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LexinFintech Holdings: All Eyes On Regulatory Risks (NASDAQ:LX)

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I assign a Neutral rating to Chinese online consumer finance company LexinFintech Holdings Ltd. (LX).

LexinFintech is differentiated from most of its online consumer finance peers in multiple ways, such as its customer base, consumption focus, funding sources, and proprietary technologies. However, the interest rate cap on consumer lending in China has been lowered, which could potentially hurt LexinFintech’s profitability, and this brings regulatory risks for the company and its peers into the spotlight. LexinFintech trades at 10.7 times consensus forward FY 2020 P/E and 4.0 times consensus forward FY 2021 P/E.

Company Description

Established in October 2013 and listed in December 2017, LexinFintech refers to itself as a “leading online consumption and consumer finance platform for new generation consumers in China” offering various services, including “financial technology services, membership benefits, and a point redemption system through its ecommerce platform Fenqile and membership platform Le Card,in its press releases.

Business Overview And Key Metrics

(Source: LexinFintech’s September 2020 Investor Presentation Slides)

The company is differentiated from most of its online consumer finance peers in multiple ways, which is discussed in greater detail in subsequent sections of this article.

Targeting Young Adults

LexinFintech targets young adults in China, more specifically, students studying at tertiary institutions, recent graduates or those who recently entered the workplace.

As of June 30, 2020, the company has 95.3 million registered users, of which 22.7 million users have a credit line, and 6.8 million of them are active users. Active users are “users who made at least one transaction during that period through our platform or through our third party partners’ platforms using credit line granted by us,” as defined by LexinFintech.

It is noteworthy that the average age of LexinFintech’s customers is 25 years old as of end-2Q 2020. Arguably, young adults are the best customers that online consumer finance companies can have, since they are the stage of their lives where they will be spending a lot (yet do not have the income to match that) and need to maintain a good credit rating (i.e., no defaults) for future borrowings.

At the business update call on September 16, 2020, LexinFintech stressed that its customers “are fundamentally different” and “younger”, and “we typically offer better credit limits, higher amounts to these customers.” The company’s average credit limit for customers in the second quarter of 2020 was a relatively high RMB10,000.

A Diverse Range Of Products Focused On Consumption

LexinFintech offers a diverse range of products focused on consumption, and this is closely linked to the company’s customer base comprising mainly of young adults who have a strong desire to spend.

Rather than simply offering loans and credit, it has an e-commerce platform (Gross Merchandise Value of RMB2.6 billion in 1H 2020) and mobile app called Fenqile which offers various products for sale which can be paid in installments. In addition, the company has a two million-strong membership base (membership fees are another source of revenue), and its virtual credit card Lehua Card which contributed RMB22.2 billion in loan originations (or close to 30% of total loan originations) in the first half of this year.

LexinFintech’s Products And How They Are Linked To Daily Consumption Activities

(Source: LexinFintech’s September 2020 Investor Presentation Slides)

LexinFintech noted at the 2Q 2020 earnings call on August 18, 2020 that its consumption-focused product strategy is to cover “all the consumption scenarios is that it enables us to literally see how our customers eat, sleep, live” with the aim of improving “the stickiness of the customers.” The company also emphasized at the earnings call that there is still room for growth in terms of providing more products and services focused on consumption, as “the amounts that we can provide financial services to is probably limited at this point to just over 20%” of its 95.3 million registered users.

Relatively Low Funding Cost Relying On Institutional Funding

LexinFintech’s funding cost has been declining over the past few years, and it reached a new record low of 7.7% in 2Q 2020. This is mainly attributable to the fact that it is able to access relatively cheaper wholesale funding from institutions such as banks and insurance companies with its micro-finance license. In contrast, most peer-to-peer lenders are reliant on more expensive funding from individuals. Also, LexinFintech has continued to optimize its funding mix over the years. While the company used to source two-thirds of its funds from individuals in 2016, institutions now contribute substantially all of its funding.

Funding Cost

(Source: LexinFintech’s September 2020 Investor Presentation Slides)

Funding Source

(Source: LexinFintech’s September 2020 Investor Presentation Slides)

Looking ahead, LexinFintech guided at its recent 2Q 2020 earnings call that it expects its funding cost to continue to decline going forward, but the pace of decline might slow in the near term, as “we certainly already have one of the better funding costs and better deals from the banks out there.”

Proprietary Technologies

In a recent book on the Chinese fintech sector published by Columbia Business School in August 2020 titled “China’s Fintech Explosion”, authors Sara Hsu and Jianjun Li make special mention of LexinFintech. In the book, it is noted that the company “uses proprietary technology to trace back bad credit and identify risks” and artificial intelligence “helps firm managers assess risks properly using location information and social network activity as fraudulent users tend to congregate.”

Company’s Credit Risk Management And Credit Approval System Referred To As Hawkeye Engine

(Source: LexinFintech’s September 2020 Investor Presentation Slides)

Company’s Funding And Capital Allocation System Known As Wormhole

(Source: LexinFintech’s September 2020 Investor Presentation Slides)

The numbers speak for themselves. Hawkeye Engine, LexinFintech’s credit risk management & credit approval system, processes 99.8% of loan applications automatically, while Wormhole, its funding & capital allocation system, boasts a 93% success rate with respect to matching of funds.

Regulatory Risks And Interest Rate Cap In The Spotlight

Similar to many online consumer finance companies operating in different parts of the world, LexinFintech faces significant regulatory risks in its home market, China. A recent Bloomberg report on interest rate caps in China has brought regulatory risks for LexinFintech and its peers into the spotlight again.

Bloomberg reported on September 6, 2020 that China’s Supreme Court has issued a new interest rate cap on consumer lending equivalent to “four times the benchmark Loan Prime Rate,” or approximately 15.4%, as compared to “a range of 24% to 36% under a previous judicial interpretation in 2015.” It is uncertain if this new interest rate cap, which will hurt the profitability of lenders, will be applicable to online consumer finance companies such as LexinFintech.

Specifically, online consumer finance companies could face issues with charging overdue fees. Overdue fees have been an effective deterrent against late payment in the past, when overdue fees were charged at significantly higher rate compared with existing lending rates. This might not be possible going forward given the narrow difference between online consumer finance companies’ average lending rates and the new interest rate cap.

In response, LexinFintech organized a business update call for analysts and investors on September 16, 2020 to address such concerns.

At the call, LexinFintech highlighted that its current numbers are below the new interest rate cap. The company’s average interest rates were 13.6% and 14.5% for 1Q 2020 and 2Q 2020, respectively, based on the court’s definition of nominal Annual Percentage Rate, or APR. LexinFintech stressed that “we don’t see any particularly significant impact from this (new interest rate cap),” and “we are pretty confident in terms of our ability” to meet “the financial goals for this year.”

However, the company did acknowledge that it needed to make changes to certain products with higher rates, and it also mentioned that fee-based income (e.g. membership fees) could help to offset some of the negative impact of reduced rates.

Nevertheless, it is noteworthy that LexinFintech noted at its recent call on September 16, 2020 that the Supreme Court’s decision to lower the interest rate cap was made with the aim to “lower the cost of funding for the society as a whole.” This suggests that the Chinese authorities are determined to lower interest costs to boost consumer spending and economic growth, and online finance companies such as LexinFintech could be subject to further regulatory risks going forward.

Valuation And Risk Factors

LexinFintech trades at consensus forward FY 2020 and FY 2021 P/E multiples of 10.7 times and 4.0 times, respectively. Sell-side analysts expect the company to achieve ROEs of 16.8% and 32.1% for FY 2020 and FY 2021, respectively.

As per the peer valuation comparison, LexinFintech is the most expensive among its peers based on consensus forward FY 2021 P/E, but this is justified by the company’s high consensus forward ROE of 32.1% for FY 2021 and its differentiating factors highlighted above.

Peer Valuation Comparison For LexinFintech

StockConsensus Current Year P/EConsensus Forward One-Year P/EConsensus Current Year ROEConsensus Forward One-Year ROE
Yiren Digital (YRD)5.13.710.6%12.1%
Qudian (QD)30.72.90.7%6.7%
FinVolution Group (FINV)2.82.918.4%15.5%
360 DigiTech (QFIN)4.32.933.9%30.2%
Jianpu Technology (JT)3.21.117.4%31.1%

(Source: Author)

The key risk factors for LexinFintech are weaker-than-expected economic growth in China leading to lower-than-expected consumption demand, and new regulations which are negative for the Chinese online consumer finance sector, such as the recent lowering of the interest rate cap.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.



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ASK THE MONEY LADY: What you need to know about protecting your credit score | Regional-Lifestyles | Lifestyles

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Dear Greg,

Most people never want to share their social insurance number for fear of a hit to their credit bureau, but unfortunately, you may find it a necessity when asked by your lender, who now needs to ensure identity due to increased consumer fraud.

If you apply for credit at a bank, open a bank account or finance a vehicle, chances are you will need to disclose your social insurance number (SIN).

Many people still believe that they should never agree to an inquiry or give out their SIN number too many times to obtain credit. They think their credit will either become damaged or their credit bureau rating and score will go down. This is sometimes not true – so to help you out, Greg, I’m going to dispel all the myths and also let you know what the banks are looking for.

There are two major credit bureau companies that all financial institutions and merchants use today. They are Equifax and TransCanada Union – agencies that rank and provide an overall score to each person who uses credit.

The system for measuring hits to your credit score is indeed intuitive, meaning it measures and evaluates the type of merchant and inquiry. So, it knows if you are shopping around. If you have several inquiries from different banks because you are rate shopping for a mortgage, you will usually not see any decline in your score, (however, these inquiries must be contained within a 30-day period).

It’s the same thing when you are shopping for a vehicle – multiple hits to your credit bureau from car dealers will not alter the score if contained within 30 days.

But, on the other hand, if you are truly shopping and going to different stores, applying for multiple credit cards, personal and retail loans, or buying items on deferred payment plans, then yes, this will drop your score regardless of the 30-day limit.

Protect your credit

First and foremost, you want to protect your credit. This is the foundation of all lending and is the only way for lenders to judge your creditworthiness for the future. If you always pay your bills on time and have never declared bankruptcy, chances are you will have good credit.

But if you are the opposite, and your credit score is too low, you may find it very difficult to get future credit. Your credit bureau score can range from 300 to 900.

As a general guideline, banks and A-Lenders are looking for clients with scores above 680 and will generally automatically decline applications with scores under 600. Credit card companies are a little more lenient and will go down as low as 530, with auto declines for scores under 500.

Here are some tips to improve your credit and maintain a good rating:

1. Pay your bills two to three days before they are due. Paying them on the due date (especially through online banking) will make you one to two days late. This is recorded on your credit bureau and will definitely lower your score without you knowing it.

2. Do not carry balances on credit cards or personal loans month over month. This means your credit is revolving and will automatically drop your score.

3. Resist the urge to have a lot of open credit cards, even if they have zero balances.

4. You must have some credit. If you had previous bad credit and now are just using cash, you are essentially handcuffing your future. Without re-establishing good credit, the banks will decline you every time.

5. Property taxes and support payments in arrears can also drop your score once they are reported.

6. Mortgage and vehicle payments in arrears once reported (which usually happens after 60 days), are a major hit to your score. Please try to avoid this.

I have heard in the past that some merchants or banks do soft hits to your credit. Please do not get fooled by this. There is no such thing as a “soft hit” or a “hard hit” to your credit bureau. If they have your verbal consent, (even if they don’t have your SIN number) when they adjudicate a consumer credit request, they will hit your credit and it will adjust your score.

Good luck and best wishes,

Christine Ibbotson


Written by Christine Ibbotson, author of four finance books, including the Canadian best-selling book, “How to Retire Debt-Free & Wealthy.” Go to www.askthemoneylady.ca or send a question to i[email protected]

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Bad Credit Credit Cards – Bad Credit Credit Cards – ‘My refund has been sent to a credit card that I cancelled’ – your rights to lost money | Fintech Zoom | Fintech Zoom

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Bad Credit Credit Cards – Bad Credit Credit Cards – ‘My refund has been sent to a credit card that I cancelled’ – your rights to lost money | Fintech Zoom

Bad Credit Credit Cards – ‘My refund has been sent to a credit card that I cancelled’ – your rights to lost money

Thanks to Covid, traders have been processing significant numbers of refunds due to events, such as holidays and weddings, being cancelled.

In many cases, these refunds have been sent back to the credit cards used to pay for the purchase – but this has caused a new problem to emerge in relation to card purchases.

When a trader provides a refund, it usually goes back via the same method as the original payment. So if you pay by credit card, the refund is sent back to that card.

However, many people have cancelled credit cards during the pandemic and have therefore found they cannot access the cash.

So what happens to your refund?

Will I get my money back?



If you’ve cancelled the card, the money will be sent to a holding account

The good news is that your refund is safe, as the money will simply be put into a holding ­account by the card provider.

The bad news is that it can take a long time to retrieve the money.

My advice, if you’re waiting for a refund for goods or services you paid for with a card you have now cancelled, tell the trader immediately and ask for the refund to be paid via an alternative method.

Get the latest money advice, news and help straight to your inbox – sign up at mirror.co.uk/email

Positive balance credit card accounts

When a refund is processed back to a card, it can create a positive balance on your account – usually when you have already paid the most recent card bill.

This potentially presents issues as credit cards are not designed to ‘hold’ money in the same way as a current or savings account.

For this reason, consumers are not encouraged to hold positive balances on a credit card.

If your card has a positive balance and you are likely to use it again soon, your next purchases will rectify the situation.

But if you are not planning to use your credit card again in the short-term, ask the card company to transfer the surplus to your ­current account. Do not withdraw the money via an ATM as this may attract fees.

Credit card cash withdrawals

Financial experts warn that you should not get money out from a credit card as it can have a major impact on your credit rating.

This is because there is a very high interest rate attached to withdrawals and companies will flag any withdrawals up, impacting a customer’s credit file.

Bad Credit Credit Cards – ‘My refund has been sent to a credit card that I cancelled’ – your rights to lost money

Bad Credit Credit Cards – Bad Credit Credit Cards – ‘My refund has been sent to a credit card that I cancelled’ – your rights to lost money | Fintech Zoom

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Workout My Credit Solutions Rises as an Authority in Credit Repair and Financial Education

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Quality of life is impacted by numerous factors, and one of its most significant determinants is a person’s financial health. For the most part, financial stability involves the ability to provide for themselves or their family members without putting a significant dent in their wallets. As a concept, financial stability as well as financial freedom is easy to understand but achieving and maintaining it is a whole new story. Today, millions of individuals around the world are struggling with money issues, some of which are caused by the outbreak of COVID-19. However, there are those contending with bad credit, in particular, as a result of ill-informed decisions, mismanagement, and more. Widely acclaimed for the extent to which it helps clients get their credit into shape, Workout My Credit Solutions, LLC has emerged as a go-to venture that is currently making waves in the industry.

Also Read | Top 9 Upcoming Credit Repair Companies

This emerging powerhouse was launched by Nicole Fisher, a 25-year-old serial entrepreneur who has earned recognition for her all-out attitude toward lending people a hand through her initiatives. Highly cognizant of the impact of bad credit on one’s financial health, she started Workout My Credit Solutions in May 2020 and, since then, has been making it possible for clients to get approved for credit cards, mortgage loans, and auto loans, to name a few.

In just a year, the credit repair company has seen impressive growth, reaching remarkable heights due to its consistent delivery of top-notch services. Apart from restoring one’s credit into its former glory, Workout My Credit Solutions also delivers financial education because it believes in the importance of equipping clients with the knowledge they need to handle their money better. It acknowledges the existing gaps in the current educational system where ample attention is not given to arming people with the skills they need to secure a financially stable future. “Our goal is to help clients understand how credit works while they are in the process of getting it fixed,” shares Nicole Fisher.

Also Read | Top 9 Upcoming Credit Repair Companies

Additionally, Workout My Credit Solutions, under the leadership of Nicole Fisher, enables clients to get pre-approved mortgage loans after having their credit repaired by this five-star company. The additional service is strategically designed and incorporated into its inventory of offerings to translate into reality the dreams of those wishing to own a home.

On track to taking center stage, Workout My Credit Solutions has been on the receiving end of excellent reviews from everyone who has come under its wing. It takes pride in the long list of accomplishments it managed to snag under its belt shortly after its establishment and is set to reach the forefront of the industry in the coming years.

With its dedication to pushing people toward financial freedom, Workout My Credit Solutions is bound to remain an impressive force. As it carves a path toward the summit, it plans to continue serving as a leading authority in credit repair and financial education.

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