Capital Markets

So Ethan, I think when you look at the first quarter, the profit sharing, we mentioned earlier in the prepared remarks. For the first quarter, it was 47%. This is compared to the 50% in the previous quarter. So overall, it's pretty stable. Now of course, it's notable that this is a market, and this is a way, a form of funding that we develop. We're in the process of getting more and more banks to accept taking on the risk and also improving the potential take that we get on it. So it's a combination of more and more financial institutions accepting this model and accepting, so to say, to give us a higher take rate on it. Now until that time, if you will, in the meantime, we may focus a little bit more on keeping more of the profitability for ourselves until such time as the market or the financial institutions, are willing to give us a higher take rate on it. On the take rate itself, you can see actually, based on some of the math that the take rates, depending on how you do the math, would be the highest in the past 5 quarters for a variety of reasons, including risk. But we can talk about the details of this offline in the future.

Operator, Operator

Our next question comes from Steven Chan from Haitong International.

Steven Chan, Analyst

Let me translate that. I have two questions. First, regarding Maiya, I would like to know if, as the business grows, we can expect to see some credit loss reflected in the provision charge in the P&L account. Additionally, will we anticipate guarantee income from the Maiya business? Secondly, looking at the vintage charge-off curve chart, I noticed that the loans originated in Q1 and Q2 2020 show a different pattern compared to previous quarters, particularly a sharp increase beginning at the six-month mark. Can you clarify the reasons for this change? Is it related to the risk management model, borrower characteristics, or the macroeconomic environment? Also, I couldn't identify the Q3 curve. Did the Q3 vintage charge-off expenses have a similar pattern?

Jay Xiao, CEO

What we find is that for those loans originated in the first and second quarters of 2020, the pattern of this vintage charge-off is different from previous quarters. Notably, we have observed a significant increase starting from the six-month mark. I would like to understand the reason behind this—whether it is related to the risk management model, the characteristics of borrowers, or the macroeconomic environment. Unfortunately, I have not been able to identify the curve for the third quarter. Did you notice a similar pattern for the third quarter vintage charge-off expense?

Tony Hung, Senior Director of Capital Markets

So for the first question, Steven, I think it's important to emphasize the product, the Maiya, is very new. The scale right now is not large. So on these things, it's fair to say that we still have to figure out exactly how the accounting will work. Now that said, of course, everybody can look at, for example, Afterpay globally and how their accounting works for consideration. But as a whole, in terms of what it would be, it would actually be more like receivables and receivables risk associated with that. So importantly, this is not a long product, and it will likely not be accounted for in that way. Now overall, it's still early, but I'm very, very clear that the risk for this product is very low.

Jay Xiao, CEO

Now that said, of course, everybody can look at, for example, Afterpay globally and how their accounting works for consideration. But as a whole, in terms of what it would be, it would actually be more like receivables and receivables risk associated with that. So importantly, this is not a long product, and it will likely not be accounted for in that way. Now overall, it's still early, but I'm very, very clear that the risk for this product is very low.

Tony Hung, Senior Director of Capital Markets

So Steven, maybe I'll jump to the end first. It's not an indication of the risk performance, but rather it's an indicator of how the charge-off works, basically the charge-off time, for example, in the seventh month. So as it goes out, it would actually be consistent with the 30-day numbers. And while there have been early charge-offs in the past, again, I don't think you can read actually too much into the curves in that way, if you will.

Operator, Operator

Our next question comes from Alex Zhou from UBS.

Alex Zhou, Analyst

I have two questions. The first concerns regulatory issues. With the ongoing uncertainties regarding regulatory developments, is management considering applying for an initial online micro loan license as a safeguard against regulatory risk? Have there been any updates on this topic, considering the license is still in the consultation draft phase? My second question is about the Maiya product. Should we anticipate any synergies between this product and our major installment loan initiatives in the future? This could potentially lead to lower customer acquisition costs if we see increased synergies. Have you observed any early trends regarding the conversion of customers in this context?

Jay Xiao, CEO

Could you provide any updates on new regulatory developments in this area, considering that this license is still in the consultation draft stage? Additionally, regarding the Maiya product, do you anticipate any synergies between it and our major installment loan projects in the future? This could potentially lead to reduced customer acquisition costs if those synergies materialize. Have you observed any early trends in the conversion of customers in this regard?

Tony Hung, Senior Director of Capital Markets

So Alex, we did mention the regulatory situation a little bit earlier. But I think where we want to emphasize here that, well, the regulations, as we all know, around loan facilitation, is out and has been established. We would say that, in fact, it's stable. The regulatory environment around the loan facilitation model is also stable. The associated risk with the model and also with the environment have actually decreased and been reduced over time. So that's the first thing we would like to emphasize about this. Now with regards to what you asked about the national micro loan license. Well, we do have micro loan licenses. For example, we have the Jiangxi micro loan license. Now when we look at the underlying model involved with a national micro loan license, we think that the leverage levels are too low. It's not consistent with the type of business and the business model that we would like to operate. So actually, we will not be pursuing that particular license. Now with regards to your second question on Maiya, shall we say whether or not it can lead to other conversions or positive externalities. It's clear that for the BMPL clients, for the customers, these are very, very good customers and there's a very good and open space and opportunity here. Obviously, potentially, the most obvious solution will be consumer loans that are of lower interest, and we can see a very strong potential market for offering these things to the BNPL customers. Now it's also interesting to note that there's a lot of potential for customer acquisition. So what we're finding is because BNPL is so new, and it is an open space and a space of tremendous potential growth, the customer acquisition costs are also quite low. For example, when we did a promotion with the ETN outlets here in Shenzhen, we spent only something like CNY 50,000, CNY 60,000, and we got over 1,000 new customers. So literally, the customer acquisition cost was like tens of renminbi. So hence, we can see the tremendous potential here given how BNPL is a completely new space and hence, the potential for many fronts, including on the customer acquisition side.

Operator, Operator

Our next question comes from Cindy Wang from DBS.

Cindy Wang, Analyst

My first question is about the SME loan, which has seen significant growth and reached a balance of CNY 2.1 billion in the first quarter. Could you provide details on the loan's tenure, size, and APR? My second question pertains to the collaboration with small and medium-sized banks for joint operation services. What type of products will you be developing with these banks, and what will the profit model look like moving forward? Lastly, could you share insights on the asset quality trend? Specifically, what does it look like for the second quarter, and what are the expectations for the second half of the year? Is there a chance that the vintage charge-off rate could improve to 3% to 3.5%, rather than the initial guidance of 3.5% to 4% for this year?

Jay Xiao, CEO

Could you provide information on the type of product you plan to work on with these banks? Also, what will the profit model look like going forward? Additionally, could you share insights on the asset quality trend, particularly for the second quarter of this year? What are the expectations for the second half of this year? Is there a chance that the vintage charge-off rate could improve to 3% to 3.5%, instead of your earlier guidance of 3.5% to 4% for this year?

Tony Hung, Senior Director of Capital Markets

Cindy, regarding your first two questions, the typical size of SME loans currently ranges from CNY 100,000 to CNY 150,000, with interest rates between 18% and 24%, and a tenure of 12 months. However, there is significant variability among different SMEs and potential customers. In the future, as we grow our business and delve deeper into specific details, we will have more insights into the products. For your second question about our collaboration with smaller to medium-sized banks and the products we will work on together, we will initially partner with a select group for deeper cooperation. Currently, many financial institutions face challenges, such as restricted credit flow within provinces and operational inefficiencies. Our goal is to collaborate closely with these banks to help them develop innovative products for their customers, especially to enhance customer management and improve their portfolios. Essentially, we will earn a commission on the business generated, and this model will not involve taking on any risk.

Jay Xiao, CEO

Our approach is to collaborate with them directly, assisting them in creating new and innovative products aimed at their customers to improve their operations, particularly in managing existing customers and analyzing their portfolio. We would earn a commission on the business generated, and we won't be assuming any risk under this model.

Tony Hung, Senior Director of Capital Markets

So Cindy, I think, as mentioned earlier, everything that we see from the first quarter is going in a positive direction, and this continues in the second quarter. We will definitely continue to further refine our risk control models and improve it. So we certainly hope to improve the numbers and continue to see the asset quality continue to improve. But also taking into account that we do have, if you will, new initiatives and businesses. Of course, we're continuing to grow. So overall, we want to be cautiously optimistic about the general asset quality trends. We would like to maintain the outlook at 3.5% to 4%.

Operator, Operator

We're now closing on the end of the call. Your final question comes from the line of Yada Li from CICC.

Yada Li, Analyst

Okay, I'll translate my question. I have two brief questions. The first one is about our funding partners. Could you please share more information on how many funding partners we have in total by the end of the first quarter of 2021? Additionally, how many partners do we have under the profit-sharing model? The second question is regarding our new joint operation service model. I was wondering if you could help us understand the actual difference between the new joint operation service model and what we've been doing before?

Jay Xiao, CEO

I have two brief questions. The first one is about our funding partners. Could you please share more information on how many funding partners we had in total by the end of the first quarter of 2021? Also, how many partners do we have under the profit-sharing model? The second question is regarding our new joint operation service model. I would like to know the actual difference between the new joint operation service model and our previous approach.

Tony Hung, Senior Director of Capital Markets

So I think with regards to the first question, our asset quality and the attractiveness of our assets has always been high. So we've consistently had over 100 funding partners. Certainly, we continue to increase the number. It's perhaps worth noting and highlighting that of late, there's been a series of local regulations or guidelines targeting more, shall we say, local type banks. So hence, as a result, some of our operations and our goals have targeted the local banks in light of the type of guidance that they've received. We've signed up over 10 regional banks recently. But we don't have the definitive exact number on that particular initiative to give you on the call right now. So that's on the first question. Now on the second question, there's actually a very obvious difference in terms of the cooperation and how it works. At a high level or at the customer acquisition level, the traditional model is our customers and our traffic. Our customers and our traffic getting directed to the financial institution. Under the new cooperation model, it will no longer be using actually our particular customers' traffic or our current products. It would be working with the financial institutions themselves to develop local products and to help with their local operations. Based on their local environment and conditions to develop the appropriate set of products targeting their local customers. So again, at a high level, it's a very good thing. This is not our customers being diverted there. It's rather developing a capability not only to serve well the local bank customers, but also actually to help with the local customer acquisition. We would be able to, for example, help direct their online advertising and marketing, something that we certainly have expertise in. Interestingly, once the product is developed, and we have these revenue drivers. In terms of the revenue and the profit split, it may actually be very similar to our existing products. In that sense, it's similar. But again, the underlying model is very, very different. It's important to emphasize that many banks have many depositors and customers, but they don't necessarily know how to develop the right type of financial products and loan products to target or serve these depositors and customers. That's what we aim to do, and we aim to help with a complete model. This would involve actually dedicated teams that would live and breathe and work at the banks, if you will, side by side. So hence, you can see that this would actually be a very different product than what our existing products are.

Operator, Operator

All right. Thank you very much. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.