Ladies and gentlemen, good day and welcome to Yeahka Limited's 2023 annual results announcement call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question and answer session. Please be advised that today's conference is being recorded. I'll now pass the call to Mr. Ben Zhao, Board Secretary and General Manager of Corporate Development and Capital Markets for the company. Please go ahead, sir.
Hello, everyone. Welcome to Yeahka's 2023 annual results conference call. Before we start, we would like to remind you that this presentation includes forward-looking statements that involve a number of risks and uncertainties. Information on general market conditions come from a variety of sources outside of Yeahka. Now, let me introduce the management team on today's call. First, Luke Liu, our Founder, Chairman, and Chief Executive Officer, will kick off with an overview of our business. I will then go through our business review. John Yao, Chief Financial Officer, will conclude with a financial review before we open up the floor for questions. And Derek Lai, our Director of Finance, will translate for John. I will now turn the call over to Luke.
Thank you, Ben. Good evening, and good morning, everyone. 2023 was a pivotal year, reflecting China's economic recovery and the rebound of the domestic small and medium economy. Our commitment to an independent and scalable ecosystem laid the foundation for driving growth across our three business lines, which has yielded commendable top-line growth and almost tripled profit on non-IFRS measures. Due to the resilience of small and medium-sized offline merchants, our mainland China business remains strong, while our international efforts started to show results. Now, I'll highlight the progress we have achieved in 2023. First, our one-stop payment services continued to perform well in the domestic market throughout 2023. The consistent growth in GPV, merchants, and daily transaction counts emphasized our leading position in the industry, representing a stellar performance that has surpassed the industry's growth.
Through constant innovation and channel expansion, we have solidified our presence across diverse verticals, fueling the continuous expansion of our business scale. We also expanded our joint merchant acquiring services with the commercial banks to include in-depth cross-selling of SaaS solutions and digital marketing, and enhanced our developments in the digital currency and electronic payment initiative. As we look ahead, our focus remains on increasing commercialization efforts, maintaining strict compliance management, growing market share, and upholding our strategy by providing SaaS digitalized solutions and digital marketing values to our merchants. Second, the significant lowering of losses and the successful implementation of our aggregated multi-traffic platform operation strategy in 2023 demonstrated the impressive resilience and the potential of our store e-commerce services.
We grew our know-how, enabling us to provide comprehensive digital marketing capabilities to merchants, offer concessions to counter short-term market turbulence, leverage AI-powered tools to reduce cost and improve efficiency, refine operations for specific verticals, and integrate our payment solutions. All of these underscores our commitment to sustainable growth, which underlines our dedication to making this business segment strong and profitable. Third, our merchant solution enhanced our commercialization capabilities in 2023, as reflected by the increasing number of active merchants. Furthermore, we rolled out the metaverse game, Yverse, to boost merchant engagement and drive user retention rates. Thanks to our commitment to both innovation and customer centricity. Moving forward, we'll continue to innovate and expand our portfolios of our merchant solutions in order to grow the business line sustainably create value.
Turning to overseas market, our rapid progress in 2023 underscores our global ambitions and strategic foresight. By expanding collaborations with international partners and launching acquiring services in key markets, such as Hong Kong SAR and Singapore, we have laid a solid foundation for our global expansion, includes Southeast Asian markets, where integrated payment services and SaaS are still under development, allowing for opportunities for penetration and monetization. Moreover, mature markets such as U.S. and Japan are also considered. We have established YeahPay Singapore and YeahPay America. In Singapore alone, we have served over 5,000 merchants of well-known names, such as Rolex, Pullman, MCM, TWG Tea, Bose, % Arabica, Singapore, and so on. We've also served brands such as Starbucks, BreadTalk, and Pizza Hut by providing our SaaS solution to overseas company we invested in.
As we navigate through 2024, we are focusing on creating integrated payment scenarios in different local markets overseas, accelerating market localization, and build strategic alliances with international card organizations, local regional banks, and local enterprise to capture opportunities in overseas, local, and across border transaction scenarios. Looking back at 2023, we have made significant progress in R&D. In technology infrastructure, private clouds are adopted company-wide, saving considerable cost compared with the traditional physical hosting in data centers, and are opened up for our payment partners to use. More importantly, we have used our self-developed generative AI technology in automated programming, intelligent customer services, and in-store e-commerce businesses, which enhanced efficiency by over 20%, a major improvement. Looking ahead, we're focused on the adoption of large model applications in various business lines and our technology infrastructures.
We are confident in using this technology to further reduce cost, increase efficiency, and explore new business models. Thank you. With that, I'll now hand the call over to Ben, who will give a detailed business review.
Thank you, Luke. Good evening, and good morning, everyone. As Luke has discussed, our strategic focus on small and medium-sized offline merchants drove steady growth in 2023 amid China's rebound. Significant year-on-year increases were seen in one-stop payment services, GPV, and active merchants. Growth in in-store e-commerce services and merchant solutions, along with efficiency improvements leading to a narrowing of in-store e-commerce losses, substantially boosted our profitability. On an adjusted EBITDA level, we nearly tripled compared with 2022. Our AI applications are progressively being utilized across our daily operations and achieve meaningful efficiency improvements. We have talked about AI in the past few earnings calls. As a tech-first company, I wanted to spend more time to share some of the latest progresses.
Leveraging cutting-edge open source libraries for transformers and GNN, our AI lab has fine-tuned the foundation model to handle our extensive payment-related data, leading to several proprietary applications. These innovations include a unique facial recognition system for merchant KYC, and a specialized generative AI for e-commerce that automates the creation of promotional materials, such as text and graphs. The latter has dramatically reduced content production costs by over 90% and boosted creation efficiency by 70%. Additionally, our custom GPT adaption for an automatic coding assistant has increased the AI-generated code adoption rate to 10%, and the AI-powered customer service kit has increased the customer self-assistance rate by 30%. Our newly introduced in-house translation solutions can come in handy as our overseas expansion efforts continue.
We are extremely passionate and ambitious about AI, as it enables unprecedented scalability and personalization in services, optimizes operations, and opens new revenue streams. We will accordingly update as more progresses unveil. I will now share more information about each business line's progress in 2023, starting with payment services, which serves as the foundation for our ecosystem. In 2023, benefiting from the recovery in offline consumption and other positive developments. We leveraged our leading position in one-stop payment services to achieve a tremendous 29.2% year-on-year growth in GPV, reaching CNY 2.9 trillion, of which 71.2% was app-based payment services. We outperformed the industry with over 9.2 million active payment service merchants, representing a 13.3% increase year-on-year, while achieving a peak daily total of almost 60 million app-based payment transactions.
In addition, revenue from our one-stop payment services in 2023 increased by 26.5% year-on-year, despite being partially offset by approximately CNY 344 million in netting of payments related to interchange fee rate adjustments from revenue for the period. Excluding this non-recurring item, our fee rate grew to 13.3 basis points last year from 12.3 basis points in 2022, reflecting the robust growth in our one-stop payment services and our industry-leading position. Throughout the reporting period, our non-stop focus on expansion led to an increasingly diverse channel network of nearly 19,000 independent sales agents and almost 5,000 SaaS partners across 300 cities, deepening our leading positions in retail and restaurant sector, while expanding our coverages in the leisure and hospitality segment.
We have also initiated our efforts to serve the KA customers, such as etc, leveraging our expansive offering in the SaaS and in-store e-commerce services. On bank partnerships, we have integrated our merchant discount packages from our in-store e-commerce business into banks' loyalty programs. In addition, we have provided SaaS interactive gaming, marketing in merchant solutions to the banks, further helping the banks to activate and expand their user base while increasing our differentiated competitive edge against our peers and further enhancing the synergy of the three major business lines of Yeahka. As a result, strategic partnerships with over 150 commercial banks doubled the corresponding joint merchant acquiring GPV last year. In addition, we've become one of the Mastercard NUCC's first partners and obtained Visa membership, allowing us to help our merchants to accept overseas card payments in China.
Entering the international markets, we solidified collaborations with leading e-wallets, joined forces with Mastercard and Visa. Our acquiring services were successfully launched in Hong Kong and Singapore based on the MSO License and the MPI License. We have also obtained MSB License in the United States to further expand our cross-border payment acceptance business. As we move through 2024, we are expanding our overseas product matrix and strategic footprint, with plans to implement merchant acquiring, global acceptance and remittance, currency exchange, and settlement services. Turning to in-store e-commerce services, we not only achieved a remarkable year-on-year GMV increase of 30%, surpassing CNY 4.3 billion, but also significantly improved the bottom line.
Due to our improved operational efficiency, the gross profit margin increased to 80.3% in 2023 from 67.3% in 2022, and the net loss decreased by 79.4% to RMB 43.5 million. In 2023, we expanded our partnerships with multiple traffic platforms, implemented our co-op model, and provided merchants with tactical concessions in response to increased short-term market competition. We continued to strengthen merchants' all traffic digital marketing capabilities, fine-tune midstream operational processes, and foster synergies with other businesses. The ongoing implementation of our all traffic digital marketing strategy enabled merchants to conduct one-stop digital operations across multiple platforms, including Douyin, Meituan, Kuaishou, Xiaohongshu, et cetera.
While our standardized midstream tools allowed merchants to accurately target consumer groups, efficiently generate promotional content, and respond to the growing digitalization trend across local lifestyle services. As we look ahead to 2024, our all traffic digital marketing strategy will be a pivotal growth driver for in-store e-commerce services. The strategy will effectively strengthen the deep bond with our merchants and reduce the impact of market competition and policy changes on a single traffic platform. We'll progress industry-specific strategies for verticals of our strength, such as restaurants and leisure. We will then also deepen the integration of payment and merchant solutions utilizing AI and cross-platform middleware systems to continue to improve overall operational capabilities and efficiencies. Last but not least, our merchant solution services, which achieved a robust performance last year.
Our active merchants exceeded 1.6 million, representing an increase of 30.8%. Revenue from merchant solutions rose by 17.2% in 2023 to CNY 363 million, providing our improved product commercialization and the increasing willingness of offline merchants to pay.
... In 2023, we introduced the groundbreaking metaverse game, Yverse, enabling merchants to create immersive metaverse spaces and delve into private traffic domains. After the game's launch, merchants experienced a remarkable increase in the weekly activity rate of private domain communities, rising from 12%- 37%, while the user retention rate rose from thirty percent to 70%. This innovative approach marks our commitment to pushing the boundaries of engagement and providing solutions to assist our merchant partners with enhancing their monetization capabilities. Lastly, our ESG and sustainable development efforts prospered in 2023. We scored 54 in the S&P Global ESG ratings and A- in the Hang Seng Corporate Sustainability Indices, leading the industry. In addition, we were recognized in the S&P Global's 2023 Sustainability Yearbook.
For example, last year, we have established an ESG committee responsible for the supervision and execution of company affairs. To show our social responsibilities, we organized small merchant power program and published small and micro-merchant assistant policy to support merchants in our business ecosystem. In terms of internal control and management, we have issued and strictly followed a range of ESG internal guidance, such as the Risk Management Internal Control system, Internal Audit System, and EECA Green Office Manual, continuously strengthening the construction of the quality management system. Thank you, everyone. With that, I will now pass the call over to John, our CFO, to review our financial results. Our Director of Finance, Derek, will provide the translation.
Thank you, Ben.
Well, thank you, Ben. Let me briefly go through the highlights of our financial results for the full year of 2023. Our total revenue reached CNY 3,951 million in 2023, from CNY 3,480 million in 2022, representing a year-on-year increase of 15.6%, mainly attributable to our one-stop payment services. Gross profit decreased by 28.4% year-on-year to CNY 738 million in 2023, from CNY 1,031 million in 2022.
Of which, gross profit of one-stop payment services accounted for 45.8% and fell to CNY 338 million in 2023 from CNY 532 million in 2022, a year-on-year decline of 36.4%. Gross profit margin decreased from 30.2%- 18.7%. Of which, the gross profit margin of one-stop payment services declined to 9.7% in 2023, from 19.3% in 2022, and the gross profit margin of in-store e-commerce services improved to 80.3% in 2023, from 67.3% in 2022.
Our research and development expenses remained relatively stable at CNY 266 million in 2023, from CNY 270 million in 2022. Our Adjusted EBITDA grew by 160.6% year-on-year to CNY 556 million in 2023, from CNY 230 million in 2022....
The year-on-year improvement of adjusted EBITDA was mainly due to the substantial increase in GPV and fee rate of one-stop payment services, and the significant narrowing of losses of in-store e-commerce to CNY 44 million in 2023, from CNY 211 million in 2022.
[Foreign language]
Looking ahead, we will continue to foster a healthy platform ecosystem, creating long-term sustainable value for our stakeholders.
Now we can open up the floor for questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. To ask a question on the phone, please press star one one and wait for your name to be announced. If you would like to cancel a request, please press star one one again. Please stand by while we compile the Q&A roster. One moment for the first question. The first question comes from the line of Vicky Wei from Citi. Please go ahead.
[Foreign language]
Thanks, management, for taking my question. Would you please share some details of in-store e-commerce or traffic digital marketing strategy? And how should we think of traffic platforms policy changes affect in-store e-commerce business? Thank you.
Thank you, Vicky, for your question. I'll address these two questions one by one. For the first question, as everyone can see, today, the offline merchants have overwhelming options to gain traffic and to increase brand awarenesses. So each of these platforms, they actually require very different, very complex operating strategies, and this is exactly where we come in. So as a result, instead of positioning as a service provider for a specific platform, we have actually repositioned ourselves as an all-traffic merchant service provider. Which actually enables merchants to conduct one-stop digital operations across multiple platforms, whether it's in Douyin, whether it's in Meituan, Kuaishou, or Xiaohongshu, or WeChat video. And our standardized mainstream tools can actually allow the merchant to accurately target different consumer groups in different platforms.
Effectively, efficiently, also to generate promotional content, whether it's short video, whether it's text, whether it's live streaming format, in order to respond to the growing digitalization trend across these different local lifestyle services. So this way, we can actually further the strong relationships built on our payment and merchant solutions, and it will actually also strengthen the entry barrier for customer acquisition. And our charge model is actually upgrading to an upfront fixed quarterly or annual service fee with a GMV commission, if we facilitate a transaction online, of course. And for us, we can focus on building digital marketing capabilities for merchants across these multiple traffic platforms, and we can utilize AI to further reduce costs and expenses as we scale up. And we can also cross-sell to our payment and merchant solutions.
So, that's basically how we see ourselves in the new era as we take a more merchant-focused approach rather than a platform-focused approach. So that actually naturally flows into our second answer, which is how the policy changes will have an impact on us. So, specifically, we see, you know, there's a licensing requirement for Douyin, which should ease the competitiveness in a lot of markets and keep the business more sustainable. Regardless, going forward, our new positioning, it should make us more robust as we take this merchant approach. Because our comprehensive branding and marketing capabilities are exactly what each platform wants and what each merchant they want.
What we need to do is we need to sign a contract, a long-lasting and sustainable contract with the merchant, helping them to operate across all different platforms. That way, we are more like a merchant service provider instead of a platform service provider. As also mentioned, based on the above, we actually plan to improve our fee model in 2024, which is a way to increase the upfront fee charges. Also, we'll look to expand the coverages to KA merchants. We are obviously in progress of achieving breakeven in 2024 as well.
Thank you for the questions. One moment for the next question. Our next question comes from the line of Claire O. Yang from Goldman Sachs. Please go ahead.
[Foreign language]
How has AI technology improved your business operations? And what is the future plan regarding using AI technology?
And the second question is, what are the main drivers of Adjusted EBITDA growth, which almost tripled? Thank you.
Sure. Our CEO, Luke, will answer the first one, and I'll address the second one.
Yeah. And I think generative AI is very important technology for all the IT companies. So, we do two things in this area. First, we use the technology to build a copilot for the daily coding work. So it decreased almost 10%-20%, I mean, work, if you compare we use traditional method to program. Second, we use the large model technology to generate content for our in-store e-commerce business. So, currently, I think more than 50% content in our in-store e-commerce products made out by the AI automatically.
So, for us, I think it is, it's too early to say we can use the technology to generate revenue. I think we currently are focused to decrease the cost, and optimize the user experience of our product. In future, I think the technology is still developing. And when we have more insight on this, we still want to try to figure out what we can do on the business. Thank you.
Yeah. Thank you, Luke. On the second question, on adjusted EBITDA growth, compared to 2022. So on a business level, it is mainly due to the improvements in the one-stop payment performances and also the improvements in monetization of merchant solutions and, very, very notably, the significant narrowing of losses for our in-store e-commerce business. As you can see, the total revenue increased by 15.6% year-on-year to close to CNY 4 billion, of which the growth rate of the payment business revenue reached 26%. Also, as Luke has mentioned, we have used AI technologies in a lot of aspects across our business lines. So that effectively controlled our expenses and costs.
So overall, the expense to revenue percentages decreased by 10 percentage points year-on-year to around 18.5%. And also our net loss on the in-store business narrowed by about 80% year-on-year in 2023. So these above measures at the operational level have mainly driven the significant increase in Adjusted EBITDA levels, which reflects our firm commitment to our business strategy, and also the execution ability. Thank you.
Thank you for the questions. One moment for the next question. Our next question comes from the line of Hang Su from CICC. Please go ahead.
[Foreign language]
So I have two questions.
The first is about what are the growth drivers of payment business, and what is Yeahka's competitive advantage, and how you grow payment business in the next two years? And the second is about the ESG. So what benefits can ESG management bring to Yeahka, and what are your future plans regarding to ESG? Thank you.
Thank you for the question. On the first one on payments, very notably, our GPV actually increased by close to 30%, year-on-year. There are a couple of reasons to that. A lot of the target merchants of Yeahka are small merchants, and these merchants are concentrated in industries such as catering and retail, which are less impacted by macro and micro uncertainties. For example, catering last year was an important component of the total retail sales of consumer goods. The catering industry actually increased by 20.4%, which is really pretty high compared to other components. The second reason to that is on the distribution channel network, which is constantly expanding.
We now have over 19,000 ISOs, and we have actually also doubled the joint merchant acquiring GPV by partnering with over 150 banks. We are actually partnering with banks in a number of aspects and areas, including SaaS services to the banks to help them to activate the bank's customers. The number of merchants also increased by 13.3% year-on-year, and that's also a historical high to 9.2 million. And also in terms of monetization last year, you can also see that the comprehensive rate for the entire year, it has increased from 12.3 basis points in 2022 to roughly around 13.3 basis points.
The QR code fee rate actually has increased further from around 13.9 basis points to 14.6 basis points. And that has really reflected our pricing ability in the third-party payment market. And also, concurrently, the traditional payment fee rate has also increased from around 8.8 basis points to more than 10 basis points, which is also in line with the industry trend. So, going forward, our focus in the payment field can actually be divided into two aspects, in China domestically and overseas. So in China, we'll continue to maintain our leading market position, and we'll pay more attention to the improvement of revenue and profits.
And overseas, we will use Hong Kong as a global hub, and to springboard and expand our businesses in Southeast Asia and North America, grow our local merchant acquiring remittance and currency exchange businesses, and also explore the latest payment and fintech technology and opportunities. So, that's for the first question on the payment. And on ESG, in fact, a lot. The capital market is increasingly focusing on ESG, as well as more and more asset managers use ESG factors as an important long-term non-financial indicator to measure asset value. So we have actually taken a very strong approach in the past three years to boost our ESG governance.
And it has actually gained pretty strong market recognition last year, which we have scored 54 in the S&P Global ESG ratings and A-minus in Hang Seng corporate indices. And, as mentioned before, we were also recognized in the S&P Sustainability Yearbook last year, which is all leading the industry. Specifically, we have actually established an ESG committee to supervise and oversee the company ESG affairs. And there are also a couple of programs we have set up to support the merchants in our business ecosystem. And, for as a company as a whole, we strongly believe a good ESG management will actually contribute to our long-term and sustainable development and enhance the business community as a whole. Thank you.
Thank you for the questions. One moment for the next question. Our next questions will come from the line of Yuxuan Chen from Huatai Securities. Please go ahead.
Good evening. I am Chen Yuxuan from Huatai Securities. Thank you for the opportunity to ask questions. I have two questions. The first question is, I would like to ask about the company's overseas business. How is it structured in 2024? And what businesses and markets do you plan to expand into in the future? The second question is, I would like to ask about the company's, merchant settlement business. The growth drivers and growth trend for 2024.
Okay, let me do the translation. Hello, management, this is Yuxuan Chen from Huatai Securities. I got two questions. The first one is, what is the plan for our international business strategy in 2024? Any future plans to expand into new business sectors and markets going forward? The second question is, what are the growth drivers of our merchant solutions business in 2023? And what's our growth strategy for 2024? Thanks.
Hello, this is the investor relations director of Yeahka. My name is Arnold Yan. So for the overseas market expansion, we have actually planned that into our sustainable growth. In 2023, we've actually activated the Southeast Asia market. We've obtained related payment licenses in Singapore, Hong Kong, and sometimes we cooperate with Indonesian companies to expand business there as well. Now, in Southeast Asia, our focus is to expand into the local merchant acquisition market, as well as the cross-border transactions in relation to different countries, cross-border transactions. Now, in 2023, we've actually served over 5,000 merchants locally. Brand names such as, you know, Pullman, Rolex, and other luxury brands and consumer goods brands are all our clients.
Now, in Singapore alone, we've already generated over CNY 200 million in GMV. We've also connected and created sustainable business models and chains through Singapore and Hong Kong. Altogether, we're serving local consumers and serving local merchants, as well as Chinese outbound merchants, who can do cross-border transactions when we collect Singapore dollars and U.S. dollars, and in exchange for the offshore RMBs, and then remit back to China. So we have the capabilities of doing local merchant acquisition and cross-border transactions in the Southeast Asia markets. And we are constantly looking for other region expansions now that already includes North America, and we're looking into other regions such as such as Africa and Middle East. And that concludes the answer to the question.
Thank you.
Now, for the merchant solutions. For the merchant solutions, now, in 2023, we focused more on the user penetration of the merchant solutions, because all of our merchant solutions users comes from our payment business. Out of the over nine million payment merchants, we've actually penetrated 1.6 million merchants, and they are all now paid users of our merchant solutions business. Now, we've constantly developed new modules, innovative modules, that can help our merchants to retain and create repeat customers and repeat purchases on our platforms. Now, in 2023, our biggest growth driver is the number of merchants growth.
Now, relatively speaking, in 2022, when merchants were less willing to pay for extra value, but in 2023, they've actually become more willing to pay for more value-add services, which is a good catalyst for us. And going into future, in 2024, we will focus more on the commercialization and increase the penetration of our merchants. And at the same time, according to market conditions, adjust our fee structures to possibly increase our per merchant revenue contribution. And that concludes it.
Thank you. That concludes the question and answer session. I would like to turn the conference back over to management for any additional or closing remarks.
Well, thank you once again for joining us today. If you have any further questions, please feel free to contact us directly at Yeahka. Our contact information can be found on our IR website. Thank you for your time!