| Summary of significant accounting policies (Policies) | 12 Months Ended |
| Dec. 31, 2018 |
| Accounting Policies [Abstract] | |
| Basis of presentation | (a) Basis of presentation
The Group’s consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”). The preparation
of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the
amounts reported in the accompanying consolidated financial
statements and related disclosures. Actual results may differ from
those estimates. |
| Principle of consolidation | (b) Principle of consolidation
The consolidated financial statements include the financial
statements of the Company and its subsidiaries, which include the
WOFEs and consolidated VIEs, for which the Company is the ultimate
primary beneficiary. Subsidiaries are those entities in which the
Company, directly or indirectly, controls more than one half of the
voting power; or has the power to govern the financial and
operating policies, to appoint or remove the majority of the
members of the board of directors, or to cast a majority of votes
at the meeting of directors.
Consolidated VIEs are entities in which the WOFEs through their
respective contractual arrangements, bear the risks of, and enjoy
the rewards normally associated with, ownership of the entities,
and therefore the Company is the primary beneficiary of these
entities.
All transactions and balances among the Company, its subsidiaries,
the VIEs and the VIEs’ subsidiaries have been eliminated upon
consolidation.
Details of the typical structure of the Company’s significant
VIEs are set forth below:
i) VIE Agreements that give the Company effective control of
VIEs
Business Operation Agreement
Pursuant to the relevant business operation agreements, the
shareholders of the VIEs agree that to the extent permitted by law,
they will accept and unconditionally execute the WOFEs’
instructions on business operations, such as appointment of
directors and executive officers. They further agree that, without
the WOFEs’ prior written consent, the VIEs will not take any
action that may have material adverse effects on their assets,
businesses, human resources, rights, obligations, or business
operations. The shareholders of the VIEs agree to transfer any
dividends or other similar income or interests they receive as the
shareholders of the VIEs, if any, immediately and unconditionally
to the WOFEs. This agreement also requires each of the shareholders
of the VIEs to issue an irrevocable power of attorney authorizing
the WOFEs or any person(s) designated by the WOFEs to execute
shareholders’ rights on behalf of such shareholder. Unless
the WOFEs terminate this agreements in advance, the agreement will
remain effective until the VIEs are dissolved pursuant to PRC
law.
Power of Attorney
Pursuant to each power of attorney, each shareholder of the VIEs
have irrevocably appointed the WOFEs or any persons designated by
the WOFEs to act as such
shareholder’s attorney-in-fact
Exclusive Option Agreement
Pursuant to the exclusive option agreements, the Nominee
Shareholders of the VIEs granted the WOFEs or any third party
designated by the WOFEs the exclusive and irrevocable right to
purchase from the Nominee Shareholders, to the extent permitted by
PRC law and regulations, all or part of its respective equity
interests in the VIEs for a purchase price equal to the registered
capital. The Nominee Shareholders will then return the purchase
price to the WOFEs or any third party designated by the WOFEs after
the option is exercised. The WOFEs may transfer all or part of its
option to a third party at its own option. The VIEs and the Nominee
Shareholders agree that without prior written consent of the WOFEs,
they may not transfer or otherwise dispose the equity interests or
declare any dividend. The exclusive option agreement will remain
effective until the WOFEs or any third party designated by the
WOFEs acquire all equity interest of the VIEs.
Equity Pledge Agreement
Pursuant to relevant equity pledge agreements, each shareholder of
the VIEs has pledged all of his or her equity interest held in the
VIEs to the WOFEs to guarantee his or her obligations under the
business operation agreement, the power of attorney, exclusive
option agreement and the exclusive technology consulting and
service agreement. In the event that the VIEs breach any
obligations under these agreements, the WOFEs as the pledgee, will
be entitled to request immediate disposal of the pledged equity
interests and have priority to be compensated by the proceeds from
the disposal of the pledged equity. The Nominee Shareholders may
not dispose of the equity interests or create or permit any pledges
which may have an adverse effect on the rights or benefits of the
WOFEs without the prior written consent of the WOFEs. The relevant
share pledge agreements will remain effective until the VIEs and
its Nominee Shareholders discharge all of their obligations under
the VIE Agreements and the pledgee consents such discharge in
writing.
ii) VIE Agreement
Exclusive technology consulting and service
agreement
Pursuant to the exclusive technology consulting and service
agreements, WOFEs have the exclusive right to provide the VIEs and
their subsidiaries (as designated in the agreement) with technical
support, consulting services and other services. The WOFEs shall
exclusively own any intellectual property arising from the
performance of the agreement. During the term of this agreement,
the VIEs and their designated subsidiaries may not accept any
services covered by this agreement provided by any third party. The
VIEs and their designated subsidiaries agree to pay service fees
equal to 100% of the net profit generated or otherwise determined
by the WOFEs. Except by mutual agreement upon early termination by
parties in writing, the exclusive business cooperation agreement
will remain effective until the VIEs and their designated
subsidiaries are dissolved in accordance with PRC law and
regulation.
Based on these contractual agreements, the Company believes that
the VIEs as described above should be considered as VIEs because
the equity holders do not have significant equity at risk nor do
they have the characteristics of a controlling financial interest.
Given that the Company, through the WOFEs, is the primary
beneficiary of these VIEs, the Company believes that these VIEs
should be consolidated based on the structure as described
above.
The following table sets forth the assets, liabilities, results of
operations and cash flows of the VIEs, which are included in the
Group’s consolidated financial statements. Transactions
between the VIEs and their subsidiaries are eliminated in the
balances presented below:
As of December 31,
2017 2018
RMB RMB
Cash and cash equivalents 377,470 752,102
Restricted cash 2,347,799 3,341,985
Short-term investments 1,623,656 1,574,090
Account receivable 3,287 800,334
Quality assurance receivable 1,152,769 2,064,366
Property, equipment and software, net 83,802 104,802
Financial guarantee derivative assets
— 56,287
Investments 290,168 1,147,569
Deferred tax assets 127,542 88,446
Contract assets
— 112,103
Prepaid expenses and other assets 141,321 167,817
Total assets 6,147,814 10,209,901
Payable to platform customers 1,113,966 905,034
Quality assurance payable 2,062,844 3,819,379
Deferred revenue 256,240
—
Payroll and welfare payable 130,533 129,809
Taxes payable 140,064 208,585
Provision for payment to investor reserve fund investor 107,660
—
Financial guarantee derivative liabilities 215,770
—
Contract liabilities
— 158,061
Deferred tax liabilities
— 78,268
Due to related parties 700,137 1,609,126
Accrued expenses and other liabilities 194,780 190,406
Total liabilities 4,921,994 7,098,668
For the Years Ended
December 31,
2016 2017 2018
RMB RMB RMB
Net revenue 1,216,971 3,900,454 4,250,978
Net profit 314,300 730,855 1,604,530
Net cash provided by operating activities 1,164,122 3,233,966 1,356,887
Net cash used in investing activities (712,429 ) (1,642,454 ) (1,031,968 )
Net cash provided by (used in) financing activities 379,835 (31,250 ) 1,043,899
Net increase in cash, cash equivalents and restricted cash 831,528 1,560,262 1,368,818
Cash, cash equivalents and restricted cash at beginning of year 333,479 1,165,007 2,725,269
Cash, cash equivalents and restricted cash at end of year 1,165,007 2,725,269 4,094,087
Under the VIE Arrangements, the Company has the power to direct
activities of the VIEs and can have assets transferred out of the
VIEs. Therefore, the Company considers that there is no asset in
the VIEs that can be used only to settle obligations of the VIEs,
except for registered capital and PRC statutory reserves, if any.
As the VIEs are incorporated as limited liability company under the
Company Law of the PRC, creditors of the VIEs do not have recourse
to the general credit of the Company for any of the liabilities of
the VIEs.
Currently there is no contractual arrangement which requires the
Company to provide additional financial support to the VIEs.
However, as the Company conducts its businesses primarily based on
the licenses and approvals held by the VIEs and their subsidiaries,
the Company has provided and will continue to provide financial
support to the VIEs. |
| Business combinations and noncontrolling interests | (c) Business combinations and noncontrolling interests
The Company accounts for its business combinations using the
acquisition method of accounting in accordance with Accounting
Standards Codification (“ASC”) 805 “Business
Combinations.” The cost of an acquisition is measured as the
aggregate of the acquisition date fair values of the assets
transferred and liabilities incurred by the Company to the sellers
and equity instruments issued. Transaction costs directly
attributable to the acquisition are expensed as incurred.
Identifiable assets and liabilities acquired or assumed are
measured separately at their fair values as of the acquisition
date, irrespective of the extent of any noncontrolling interests.
The excess of (i) the total costs of acquisition, fair value
of the noncontrolling interests and acquisition date fair value of
any previously held equity interest in the acquiree over
(ii) the fair value of the identifiable net assets of the
acquiree is recorded as goodwill. If the cost of acquisition is
less than the fair value of the net assets of the subsidiary
acquired, the difference is recognized directly in the consolidated
income statements. During the measurement period, which can be up
to one year from the acquisition date, the Company may record
adjustments to the assets acquired and liabilities assumed with the
corresponding offset to goodwill. Upon the conclusion of the
measurement period or final determination of the values of assets
acquired or liabilities assumed, whichever comes first, any
subsequent adjustments are recorded to the consolidated statements
of operations.
In a business combination achieved in stages, the Company
re-measures re-measurement
When there is a change in ownership interests that result in a loss
of control of a subsidiary, the Company deconsolidates the
subsidiary from the date control is lost. Any retained
noncontrolling investment in the former subsidiary is measured at
fair value and is included in the calculation of the gain or loss
upon deconsolidation of the subsidiary.
For the Company’s majority-owned subsidiaries and VIEs, a
noncontrolling interest is recognized to reflect the portion of
their equity which is not attributable, directly or indirectly, to
the Company. Consolidated net income (loss) on the consolidated
income statements includes the net income (loss) attributable to
noncontrolling interests and mezzanine equity holders when
applicable. Net income (loss) attributable to mezzanine equity
holders is included in net income (loss) attributable to
noncontrolling interests on the consolidated income statements,
while it is excluded from the consolidated statements of changes in
shareholders’ equity. The cumulative results of operations
attributable to noncontrolling interests, along with adjustments
for share-based compensation expense arising from outstanding
share-based awards relating to subsidiaries’ shares, are also
recorded as noncontrolling interests in the Company’s
consolidated balance sheets. Cash flows related to transactions
with noncontrolling interests are presented under financing
activities in the consolidated statements of cash flows. |
| Use of estimates | (d) Use of estimates
The preparation of consolidated financial statements in accordance
with U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported and disclosed in the
consolidated financial statements and accompanying notes.
Financial statements amounts that reflect significant accounting
estimates and assumptions include revenue recognition, fair value
of guarantee and quality assurance fund liabilities, valuation
allowance for deferred tax assets, allowance for doubtful accounts,
allowance for loan losses, determination of uncertain tax
positions, accounting for convertible redeemable preferred shares,
and valuation of share-based awards. Such accounting estimates are
impacted significantly by judgements and assumptions used in the
preparation of the Group’s consolidated financial statements,
and actual results could differ materially from these estimates.
Changes in estimates are recorded in the period they are
identified. |
| Foreign currency and foreign currency translation | (e) Foreign currency and foreign currency translation
The Group uses Renminbi (“RMB”) as its reporting
currency. The US$ is the functional currency of the Group’s
entities incorporated in Cayman Islands and Hong Kong, and the
RMB is the functional currency of the Group’s PRC
subsidiaries.
Transactions denominated in other than the functional currencies
are re-measured re-measured
The financial statements of the Group are translated from the
functional currency to the reporting currency, RMB. Assets and
liabilities of the subsidiaries are translated into RMB using the
exchange rate in effect at each balance sheet date. Income and
expenses items are generally translated at the average exchange
rates prevailing during the fiscal year. Foreign currency
translation adjustments arising from these are accumulated as a
separate component of shareholders’ deficit on the
consolidated financial statements. The exchange rates used for
translation on December 31, 2017 and 2018 were US$1.00=
RMB6.5342 and RMB6.8632, respectively, representing the index rates
stipulated by the People’s Bank of China. |
| Convenience translation | (f) Convenience translation
Translations of balances in the Group’s consolidated balance
sheet, consolidated statement of operations and comprehensive
income (loss) and consolidated statement of cash flows from RMB
into US$ as of and for year ended December 31, 2018 are solely
for the convenience of the readers and were calculated at the rate
of US$1.00=RMB6.8755, representing the noon buying rate set forth
in the H.10 statistical release of the U.S. Federal Reserve Board
on December 31, 2018. No representation is made that the RMB
amounts could have been, or could be, converted, realized or
settled into US$ at that rate on December 31, 2018, or at any
other rate. |
| Certain risks and concentration | (g) Certain risks and concentration
As of December 31, 2017 and 2018, substantially all of the
Group’s cash, term deposit and cash equivalents, restricted
cash and short-term investments were held in major financial
institutions located in the PRC and in Hong Kong, which management
considers to be of high credit quality. Accounts receivable are
generally unsecured and denominated in RMB, and are derived from
revenues earned from operations arising primarily in the PRC. No
individual customer accounted for more than 10% of net revenues for
the years ended December 31, 2016, 2017 and 2018. No
individual customer accounted for more than 10% of accounts
receivable as of December 31, 2017 and 2018. |
| Cash and cash equivalents | (h) Cash and cash equivalents
Cash and cash equivalents represent cash on hand, demand deposits
and highly liquid investments placed with banks or other financial
institutions, which have original maturities less than three
months. |
| Restricted cash | (i) Restricted cash
Restricted cash represents:
(i)
Cash in quality assurance is cash managed by the Group
through designated bank accounts and cash managed by China United
SME Guarantee Corporation (“Sino Guarantee”) under the
new quality assurance program. There is no other use of these funds
except for making payments to investors for default loans that are
subject to quality assurance protection. As of December 31,
2017 and 2018, the restricted cash related to quality assurance
amounted to RMB1,058,617 and RMB2,414,449, respectively.
(ii)
Cash in investor reserve funds is cash managed by the
Group through a designated bank account or third party payment
company account. There is no other use of these funds except for
payments to protect relevant investors from potential losses
resulting from delinquent loans and or underperformance of the
investment programs. As of December 31, 2017 and 2018, the
restricted cash related to investor reserve funds amounted to
RMB175,215 and RMB17,971, respectively.
(iii)
Cash received from investors and borrowers that has
not yet been disbursed, due to a settlement time lag. As of
December 31, 2017 and 2018, the restricted cash related to
cash not yet disbursed amounted to RMB1,113,966 and RMB905,034,
respectively.
(iv)
Cash received via consolidated trusts that has not yet
been distributed. As of December 31, 2017 and 2018, the
restricted cash related to cash not yet distributed amounted to
RMB44,775 and RMB303,667, respectively.
(v)
Cash held as collateral for short-term borrowings of a
subsidiary of the Group. As of December 31, 2017 and 2018, the
restricted cash held as collateral amounted to RMB nil and
RMB26,000, respectively.
(vi)
Cash held in escrow accounts that is jointly managed
by the Company and institutional funding partners. As of
December 31, 2017 and 2018, the restricted cash managed by the
Company and institutional funding partners amounted to RMB nil and
RMB10,436, respectively. |
| Short-term Investments | (j) Short-term Investments
Short-term investments mainly consist of investments in wealth
management products and investments in time deposits placed with
banks with original maturities between three months and one year.
The wealth management products are certain deposits with variable
interest rates or principal not guaranteed with certain financial
institutions.
Realized and unrealized gain related to the short-term investments
is recorded as other income in the consolidated statements of
comprehensive income. RMB21,264, RMB35,516 and RMB96,061 was
recognized for the year ended December 31, 2016, 2017 and
2018, respectively. |
| Accounts receivable, contract assets and allowance for doubtful accounts | (k) Accounts receivable, contract assets and allowance for
doubtful accounts
Accounts receivable is related to the facilitation and
post-facilitation service in relation to loans facilitated by the
Group. Contract assets represent the Group’s right to
consideration in exchange for facilitation services that the
Company has transferred to the customer before payment is due. The
Group only recognizes accounts receivable and contract assets to
the extent that the Group believes it is probable that it will
collect substantially all of the consideration to which it will be
entitled to in exchange for the services transferred to the
customer.
Accounts receivable and contract assets is stated at the historical
carrying amount net of write-offs and allowance for doubtful
accounts. The Group establishes an allowance for doubtful accounts
based on estimates, historical default experience and other factors
surrounding the credit risk of borrowers. The Group evaluates and
adjusts its allowance for accounts receivable and contract assets
on a quarterly basis or more often as necessary. Accounts
receivable and contract assets is written off when a settlement is
reached for an amount that is less than the outstanding historical
balance or when the Group has determined the balance will not be
collected. |
| Investments | (l) Investments
Prior to January 1, 2018, the Group’s investments
include equity method investments, cost method investments and
available-for-sale
The Group applies equity method in accounting for its investments
in entities in which the Group has the ability to exercise
significant influence but does not have control and the investments
are in either common stock or in-substance
For equity investments that are not considered as debt securities
or equity securities that have readily determinable fair values and
over which the Group has neither significant influence nor control
through investments in common stock or in-substance
The Group has classified its investments in debt securities and
equity securities with readily determinable fair value as
available-for-sale
The Group monitors its investments for other-than-temporary
impairment by considering factors including, but not limited to,
current economic and market conditions, the operating performance
of the companies including current earnings trends and other
company-specific information.
On January 1, 2018, the Group adopted ASU 2016-01 non-marketable
Non-marketable non-marketable
The table below sets forth the investments the Group holds as of
December 31, 2017 and 2018 respectively.
As of December 31,
2017 2018
Equity method investments 6,000 81,000
Cost method investments 2,857
—
Available-for-sale 3,377
—
Non-marketable
— 86,501
12,234 167,501
Equity method investments
For the years ended December 31, 2017 and 2018, the Company
completed the following investments which were accounted for as
equity method investments:
In October 2018, the Company made some investments in two third
party private equity with the cash consideration of RMB50,000 and
RMB20,000 respectively. The Company accounted for these investments
under equity methods. As of December 31, 2018, the carrying
value of these investments were RMB70,000 as the earnings of these
two private funds were immaterial after the Group made its
investments.
As of December 31, 2017 and 2018, the carrying value of the
rest of equity investments were RMB6,000 and RMB11,000.
Equity securities without readily determinable fair
values
For the years ended December 31, 2018, the Company completed
the following major investments which were accounted for as
non-marketable
In September 2018, the Group acquired approximately 2.08% preferred
share capital of Beijing Quantum Protection Technology Co., Ltd.
(“Beijing Quantum”) for a cash consideration of
RMB10,000 and accounted for it as non-marketable start-up
In October 2018, the Group acquired approximately 5% preferred
share capital of Shanghai Yi Yang automobile service Co., Ltd.
(“Yi Yang”) for a cash consideration of RMB30,000 and
accounted for it as non-marketable start-up
In October 2018, the Group acquired approximately 2% preferred
share capital of CDD Holding Limited (“CDD”) for a cash
consideration of USD2,000 and accounted for it as non-marketable start-up
In October 2018, the Group acquired approximately 3.99% preferred
share capital of EMI Agriculture Technology Inc (“EMI”)
for a cash consideration of USD2,000 and accounted for it as
non-marketable start-up
As of December 31, 2018, the carrying value of the rest of
non-marketable |
| Fair value measurement | (m) Fair value measurement
Fair value is the price that would be received from selling an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When
determining the fair value measurements for assets and liabilities
required or permitted to be recorded at fair value, the Group
considers the principal or most advantageous market in which it
would transact and it considers assumptions that market
participants would use when pricing the asset or liability.
The established fair value hierarchy requires an entity to maximize
the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. A financial instrument’s
categorization within the fair value hierarchy is based upon the
lowest level of input that is significant to the fair value
measurement.
The three levels of inputs that may be used to measure fair value
include:
Level 1: Quoted prices (unadjusted) in active markets for
identical assets or liabilities.
Level 2: Observable, market-based inputs, other than quoted
prices, in active markets for identical assets or liabilities.
Level 3: Unobservable inputs to the valuation methodology that
are significant to the measurement of the fair value of the assets
or liabilities.
Accounting guidance also describes three main approaches to
measuring the fair value of assets and liabilities: (1) market
approach; (2) income approach and (3) cost approach. The
market approach uses prices and other relevant information
generated from market transactions involving identical or
comparable assets or liabilities. The income approach uses
valuation techniques to convert future amounts to a single present
value amount. The measurement is based on the value indicated by
current market expectations about those future amounts. The cost
approach is based on the amount that would currently be required to
replace an asset.
The Group does not have any non-financial
The Group’s financial instruments consist principally of cash
and cash equivalents, restricted cash, short-term investments,
quality assurance receivable, loans receivable, accounts
receivable, contract assets, financial guarantee derivative,
payable to platform customers, quality assurance payable,
short-term borrowings and other liabilities. As of
December 31, 2017 and 2018, the carrying values of cash and
cash equivalents, restricted cash, short-term investments, accounts
receivable, payable to platform customers, short-term borrowings
and other liabilities approximated their fair values reported in
the consolidated balance sheets due to the short term maturities of
these instruments.
The quality assurance receivable is measured using the contractual
amounts due from borrowers, taking into account an expected rate of
default. Due to the short term nature of the contributions, no
discount factor was applied. Subsequently, the carrying value
approximates fair value due to the short term nature of the
receivable.
The quality assurance payable is measured by taking into account
the expected payout rate and incorporating a markup margin.
On a recurring basis, the Group measures its short-term
investments, financial guarantee derivative and contract assets at
fair value. Since the contract assets net derivative asset does not
have quoted price in active markets, they are valued using
valuation model. Management is responsible for determining the fair
value.
The following table sets forth the Group’s assets and
liabilities that are measured at fair value on a recurring basis
and are categorized using the fair value hierarchy:
December 31, 2017
Level 1 Inputs Level 2 Inputs Level 3 Inputs
Balance at Fair value
RMB RMB RMB RMB
Assets
Short-term investments
—wealth management products
— 1,958,910
— 1,958,910
Investments
—available-for-sale
—
— 3,377 3,377
Total Assets
— 1,958,910 3,377 1,962,287
Financial guarantee derivative liabilities
—
— 215,770 215,770
Total Liabilities
—
— 215,770 215,770
December 31, 2018
Level 1 Inputs Level 2 Inputs Level 3 Inputs
Balance at Fair value
RMB RMB RMB RMB
Assets
Short-term investments
—wealth management products
— 1,694,660
— 1,694,660
Investments
—non-marketable
—
— 86,501 86,501
Financial guarantee derivative assets
—
— 56,287 56,287
Total Assets
— 1,694,660 142,788 1,837,448
The Group values its wealth management products held in certain
bank accounts and some of its non-marketable
The Company did not transfer any assets or liabilities in or out of
level 3 during the years ended December 31, 2017 and 2018.
Changes in fair value measurement categorized within Level 3
of the fair value hierarchy are analyzed each period for changes in
estimates or assumptions.
Level 3 Valuation Techniques
Level 3 financial assets and liabilities consist of financial
guarantee derivatives, available-for-sale securities
and non-marketable
The fair value of available-for-sale
Non-marketable non-marketable start-up non-marketable
The Group uses the discounted cash flow model to value financial
guarantee derivatives at inception and subsequent valuation dates.
The Group analyzes the fair value of this derivative by first
defining the cash flows associated with the derivative and then
considers the assumptions used in determining the cash flows from a
market participant’s perspective. This discounted cash flow
model incorporates assumptions such as the expected default rates,
discount rates, as well as early repayment rates. The expected
default rate is determined based on the historical performance of
loans with similar tenure and of similar credit worthiness and
adjusted by the inputs that other market participants would use.
Aside from the expected default rate, the Group has also considered
the discount rate and early repayment rate in determining the fair
value of the financial guarantee derivatives. As the term of the
loans are short and the market interest rate is relatively stable,
the discount rate and early repayment rate assumptions does not
have a significant impact on the fair value of the derivative.
Changes in the fair value are recorded in fair value change of
financial guarantee derivatives in the Group’s consolidated
statements of Comprehensive Income (Loss).
The following table sets forth the significant unobservable inputs
used for fair value measurement of financial guarantee
derivatives:
As of December 31,
2017 2018
Expected default rate 0.68% - 14.21 % 0.46% - 12.37 %
Please refer to Note 2(u) for the movement and gain of financial
guarantee contracts and related derivatives. |
| Loans receivable, net | (n) Loans receivable, net
Loans receivable represents loan originated by the Group and the
consolidated trusts (Note 4), which is due from the borrowers. The
Group has the intent and the ability to hold such loans for the
foreseeable future or until maturity or payoff. Loans receivable
are recorded at unpaid principal balances, net of allowance for
loan losses that reflects the Company’s best estimate of the
amounts that will not be collected. The loans receivable portfolio
consists of personal loans with the term period ranging from 1
month to 36 months.
The allowance for loan losses is determined at a level believed to
be reasonable to absorb probable losses inherent in the portfolio
as of each balance sheet date. The allowance is provided based on
an assessment performed on a portfolio basis. All loans are
assessed collectively depending on factors such as delinquency
rate, size, and other risk characteristics of the portfolio.
The Group writes-off |
| Interest income and interest expense related to the loans originated by the Group | (o) Interest income and interest expense related to the loans
originated by the Group
The Group has originated and held loans. The majority of the loans
originated and held by the Group in 2016 were held by Shanghai
Hepai Investment Management Co., Ltd (“Hepai”). Hepai
was a subsidiary of Beijing Paipairongxin until it was disposed of
on September 30, 2016. Prior to its disposition, Hepai sold
alternative investment products that paid investors expected rate
of return for a specified period of time. Hepai used the funds
received from the sale of the alternative investment products to
originate loans from the Group’s online consumer marketplace.
Cash receipts from loan repayment were used to pay the alternative
investment products liability at maturity.
Subsequently, the Group, through consolidated trust plans (See Note
4), WOFEs and consolidated subsidiaries of VIEs, originate and hold
loans.
Interest on loans receivable is accrued based on the contractual
interest rates of the loan as earned. Accrual of interest is
generally discontinued when reasonable doubt exists as to the full,
timely collection of interest or principal. When a loan is
discontinued from interest accrual, the Group stops accruing
interest and reverses all accrued but unpaid interest as of such
date.
As the primary beneficiary of the trusts, the Group incorporated
the trust plans and recorded return of the other trust parties into
interest expense. The interest expense is accrued based on the
expected rate of return during the contractual term of the
alternative investment products and the trusts.
The interest income, interest expense, and loan provision losses in
the consolidated statement of comprehensive income (loss) related
to the loans originated by the Group recorded for the years ended
December 31, 2016, 2017 and 2018 are as follows:
For the Years Ended December 31,
2016 2017 2018
RMB RMB RMB
Interest income 59,980 46,975 316,193
Less: Interest expense (18,191 ) (15,598 ) (60,085 )
Net interest income 41,789 31,377 256,108
Less: Provision for loan losses (34,705 ) (46,586 ) (192,749 )
Net interest income (expense) and provision for loan losses 7,084 (15,209 ) 63,359 |
| Property and equipment, net | (p) Property and equipment, net
Property and equipment are stated at cost less accumulated
depreciation and amortization. Property and equipment are
depreciated over the estimated useful lives of the assets using the
straight-line method taking into account the estimated residual
value, if any. The table below sets forth the estimated useful life
and residual value:
Category
Estimated useful life Residual value
Office furniture and equipment 3-5 5%
Computer and electronic equipment 3-5 5%
Leasehold improvements
shorter of remaining lease period or estimated
useful life Nil
Software 1-5 Nil
Expenditures for maintenance and repairs are expensed as incurred.
Upon retirement or sale, the cost of assets disposed of and the
related accumulated depreciation amortization are removed from the
accounts and any resulting gain or loss is recognized in
consolidated statement of comprehensive income (loss). |
| Intangible assets | (q) Intangible assets
Intangible assets that have indefinite useful life primarily
include micro-lending license, factoring license, financial leasing
license and financing guarantee license as of December 31,
2018. The Company evaluates indefinite-lived intangible assets each
reporting period to determine whether events and circumstances
continue to support an indefinite useful life. If an intangible
asset that is not being amortized is subsequently determined to
have a finite useful life, the asset is tested for impairment. No
impairment on intangible assets with indefinite useful life was
recognized for the years ended December 31, 2016, 2017 and
2018, respectively. |
| Goodwill | (r) Goodwill
Goodwill represents the excess of the purchase consideration over
the fair value of the identifiable tangible and intangible assets
acquired and liabilities assumed of the acquired entity as a result
of the Company’s acquisitions of interests in its
subsidiaries and VIEs. Goodwill is not amortized but is tested for
impairment on an annual basis, or more frequently if events or
changes in circumstances indicate that it might be impaired. The
Company first assesses qualitative factors to determine whether it
is necessary to perform the two-step
In performing the two-step |
| Impairment of long-lived assets other than goodwill | (s) Impairment of long-lived assets other than goodwill
The Group evaluates its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability is
measured by comparison of the carrying amounts to the expected
future undiscounted cash flows attributable to these assets. If it
is determined that an asset is not recoverable, an impairment loss
is recorded in the amount by which the carrying amount of the
assets exceeds the expected discounted cash flows arising from
those assets. No impairment of long-lived assets was recognized for
the years ended December 31, 2016, 2017 and 2018. |
| Guarantee and quality assurance fund payable and receivable | (t) Quality assurance payable and receivable
The Company provides quality assurance to investors of its online
consumer finance platform and institutional funding partners in the
form of various quality assurance programs and, in the case of
certain institutional funding partners, direct guarantee. Borrowers
may elect to, or in certain circumstances, are required to make
contributions to the quality assurance programs, in addition to the
transaction fee and payments of loan principal and interest. The
quality assurance contribution is maintained in a segregated
restricted cash bank account or managed by Sino Guarantee. This
contribution, which is a certain percentage of the principal
amount, is determined at the time of the loan application based on
the borrower’s credit score. The contribution does not change
over time after the loan is matched and must be paid in its
entirety even if the loan is pre-paid.
The Group is required to record its obligation associated with all
quality assurance obligation in accordance with ASC Topic 460,
Guarantees. Accordingly, the liabilities are measured at their fair
value at inception. For quality assurance program, default payments
to investors are capped at the quality assurance account balance at
any point in time. The Group is not obligated to pay default loans
in the event no funds are available in the quality assurance
account. Once the investors are paid for a borrower’s
default, any future principal and interests recovered are
contributed into the quality assurance account. For direct
guarantee to institutional funding partners, default payments are
not capped and the Group is obligated to compensate the
institutional funding partners in the event of any default.
The quality assurance obligations are comprised of two components:
(i) ASC Topic 460 component; and (ii) ASC Topic 450
component. In accordance with ASC 460-10-25-2 460-10-30-3, non-contingent
Subsequent to initial recognition, the quality assurance
obligations are measured at the greater of the amount determined
based on ASC Topic 460 and the amount determined based on ASC Topic
450. ASC Topic 460 does not prescribe a method for subsequently
measuring and recording the non-contingent 460-10-35-1,
As the risk of the guarantee liability is reduced, it is recognized
into the income statement by a systematic and rational amortization
method, e.g. over the term of the loan, within the “gain from
the quality assurance” line item of the income statement. For
the years ended December 31, 2016, 2017 and 2018, the amount
of gains recorded were RMB100.0 million, RMB5.9 million
and RMB510.9 million (US$74.3 million), respectively.
A quality assurance receivable is recognized at loan inception at
its fair value on a loan-by-loan
On a loan-by-loan up-to-date.
Investors who invested in loans for which the borrower elected to
participate in the quality assurance programs bear their own
financial risk and may suffer a loss if the restricted cash balance
plus the subsequent quality assurance contributions are exhausted
by quality assurance payments which are made on a first-loss basis.
Payouts from the quality assurance account are made to investors
when a borrower delinquent in repaying an installment of principal
and interest in the order of default date until the restricted cash
balance is reduced to nil, even though there may still be investors
protected by quality assurance programs. Amounts recovered from the
defaulted borrower will be remitted to replenish the portion of the
quality assurance programs used to repay the investors. The
following table sets forth the Group’s quality assurance
obligations movement activities for the years ended
December 31, 2016, 2017 and 2018:
For the years ended
December 31,
2016 2017 2018
Opening balance 125,651 473,704 2,062,844
Fair value of newly written quality assurance obligation 634,899 3,318,432 5,313,489
Release of quality assurance payable upon repayment (386,304 ) (2,506,141 ) (4,049,457 )
Contingent liability 293,269 2,527,209 3,380,930
Payouts during the year (1,122,039 ) (4,812,797 ) (7,889,277 )
Recoveries during the year 928,228 3,062,437 5,000,850
Ending balance 473,704 2,062,844 3,819,379
The following table sets forth the Group’s quality assurance
receivables movement activities for the years ended
December 31, 2016, 2017 and 2018:
For the years ended
December 31,
2016 2017 2018
Opening balance 115,484 286,812 1,152,769
Fair value of newly written quality assurance obligation 634,899 3,318,432 5,313,489
Quality assurance obligation contribution received from
borrowers (470,497 ) (2,479,428 ) (4,244,259 )
Gain from quality assurance 6,926 26,953 (157,633 )
Ending balance 286,812 1,152,769 2,064,366
As of December 31, 2017 and 2018, the amounts of maximum
potential future payment the Group would be required to make were
RMB1,220,980 and RMB2,780,797, respectively. |
| Financial guarantee derivative | (u) Financial guarantee derivative
For investors who invest in loans without the quality assurance
protection through certain Investment Programs (Note 2(v)) from
which the investors are entitled to an expected return, they
participate in a separate investor reserve fund program. Investors
subscribing to these investment programs make contributions to the
corresponding investor reserve funds. Under this type of investment
program, any surplus gains, less 0.1% of the principal amount
invested, are contributed to the investor reserve funds, while the
0.1% of the principal amount invested is paid to the Group.
Similar to the quality assurance obligation, the Group maintains a
separate dedicated restricted cash account for each of these
investment programs. Such funds are maintained solely for the
benefit of the investors who invested in loans through the
Investment Programs. In general, the investor reserve fund covers
underperformance to the extent there are available funds, i.e., it
protects investors from not only loan defaults, but also an
investment program performing below its stated expected rate of
return, which may be due to either a decline in market interest
rates during the program’s term, or an inability to timely
match repayments with new loans. Payouts will be made from the
corresponding investor reserve funds to make up the gap between the
actual return and the stated expected rate of return. The capital
used for investment purposes in such programs is generated with the
cash flows from the borrowers’ monthly repayments of
principal and interest. The investor reserve funds are maintained
separately and are used to compensate investors in the event of a
program’s underperformance. The investor reserve funds are
funded upon a program’s maturity, and are capped at a certain
percentage of the total funding of each investment program. If an
individual investment program underperforms, the Group will use the
investor reserve fund to make up for the shortfall, which is paid
out upon maturity of the program. An investor who participates in
this program is entitled to coverage by the investor reserve fund
for the duration he or she participates in the program.
In order to determine the accounting method used, the Group
considered the criteria of the scope exception under
ASC 815-10-15-58. non-payment back-to-back 815-10-15-58(a)
Derivative assets and liabilities within the scope of ASC Topic 815
are required to be recorded at fair value at inception
and re-measured
If there are changes to the expected defaults of loans and expected
performance of the investment programs, the Group records these
resulting adjustments to the “fair value change of financial
guarantee derivatives” line item within “other income
(expense)” on the consolidated statement of comprehensive
income (loss). Upon the maturity of an investment program, any
cumulative gain or loss will be reclassified to the “realized
gain or loss from financial guarantee derivatives” line item
within “other income (expense).” That is, whenever cash
flows occur upon maturity, the fair value changes are reclassified
within the income statement and recorded as realized gain or
loss.
In October 2017, along with the termination of investment program
with flexible investment periods, the remaining restricted cash
amounting to approximately RMB45,567 were transferred from
restricted cash to cash and cash equivalents, as the company was
released from the obligation to compensate the investors should the
flexible term investment programs under-perform.
The following table sets forth the Group’s financial
guarantee derivative movement activities for the years ended
December 31, 2016, 2017 and 2018.
For the years ended
December 31,
2016 2017 2018
Opening balance 20,638 167,291 (215,770 )
Initial recognition of and change in fair value of ongoing investor
reserve arrangements 178,652 (213,958 ) 114,813
Settlement upon maturity of investor reserve arrangements (31,999 ) (169,103 ) 157,244
Ending balance 167,291 (215,770 ) 56,287
As of December 31, 2017, given the deterioration of
performance of investor reserve fund investment programs, the
investor reserve fund is expected to be dissolved upon maturity of
the investment programs. The Group reverses all the gains recorded
historically amounting to RMB213,958. As the expected payout to
compensate the investors exceeds the funds available in the
investor reserve fund, additional provision outside the
Group’s obligation related to the investor reserve fund is
recognized as a reduction of revenue amounting to RMB107,660. In
2018, the Group experienced improved loan performance and the
actual default rate was lower than previously expected. As a
result, a reversal amounting to RMB68,619 was made to the
discretionary payment provision. Please refer to Note 2(v) for
details. |
| Revenue recognition | (v) Revenue recognition
The Group engages primarily in operating an online consumer finance
marketplace by providing an online platform which matches borrowers
with both individual investors, institutional funding partners and
assisting facilitation of loans to investors on certain third-party
online platforms (collectively referred to as
“investors”). The Group determines that it is not the
legal lender and legal borrower in the above process. Therefore,
the Group does not record loan receivable and payable arising from
the loans between investors and borrowers on its balance sheets.
Revenue comprises the fair value of the consideration received or
receivable for the provision of services in the ordinary course of
the Group’s activities and is recorded net of value-added tax
(“VAT”).
On January 1, 2018, the Company adopted the revenue standard
using the modified retrospective transition method to those
contracts which were not completed as of January 1, 2018.
Results for periods beginning after January 1, 2018 are
presented under ASC Topic 606, while prior period amounts are not
adjusted and continue to be reported in accordance with historic
accounting under ASC Topic 605.
Upon initial adoption, the Group recognized the cumulative effect
of initially applying the revenue standard as an increase of
approximately RMB176.5 million, net of tax, to the opening
balances of retained earnings. These adjustments primarily arose
from the timing of revenue recognition for transaction fees
collected in monthly instalments related to our loan products being
recognized earlier under ASC Topic 606. The table below sets forth
the cumulative effect of the changes made to the consolidated
balance sheet as of January 1, 2018 due to the adoption of ASC
Topic 606.
Balance at
Adjustments due to Balance at
Assets
Accounts receivable 17,773 154,168 171,941
Deferred tax assets 128,361 (33,303 ) 95,058
Contract assets
— 53,084 53,084
Liabilities
Deferred revenue 265,094 (265,094 )
—
Contract liabilities
— 262,549 262,549
Shareholders’ Deficit
Accumulated deficit (2,398,984 ) 176,494 (2,222,490 )
The table below sets forth the impact to the consolidated statement
of comprehensive income as a result of adoption of ASC Topic
606:
For the year ended December 31,
2018
As reported Amounts
without
Effect of change
Loan facilitation service fees 2,919,234 2,141,565 777,669
Post-facilitation service fees 922,797 773,116 149,681
Other Revenue 376,915 793,188 (416,273 )
4,218,946 3,707,869 511,077
Consistent with the criteria of ASC 606 “Revenue from
Contracts with Customers”, the Group recognizes revenue by
applying the following five steps:
(i)
identify the contract with a customer;
(ii)
identify the performance obligations in the
contract;
(iii)
determine the transaction price;
(iv)
allocate the transaction price to performance
obligations in the contract; and
(v)
recognize revenue when (or as) performance obligations
are satisfied.
Revenue recognition policies for each type of services under ASC
Topic 606 are discussed as follows:
Revenue from Single Loans
The Group determines its customers to be both investors and
borrowers. In 2018, the Group charges a transaction fee as part of
the borrowers’ monthly repayment. Under certain
circumstances, in addition to the loan transaction fee, borrowers
pay a monthly contribution to the quality assurance, which provides
a protection mechanism to investors who subscribe to these loans.
In accordance with the relevant guidance in ASC Topic 606, the
amounts associated with the quality assurance is within the scope
of ASC Topic 460 and should be accounted for in accordance with the
provisions of that Topic. The services not within the scope of
other Topics should be accounted for in accordance with the
remaining provisions of ASC Topic 606 and the applicable revenue
recognition guidance. The Group considers loan facilitation
services (covering matching of investors to borrowers and
facilitating the execution of loan agreement between investors and
borrowers) and post-facilitation services (covering cash processing
services and collection services) as two distinctive performance
obligations in accordance with ASC Topic 606. The transaction price
is first allocate to the guarantee and quality assurance program,
if any, which is recorded at fair value in accordance with ASC
Topic 460. Then the remaining considerations are allocated to the
loan facilitation and post-facilitation services using their
relative standalone selling prices. The Group does not have
observable standalone selling price for the loan facilitation
services or post-facilitation services because it does not provide
loan facilitation services or post-facilitation services on a
standalone basis in similar circumstances to similar customers.
There is no direct observable standalone selling price for similar
services in the market that is reasonably available to the Group.
As a result, the estimation of standalone selling price involves
significant judgment. The Group uses an expected cost plus margin
approach to estimate the standalone selling prices of loan
facilitation services and post facilitation services as the basis
of revenue allocation. When estimating the selling prices, the
Group considers the cost related to such services, profit margin,
customer demand, effect of competition on services, and other
market factors.
The transaction price allocated to loan facilitation is recognized
as revenue upon execution of loan agreements between investors and
borrowers; the consideration allocated to post-facilitation
services is recognized over the period of the loan on a straight
line method, which approximates the pattern of when the underlying
services are performed.
In additional to transaction fee, the Group also receives fees on
future events, such as collection fees. For loans with no quality
assurance protection, collection is considered a separate
performance obligation and therefore collection fee is allocated to
this specific performance obligation. For loans with quality
assurance protection, as the quality assurance will compensate the
investors should the borrowers are delinquent, the collection fee
is considered a variable consideration for the loan facilitation
and post-facilitation performance obligations and therefore is
included in the total transaction price which is allocated to these
two performance obligation based on their relative standalone
selling price. The collection fee is only probable of not reserving
upon successful collection and as such is not included in the
transaction price until then.
For certain loans facilitated by institutional funding partners,
the processing and account management services are provided by the
respective institutional funding partners. As these loans are
typically covered by quality assurance programs or are guaranteed
directly by the Group, no substantial post-facilitation services
are provided. Therefore, the transaction price after consideration
of the fair value of guarantee is allocated to the loan
facilitation performance obligation which is recognized upon
successful matching.
Revenue from Investment Programs
For investment programs that only fund loans protected by the
quality assurance, the loan transaction fees and monthly
contribution to the quality assurance paid by the borrowers are the
same as those discussed under “Revenue from Single
Loans” above. In addition, the Group charges the surplus
gain, i.e., the actual rate of return exceeds the stated expected
rate of return in the investment program agreement, as investment
program management fee. The investment program management fee is a
separate fee charged to investors in a separate contract and
therefore is allocate specifically to the investment management
performance obligation. The Group determines that the
“probable of not reserving” threshold is met for
surplus gain and therefore surplus gain is included in the
transaction price upon the effective of investment program. The
Group estimates the surplus gain on a monthly basis for the
duration of an investment program to monitor the expected outcome
of the portfolio and the amount is recognized over the term of the
investment program as the investor simultaneously receives and
consumes the benefits provided by the Company’s performance
throughout the term of the investment program.
Incentives
To expand its market presence, attract new investors and increase
activity level on our platform, the Group will occasionally provide
incentives to potential investors at its sole discretion. The Group
provides the following types of incentives:
•
When a loan is successfully matched during the
relevant incentive program period, the investor receives a cash
incentive, either provided upfront as
a one-time
•
In certain other circumstances, the Group may provide
a cash incentive to a new potential investor upon signing up as a
new user on the platform, without a requirement for the potential
investor to fund a loan. This is considered a type of marketing
expense to attract potential investors to the platform, and is
recorded as expense, rather than a reduction of transaction
price.
Other revenue
Other than the collection fees charged for certain loans and
investment management fee for investment programs, other revenue
primarily includes service fees charged to borrowers for transfer
of loans on the secondary loan market.
Revenue disaggregation analysis
The following table set forth the Group’s operating revenue
from different service type:
For the year ended
December 31,
2017 2018
With quality
Without quality
With quality
Without quality
Loan facilitation service fees 1,467,806 1,375,481 2,404,178 515,056
Post-facilitation service fees 348,489 320,330 678,518 244,279
Other revenue
- investment management fee 24,789
— 208,471
—
- others 258,470 208,141 54,734 113,710
Changes in expected discretionary payment to IRF investors
— (107,660 )
— 68,619
2,099,554 1,796,292 3,345,901 941,664
Contract balances
Contract assets represent the Group’s right to consideration
in exchange for facilitation and post-facilitation service that the
Company has transferred to the customer before payment is due.
Contract liabilities represent the Group’s obligation to
transfer facilitation and post-facilitation service to the customer
due to received payment. The timing of revenue recognition,
scheduled payments, and cash collections results in contract assets
and contract liability.
Practical expedient and exemptions
The Group generally expenses sales commission when incurred for
loans with a term for one year or less. These costs are recorded
within sales and marketing expenses.
The Group does not disclose the value of unsatisfied performance
obligation as most of the loans facilitated through its platform
with an original term of one year or less.
Expected discretionary payment to investor reserve fund
investors
In relation to investor reserve fund, the Group records
approximately RMB107,660 as of December 31, 2017 in provision
for expected discretionary payment to investors in investment
programs protected by investor reserve fund investor as a reduction
of revenue as such compensation is deemed beyond its legal
obligations. For the year ended December 31, 2018, the Group
made in total RMB39,041 payment under such provision. As of
December 31, 2018, considering the improved loan performance
observed and decrease in expected default rate for remaining IRF
investment programs, the Group reversed the provision amounting to
RMB68,619.
Revenue Recognition Under ASC Topic 605
Consistent with the criteria of ASC 605 “Revenue
Recognition” (“ASC 605”), the Group recognizes
revenue when the following four revenue recognition criteria are
met:
(i)
Persuasive evidence of an arrangement exists;
(ii)
Delivery has occurred or services have been
provided;
(iii)
The selling price is fixed or determinable; and,
(iv)
Collectability is reasonably assured.
Revenue recognition policies for each type of service are discussed
as follows:
Revenue from Single Loans
The Group charges fees at the inception of the loan, which are
deducted from the amount that borrowers receive from investors, for
facilitating loan origination (covering matching of investors to
borrowers and facilitating the execution of loan agreement between
investors and borrowers) and for providing ongoing monthly services
(covering cash processing services and collection
services) (“non-contingent
The Group considers the loan facilitation services and
post-facilitation services as multiple deliverable arrangements.
Although the Group does not sell these services separately, the
Group determined that all deliverables have standalone value. Thus,
all non-contingent non-contingent non-contingent non-contingent,
In December 2017, to comply with a series of regulatory
requirements, the Group discontinued upfront fee collection.
Instead, the transaction fee is collected in monthly installments.
In accordance with ASC 605-30-5,
In addition to the loan transaction fees, the Group also receives
fees which are contingent on future events, such as loan collection
fees and fees related to loan transfers on the Group’s
secondary loan market. These contingent fees are not recognized
until the contingencies are resolved and the fees become fixed and
determined, which also coincide with when the services are
performed and collectability is reasonably assured. These fees are
classified within Other Revenue in the consolidated statement of
comprehensive income (loss).
Under certain circumstances, in addition to the loan transaction
fee, borrowers pay a monthly contribution to the quality assurance
fund, which provides a protection mechanism to investors who
subscribe to these loans. In accordance with the relevant guidance
in ASC 605, Revenue Recognition, the amounts associated with the
quality assurance fund is within the scope of another Topic (ASC
460, Guarantees) and should be accounted for in accordance with the
provisions of that Topic. The deliverables not within the scope of
other Topics should be accounted for in accordance with the
remaining provisions of ASC 605 and the applicable revenue
recognition guidance. The fair value of the guarantee associated
with the quality assurance fund is recorded under ASC 460, with the
remaining amount of consideration accounted for under ASC 605.
Revenue from Investment Programs
For investment programs that only fund loans that are protected by
the quality assurance fund, the loan transaction fees and monthly
contribution to the quality assurance fund paid by the borrowers
are the same as those discussed under “Revenue from Single
Loans” above. In addition, under this type of investment
program, if there is any surplus gain, i.e., the actual rate of
return exceeds the stated expected rate of return in the investment
program agreement, this is recognized as an investment program
management fee in other revenue upon maturity of such program, when
the amount becomes fixed and determinable.
Incentives
To expand its market presence, attract new investors and increase
activity level on our platform, the Group will occasionally provide
incentives to potential investors at its sole discretion. The Group
provides the following types of incentives:
•
When a loan is successfully matched during the
relevant incentive program period, the investor receives a cash
incentive, either provided upfront as
a one-time 605-50.
•
In certain other circumstances, the Group may provide
a cash incentive to a new potential investor upon signing up as a
new user on the platform, without a requirement for the potential
investor to fund a loan. This is considered a type of marketing
expense to attract potential investors to the platform, and is
recorded as expense, rather than a reduction of revenue.
Other revenue
Other revenue includes collection fees charged to borrowers,
management fees charged to investors for certain investment
programs, service fees charged to borrowers for transfer of loans
on the secondary loan market and other fees charged to our
customers.
Deferred revenue
Deferred revenues are derived from loan contracts with borrowers
and contractual billings in excess of recognized revenue and
payments received in advance of revenue recognition, which are from
the borrower advance of facilitation services fee Deferred revenues
represent the unamortized balance of facilitation service fee paid
by borrowers, and the deferred revenues are amortized on a
straight-line basis through the service period. |
| Origination and servicing expenses | (w) Origination and servicing expenses
Origination and servicing expenses primarily consist of salaries
and benefits of employees who facilitate loan origination, perform
risk pricing, debt-collection service, customer service, data
processing and data analysis.
Origination and servicing expenses-related party consist of
expenses for data collection service provided by PPcredit, a
related party of the Group. (See Note 11) |
| Sales and marketing expenses | (x) Sales and marketing expenses
Sales and marketing expenses consist primarily of advertising and
online marketing promotion expenses. Advertising and online
marketing expenses, amounting to approximately RMB349,421,
RMB779,737 and RMB702,508 for the years ended December 31,
2016, 2017 and 2018, respectively, are charged to the consolidated
statements of comprehensive income (loss) as incurred. |
| General and administrative expenses | (y) General and administrative expenses
General and administrative expenses consist primarily of salaries
and benefits for general management, finance and administrative
personnel, rental, professional service fees and other expenses.
General and administrative expenses include research and
development expenditures, amounting to RMB114,648, RMB164,869 and
RMB317,965 and share based compensation expenses, amounting to RMB
nil, RMB106,152 and RMB50,319 for the years ended December 31,
2016, 2017 and 2018, respectively. |
| Share-based compensation | (z) Share-based compensation
The Group follows ASC Topic 718, which requires all share-based
payments to employees and directors, including grants of employee
stock options, to be recognized as compensation expense in the
financial statements over the vesting period of the award based on
the fair value of the award determined at the grant date. Under ASC
Topic 718, the number of share-based awards for which the service
is not expected to be rendered for the requisite period should be
estimated, and the related compensation cost is not recorded for
that number of awards.
In accordance with ASC Topic 718, the Group recognize share-based
compensation expenses, net of a forfeiture rate, using the
straight-line method for awards with services conditions only, and
using the graded-vesting attribution method for awards with graded
vesting features and performance conditions. Compensation cost is
accrued if it is probable that a performance condition will be
achieved. |
| Operating leases | (aa) Operating leases
A lease for which substantially all the benefits and risks
incidental to ownership remain with the lessor is classified as an
operating lease. All leases of the Group are currently classified
as operating leases. When a lease contains rent holidays, the Group
records the total expenses on a straight-line basis over the lease
term. |
| Government grants and subsidy income | (ab) Government grants and subsidy income
The Group receives government grants and subsidies in the PRC from
various levels of local governments from time to time which are
granted for general corporate purposes and to support its ongoing
operations in the region. The grants are determined at the
discretion of the relevant government authority and there are no
restrictions on their use. The government subsidies are recorded as
other income in the consolidated statement of comprehensive income
(loss) in the period the cash is received. The government grants
received by the Group amounting to RMB6,436, RMB1,682 and RMB53,739
for the years ended December 31, 2016, 2017 and 2018,
respectively. |
| Taxation | (ac) Taxation
Current income taxes are provided on the basis of net income for
financial reporting purposes, adjusted for income and expense items
which are not assessable or deductible for income tax purposes, in
accordance with the regulations of the relevant tax
jurisdictions.
Deferred income taxes are recognized for temporary differences
between the tax bases of assets and liabilities and their reported
amounts in the consolidated financial statements, net operating
loss carry forwards and credits. Deferred tax assets are reduced by
a valuation allowance when, in the opinion of management, it is
more likely than not that some portion or all of the deferred tax
assets will not be realized. Current income taxes are provided in
accordance with the laws of the relevant taxing authorities.
Deferred tax assets and liabilities are measured using enacted
rates expected to apply to taxable income in which temporary
differences are expected to be received or settled. The effect on
deferred tax assets and liabilities of changes in tax rates is
recognized in the statement of comprehensive income (loss) in the
period of the enactment of the change.
The Group considers positive and negative evidence when determining
whether a portion or all of its deferred tax assets will more
likely than not be realized. This assessment considers, among other
matters, the nature, frequency and severity of current and
cumulative losses, forecasts of future profitability, the duration
of statutory carry-forward periods, its experience with tax
attributes expiring unused, and its tax planning strategies. The
ultimate realization of deferred tax assets is dependent upon its
ability to generate sufficient future taxable income within the
carry-forward periods provided for in the tax law and during the
periods in which the temporary differences become deductible. When
assessing the realization of deferred tax assets, the Group has
considered possible sources of taxable income including
(i) future reversals of existing taxable temporary
differences, (ii) future taxable income exclusive of reversing
temporary differences and carry-forwards, (iii) future taxable
income arising from implementing tax planning strategies, and
(iv) specific known trend of profits expected to be reflected
within the industry.
The Group recognizes a tax benefit associated with an uncertain tax
position when, in its judgment, it is more likely than not that the
position will be sustained upon examination by a taxing authority.
For a tax position that meets the more-likely-than-not |
| Earnings (loss) per share | (ad) Earnings (loss) per share
Basic earnings (loss) per share is computed by dividing net income
(loss) attributable to ordinary shareholders by the weighted
average number of ordinary shares outstanding during the period
using the two-class two-class if-converted |
| Segment reporting | (ae) Segment reporting
The Group’s chief operating decision maker, the Chief
Executive Officer, reviews the consolidated results when making
decisions about allocating resources and assessing performance of
the Group as a whole and therefore, the Group only has one
reportable segment. The Group does not distinguish between markets
or segments for the purpose of internal reporting. The
Group’s long-lived assets are substantially all located in
the PRC and substantially all of the Group’s revenues are
derived from within the PRC. Therefore, no geographical segments
are presented. |
| Treasury shares | (af) Treasury shares
The Company accounts for treasury shares using the cost method.
Under this method, the cost incurred to purchase the shares is
recorded in the treasury shares account in the consolidated balance
sheets. At retirement, the ordinary shares account is charged only
for the aggregate par value of the shares. The excess of the
acquisition cost of treasury shares over the aggregate par value is
allocated between additional paid-in paid-in |
| Statutory reserves | (ag) Statutory reserves
In accordance with the relevant regulations and their articles of
association, subsidiaries of the Company incorporated in the PRC
are required to allocate at least 10% of their after-tax |
| Recently issued accounting standards | (ah)
Recently issued accounting standards
Adoption of new accounting standards
In May 2014, the FASB issued ASU 2014-09 2016-08) 2016-10), 2016-12), 2016-20)
In January 2016, the FASB issued ASU 2016-01, 825-10)-Recognition 2016-01”),
In November 2016, the FASB issued
ASU 2016-18,
In January 2017, the FASB issued ASU 2017-01, 2017-01”),
In February 2017, the FASB issued
ASU 2017-05, 2017-05”), 610-20 610-20
In May 2017, the FASB issued ASU 2017-09, 2017-09
New accounting standards not yet adopted
In February 2016, the FASB issued
ASU 2016-02, 2016-02”), 2016-02 right-to-use 2018-10, 2018-11,
In June 2016, the FASB amended guidance related to impairment of
financial instruments as part of ASU 2016-13 2018-19): 2016-13.
In January 2017, the FASB issued ASU 2017-04,
In August 2018, the FASB issued ASU 2018-13, 2018-13 |
