Good day, thank you for standing by. Welcome to the Yiren Digital Q3 2021 earnings conference call. At this time, all participants are in listen-only mode. After speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised this conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference to our first speaker today, Ms. Keyao He. Please go ahead. Thank you.
Thank you, operator. Good evening, everyone. Today's call features a presentation by the founder, chairman, and CEO of CreditEase, and our CEO, Ms. Ning Tang, and our CFO, Ms. Na Mei, Ms. Mei Zhao, our SVP, Ms. George Liu, our CRO, and Mr. Raymond Fung, CEO of Yiren Wealth, will also join the presenters in the Q&A session. Before beginning, we'd like to remind you that discussions during this call contain forward-looking statements made under the safe harbor provisions of U.S. Private Securities Litigation Reform Act of 1995. Such statements involve the risks, uncertainties, and factors that can cause actual results to differ materially from those contained in any such statements. Certain information regarding potential risks, uncertainties, or factors is included in our filings with the U.S. Securities and Exchange Commission. We do not undertake any obligation to update any forward-looking statements as required under relevant law.
During the call, we will be referring to certain non-GAAP financial measures and supplemental measures to review and assess our operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information portrayed and presented in accordance with the U.S. GAAP. For information about those non-GAAP financial measures or reconciliation to GAAP measures, please refer to our earnings press release. I will now pass it over to Ning for opening remarks.
Hello, everyone. Thank you for joining us today. We are delighted to announce a solid quarter with visible increase in profitability and a healthy growth in business scale amid a muted macro environment. At the beginning, I would like to reiterate our strategic positioning as a user-centric personal digital financial management platform as our business models continue to integrate and expand. In the Q3, we saw growing interactions and the synergies between business lines. For example, the total number of investors who purchased the Hexiang long-term insurance product on Yiren Wealth platform this quarter increased by 37% compared with the Q2 this year. While the number of borrowers cumulatively served with our insurance product as of September 30 grew 33% compared with the end of last quarter.
By personal digital financial management, we mean to serve our customers in the long run and meet their comprehensive financial management needs, including liquidity management, income generation, financial protection, and value enhancement, which corresponds to our credit tech and wealth management services. Now, I will go through our business updates on wealth management first. As of September 30, 2021, total client assets exceeded RMB 17.4 billion, representing a 19% growth from last quarter and about 250% growth from prior year. Total number of active investors grew 11% quarterly to about 428,000. More specifically, on Yiren Wealth platform, we saw accelerated growth in both new investors as well as average client assets due to our precise targeting acquisition strategy and optimized services and products.
In the Q3, the number of new investors on the platform reached nearly 10,000, representing a 33% increase quarter-over-quarter. Excluding insurance products, average client assets per investor reached RMB 259,000, representing a 125% annual growth. Particularly, the number of investors with client assets over RMB 500,000 grew almost 3 x compared with last year, and the trend continues going into the Q4 . A clear reflection of our enhanced capabilities to serve a higher segment of our investor spectrum. Moreover, as our investor education further penetrates and the concept of balance as allocation is becoming increasingly accepted, the number of investors holding at least two different asset classes on Yiren Wealth platform grew 168% year-over-year. Talking about precise targeting acquisition strategy, our Finance Plus Life initiative is worth mentioning.
Through years of operation, we found common needs in our investors in four specific scenarios, namely health and sports, study and self-improvement, lifestyle and leisure, child education and parenting. To better serve our investors and target these common needs, we recently started to offer selective life services and products tailor-made to investors. These non-financial services are proven effective to both attract new investors and to enhance our existing users' LTV. Through Finance Plus Life strategy, we are building up a broader Yiren Wealth community consisted of high-quality users who have the common pursuit for better wealth, better self, and a more positive life spirit, which is translating into comprehensive growth in Yiren Wealth, and we expect more promising results to come in the following quarters. Next, on to our Hexiang Insurance Brokerage business. We are pleased to deliver a better-than-expected growth this quarter.
Hexiang contributed RMB 735 million in total premiums, up 29% quarter over quarter, and its commission revenue reached RMB 199 million, up 31% compared with last quarter and up 95% from prior year. In the beginning of November, Hexiang had already completed our full-year internal targets in both premium and revenue. Hexiang is positioned as a national comprehensive customized insurance service provider, and it stands out in its strong capabilities in product innovation and customization. For instance, its innovative annuity product launched in May enjoyed an immediate popularity with premium of RMB 285 million as of end of Q3. Moreover, Hexiang's high-standard services also gained market recognition. In the Q3, long-term insurance renewal rate stood at 98%, much higher than the common industry standard of 85%.
Moreover, Hexiang's unique 2B2C business model has proven effective in market expansion. By working with 2B channels with a considerable customer base, Hexiang has embedded their tailor-made insurance products into these 2B platforms and the scenarios. This is a win-win solution for both Hexiang and our channel partners. For Hexiang, we have effectively acquired consumers at minimal cost, while for business channel partners, we help them realize additional revenue streams and enhance their customers' LTV. Hexiang is currently operating with over 100 insurers and brokers nationwide, offering more than 510 products. With new products going to hit the shelf in the coming days, we expect a further growth in the quarters to come. Now, I will outline some highlights for our credit business.
In the Q3, our total loans facilitation volume maintained a strong growth trajectory, reaching RMB 6.8 billion for the quarter, representing an increase of 30% quarter-over-quarter and 117% year-over-year. Total number of borrowers served this quarter was 548,000, increasing 26% from prior quarter. On loan products, Yixianghua, our small revolving loan product, witnessed a continued rapid growth and a clear increase in borrower base due to our enhanced digital operating capabilities and improved servicing standard. In the Q3, loan volume of Yixianghua stood at RMB 3.4 billion, accounting for close to 50% of total loan volume and representing almost 5 x growth compared with prior year.
Meanwhile, monthly active users on our Yixianghua app reached 1.1 million as of September 30, jumping 82% quarter-over-quarter. Further increase in customer activity is expected as we start to embed more diversified consumption scenarios on the platform and scale up our own traffic pool. Moreover, as our repeat borrowing rate continues to rise and our consumption traffic base start to convert into new loans sales, we have managed to keep our customer acquisition cost at a low level, translating into healthy product unit economics. Furthermore, I want to share with you our progress on SME loans, which we started to focus on in the second half of this year. We are pleased to see robust growth in SME loan business, with its volume increasing by over 400% quarter-over-quarter, now accounting for 25% of total loan volume.
It's worth mentioning that small and medium enterprise loans are priced under 24% APR. As we are on the full swing to dive into this SME market, we expect the SME loan volume continues to grow in the coming quarters, further optimizing our product mix and paving the way for us to accomplish compliance transition. Talking about compliance and APR cap requirements, we have been executing three concrete strategies to ensure effective transitioning while maintaining profitability. First, like I just mentioned above, we are scaling up SME loans to better support real economy and then to respond to regulatory directions. Second, we have been proactively offering lower price revolving loans to our existing customers with higher credit quality. Thirdly, we have been improving our customer mix and acquiring new customers with better credit performance through our diversified online acquisition scenarios.
Through the combination of these three efficient strategies, we are very confident to be able to complete our progressive adjustment by the Q2 next year. Moreover, for the new guidelines relating to credit scoring, we have been in close communications with regulators and are exploring different options to ensure our compliance. So far, we have already signed an agreement with the licensed credit rating agency, and we are in the stage of testing detailed cooperation models, which will take some time due to the complexities surrounding operational flow as well as tech capabilities. We expect to finish the connection within the guided space grace period and the relevant costs will be manageable. We will continue to pay close attention to regulatory guidance as well as industry standards and make timely adjustments as needed.
Last but not least, as we refine our risk management systems and enhance our asset quality, our 15-89 days delinquency rate remained low at 2.4%, and we expect our credit performance to remain stable during the transition and to experience an overall improvement in the long run as we continue to optimize our customer mix. Going forward, we will continue our efforts to drive up our business scale and create stronger synergies, not only within our wealth management ecosystem, but also within the whole Yiren Digital digital ecosystem. Meanwhile, as our investors are showing growing demand for higher investable amounts, we will serve them with more diversified products with bigger ticket size, further driving up our profitability.
Additionally, as our credit tech business continues to move towards higher quality customer segment, there will be growing synergies and overlap between credit and wealth management businesses in the long run. Now I will pass it on to Na, who will provide this quarter's financial update.
Thank you, Ning. Dear analysts and investors, good evening. For this quarter's financial update, I will focus on key financial highlights only. For further details for our financial performance, you can refer to the detailed financial results in our earnings release and deck that has been posted on our IR website. I'm very happy to share with you another solid quarter with strong growth achieved in gross revenue, profit and transaction volume on a year-on-year basis as we continue to see strong consumer demand for our financial management service. Total revenue in the Q3 was RMB 1.2 billion, increased 20% year over year. This quarter, revenue from wealth management service accounting for close to 30% of our total revenue, becoming a significant revenue driver.
On the credit side, total loans facilitated this quarter was RMB 6.8 million, up 117% year-over-year, and the revenue for loan facilitation service increased by 48% from prior year accordingly. Loan facilitation revenue take rate declined year-on-year due to shifts to the shorter tenor loan products as well as due to price cuts as we adjust our loan portfolio to below 24% APR. Q3 operating expense decreased by 10% year-on-year to RMB 0.8 million. Sales and marketing expense decreased by 15% from prior year to RMB 407 million, driven by increased consumer acquisition efficiency. Our origination and service expense decreased by 22% from prior year to RMB 187 million, mainly due to the improved collection efficiency.
Allowance for accounts receivable and other assets was RMB 83.6 million this quarter, equivalent to 1.2% of loan volume as compared to 1.8% last quarter. The decline was largely driven by improved asset quality and the change of product mix. Net income grew three times year-on-year to RMB 0.3 billion, reflecting a net income margin of 26%. Mainly due to our continued efforts in cost control and increasing operating efficiency. Despite planning APR costs in our loan pricing, we also have confidence in being able to maintain healthy growth and profitability in the transitional year of 2022, and ascend to a more robust profitability growth upwards.
Turning to our balance sheet, we ended the quarter with RMB 2.3 billion cash and cash equivalents, up 6% from prior quarter, leaving us with sufficient resilience to seize any new opportunity. This concludes our closing remarks. Operator, now we are open for questions. Hello, operator, we are open for Q&A session, please. Thank you.
Certainly. Participants who wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you would like to withdraw your question, please press the pound or hash key. It's star followed by one to ask your question. Thank you. The first question comes from the line of Boyd Haynes from Equinox Capital. Please go ahead.
Hi. Thank you for taking my questions. Good evening and very nice quarter. I have a number of questions. What was the APR for loans initiated in the quarter, and what was the average loan tenure?
Hello, this is Na Mei. I will answer your question. Our average tenure of the loan is about 20 months, but we expect, in line with our product, the tenure will be shorter to about 10-12 months by the end of this year. Our 24% APR accounts for about 30% in this quarter, and we expect to about 50% by the end of this year.
Okay. Can you discuss how your business has been progressing so far in the fourth quarter? I see that you did not provide much guidance for that. You did say that the economy has been muted.
Yeah.
If you could discuss that would be great. Thanks.
As you mentioned, there is no regulatory cap this month, July of this year. As you mentioned, our CEO, Ning Tang, you can notice that as our SME loan increased significantly. In last year, there was only below 1% for that year SME loan. For this quarter, it accounts for about 24%. Actually, for all of our SME loan, its price is below 24%, even below 18%. We think that in line with the portion of the SME loan increased, the APR is much lower and lower by the end. Yeah, another reason is that we think our purpose is to pay attention to our client quality.
I think that will help collect more risk assets. I think that with our risk better, we should actively lower our price to collect more high-risk clients. We think that we can decrease our APR 24%-14% potential. As you mentioned, the regulatory deadline is coming next year, so we will focus on the regulatory improvement, and we'll adjust our strategic planning step by step. That's all.
Given that the competition for higher quality borrowers is increasing, can you, and also with the interest rate cap kicking in additionally.
Mm-hmm.
Can you talk about what your outlook is for, pre-tax or operating margins, given those, pressures?
Currently, our cost revenue is about 20%, and our acquisition cost is 2%-3%. Our other operating cost is 1%-3%. We hope that all our operating costs will be decreased about 1%-2% in our Q1. We'll also enhance our cost efficiency in the next year. I think this is another driver for our profitability.
Just last question, and this is about a possible share repurchase or dividend. Do you have cash that's offshore that could be used?
Mm-hmm.
Right now to repurchase shares given that this, the ADS is trading well below book value and at very, very low valuations?
It just would seem to make a lot of sense here to start aggressively repurchasing shares. Thank you.
I can suggest something, and if there's something other presentation, we can for our CEO, Ning Tang. As you mentioned, we have kept the deposits about CNY 2.3 billion on hand. However, our market value is much lower than our cash. As common sense, we should repurchase ourselves. Actually, in the Q2 after our ER, we have performed some, a little more repurchase share in the market. But, considering our future business strategy, I think there is still many uncertainty for our business. We still think we should keep some of the enough cash back on our hands for our future business development.
Of course, as you mentioned, we still internally discuss about any other strategies such as the repurchase of shares or pay the dividend. I think that the first of our priorities is to keep our strategy and keep our performance and development. I think, considering uncertainty, we think we have to keep our sufficient cash position. We have an action plan about your suggestions. Thank you.
Okay, great. Thank you very much, and good luck in the coming year.
Thank you. Once again, participants who wish to ask a question, please press star one on your telephone. Your next question comes from the line of Alan Young from Gold Dragon. Please go ahead.
Thanks, and congratulations on the good results. We've discussed the topic about the shift to lower pricing earlier. Can you elaborate a little bit more on the pace of pricing shift towards 24% in 2022? I know we're targeting around 50%, 24% loan by the year end. The second question is what is the take rate outlook in 2022 as we complete the shift of pricing? How do we arrive at such take rate, for example, credit funding? Thanks.
Yeah. Thank you. This is Na. We'll answer your question. For the first question, the pace of lower APR pricing. Actually, as I mentioned in the prior question, we performed some adjustment from the current pricing to the 24%. You also mentioned that currently, our gross revenue is about 20%. For the 24% pricing, we still have confidence our product profitability considering better asset quality, lower funding costs, lower acquisition costs, and keeping our operating cost savings. For example, compared to the 20% gross revenue currently, the 24% calculated gross revenue rate will increase about 4%-5%. But it will also impact the risk.
The funding cost and acquisition cost will decrease to 3%, 1% and 1% respectively. So that we still have the confidence that the net revenue margin will still keep stable, yeah, compared now, yeah. Okay. Answer your question?
Yeah. Thanks very much.
And, uh, this is the-
Yes. This is Ning. I'd like to add that, you know, our business model is quite differentiated. Yeah. We have a credit tech business. We also have insurance and wealth management business, which is a significant part of our revenue and, yeah, value. My sense is really like the much safer business model. We talked about like the regulatory uncertainty, so on. Yeah. My view is the monoline business is very risky in such an uncertain environment. You can think of us as a kind of a three pillar. Yeah. Much more stable.
The good thing is, as far as I can see, each business line represents a very big market opportunity growing very fast with high quality. I think that's a really differentiated strategy. We don't do these three things just for the sake of doing more things. It's because there is strong synergy among the businesses. Yeah, between credit tech and wealth management and insurance. As I highlighted in the first part of my presentation, this synergy is becoming more and more obvious. All that makes our customer acquisition cost, relatively speaking, probably, you know, the lowest.
The LTV, the highest. Yeah. I think that's how my colleagues and I look at our business. Thank you.
Thanks so much, Ming, for this comprehensive insight. One more question is on the funding side, about our funding strategy as we shift to lower APR.
What will be that about funding sources?
Uh.
We continue to work with the institutions. Yeah. Na can please. Yeah.
I think as mentioned with our client quality is better for the 24%. We think that there's still significant space for our funding to decrease. In 2021, our main funding partner is including banking, trust, microfinance companies and financial lease company. We suppose we will get more relationship with our funding partners. We suppose there were about one or two at least percent to lower our funding.
Thank you very much. That's all from my side. Thanks.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone. As there are no further questions at this point of time, this concludes our conference for today. Thank you all for participating. You may all disconnect now. Thank you, everybody.