Sally Huo - Investor Relations Manager Jun Zhang - Chairman and Chief Executive Officer Simon Tak Leung Ho - Chief Financial Officer Feng Zhang - Chief Operating Officer.

Alice Li - Credit Suisse Daphne Poon - Citigroup Sanjay Sakhrani - Keefe, Bruyette & Woods, Inc. Christopher Birney - JPMorgan Asset Management Matthew Larson - Wells Fargo Advisors Tian Hou - T.H. Capital, LLC.

Hello, ladies and gentlemen, thank you for standing by for the Third Quarter 2017 Earnings Conference Call for PPDAI Group Inc., also known as Paipaidai. At this time, all participants are in listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. Today’s conference call is being recorded.

I will now turn the call over to your host, Ms. Sally Huo, Investor Relations Manager for the company. Sally, please go ahead..

Hello, everyone, and welcome to the Paipaidai third quarter 2017 earnings conference call. The company’s results were issued via newswire service early today and are posted online. You can download earnings release and sign up for the company’s distribution list by visiting the IR section of our website at ir.ppdai.com. Mr.

Chris Jun Zhang, our Chairman and Chief Executive Officer; and Mr. Simon Ho, our Chief Financial Officer will start a call with their prepared remarks. Mr. Feng Zhang, our Chief Operation Officer will join the call during the question-and-answer session.

Before we continue, please note that today’s discussion will contain forward-looking statements made under the Safe Harbor provisions of U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company’s results may be materially different from the views expressed today.

Further information regarding this and other risks and uncertainties is included in the company’s filing with U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable laws.

Finally, we post a slide presentation on our IR website providing details on our results for the quarter. I will now turn the call over to our CEO, Chris. Please go ahead..

Hello, everyone, and thank you for joining our first – we are pleased to report our first earnings as a public company. For the third quarter 2017, we reported total operating revenues of RMB1.25 billion, an increase of approximately 245% over the same period last year.

As of September 30, 2017, Paipaidai had 57.6 million registered users and approximately 9 million cumulative borrowers, making us one of the largest online consumer finance marketplaces in China.

Our expanded user base led to robust growth in loan origination volume, which increased by 256.5% year-over-year to RMB21 billion in the third quarter of 2017.

Our successful IPO in mid-November, one of the important milestone and testament to our consistent strategy and execution, continuous innovation and solid 10-year track record, which is the longest operating history of any online lending platform in China. I’d like you to take this opportunity to state a few key points about our business.

First, we are a technology-driven marketplace platform that matched underserved borrowers, who need consumer loans with investors who have limited investment options in the market. Our growth is now limited by capital requirements, making our business highly scalable. Second, we are a market leader and have a massive proprietary data set.

Third, we have proven technologies and a core end-to-end capabilities ranging from our diversified and a low-cost borrower acquisition to our highly effective risk management system. We deploy advanced big data and AI technologies across each stage of our business to improve operational efficiency and risk management capabilities.

Finally, we have a large and loyal retail investor base. Our strong retail investment business is a key competitive advantage and are a important source of operational stability and sustainability, as we see retail funds be more stable than institutional funds.

We plan to leverage our large investor base to build the risk management business and create a second engine for sustainable long-term growth. Before I conclude my prepared remark, I also want to say a few words on regulation. We have always and will continue to fully embrace and implement government regulations.

We believe an improved regulatory framework will lead to a more already and healthy competitive landscape. With our large-scale and a strong core business, Paipaidai is well-positioned to consolidate the market and gain market share in the long haul and capture the massive opportunities in China’s consumer finance market.

We will continue to fulfill our mission of utilizing the most innovative technologies to deliver high – highly accessible and convenient financial services solutions. With that, I will now turn the call over to our CFO, Simon Ho, who will discuss our financial results and then update our business. Thank you..

Thank you, Chris, and hello, everyone. We delivered a strong quarter with excellent operational and financial performance. While many of our third quarter operating metrics and financial results were disclosed in our IPO offering prospectus, I’d like to take this opportunity to draw attention to a few highlights.

In the third quarter, we achieved significant improvement in our operational efficiency, as we continued to benefit from strong operating leverage provided by our technology-driven and highly scalable marketplace platform.

As such, our operating margin increased to 46.4% in the third quarter of 2017, compared with 33.1% in the same period of last year, and our operating income reached RMB579 million, representing a 375% increase year-over-year.

Before diving into a more detailed look at our financial results, I’d like to share with investors a few recent business developments. As investors know, recently issued government regulatory policy changes have placed a 36% cap on total annualized borrowing costs.

We fully embrace and endorse this new regulatory measure and have adjusted our lending products to meet this 36% cap requirement. Paipaidai has a long operating history, demonstrating a strong culture of compliance with industry regulations. I echo Chris’s earlier statement that we will always embrace and strive to implement government regulations.

We believe this new policy of capping total annualized borrowing costs will not have a significant impact on our business.

Putting the requirement in perspective, it mainly affects our Handy Cash Loan business, one of our smaller product bind that represented approximately 7% of our total revenues for the first nine months of 2017, and small number of core standard loan products for which we are now focusing on loan origination with longer terms of approximately nine to 12 months.

We have a wide and dynamic product portfolio. And believe that going forward, the impact to this small part of our business can be easily offset through product mix adjustments. Secondly, in light of the tightening regulatory environment, we’ve decided that effective January 1, 2018, we will discontinue operating our investor reserve funds.

We made this decision in a proactive manner and believe it is well aligned with the new regulations and removes any chance of misperception in the minds of consumers that the investor reserve funds provide an unlimited guarantee. Practically speaking, this decision will not have a material impact on operations.

As going forward, we expect the spread between the return on our underlying assets and the return we give to investors in our investment programs will continue to exist and will continue to be reflected in our income statement.

We are in close discussion with our auditors regarding the future accounting treatment on this matter and we’ll update the market in due course. Now, I’d like to walk you through our detailed financial results for the third quarter of 2017.

As Chris mentioned, the 245% year-over-year increase in operating revenues for the third quarter was primarily due to the increase in loan facilitation fees, post-facilitation service fees and other revenues as a result of a substantial increase in loan origination volume.

Loan facilitation service fees increased by 194% year-over-year to RMB907 million for the third quarter of 2017, primarily due to the substantial increase in loan origination volume and a number of unique borrowers on our platform.

Post-facilitation service fees increased significantly by 942% year-over-year to RMB200 million for the third quarter of 2017, primarily due to the substantial increase in loan origination volume and the rolling impact of deferred transaction fees.

Note that, our post-facilitation service fees represent the portion of transaction fees received from borrowers in relation to services we provide after loan origination, such as the facilitation of loan repayments. This portion of transaction fees is deferred and recognized over the loss of the loan.

Other revenue increased by 307% year-over-year to RMB143 million for the third quarter of 2017, primarily attributable to an increase in loan collection fees. Net interest income and loan provision losses for the third quarter of 2017 was an expense of RMB3.4 million, compared with an income of RMB5.7 million in the year ago period.

This was primarily due to provisions for expected loan losses related to the trusts that were newly set-up during the period. Note that trusts are a method for institutional investors to invest on our platform and we may co-invest with these investors.

A provision reflecting the expected loan losses, it made upfront, while the income is recognized over time. So there is a timing difference in recognizing the provisions and income.

Origination and servicing expenses increased by 172% year-over-year to RMB298 million for the third quarter of 2017, primarily due to the increase in headcount, particularly for consumption loan products and loan collection services, and to a lesser extent, an increase in referral fees paid to third parties for successful loan originations.

Sales and marketing expenses increased by 140% year-over-year to RMB225 million for the third quarter of 2017.

The increase was primarily due to the increase in expenses associated with online customer acquisition costs, which mainly include expenses paid to Internet marketing channels for online advertising and search engine marketing, as well as to certain websites that enable Paipaidai to reach quality borrowers.

General and administrative expenses increased by 235% year-over-year to RMB145 million for the third quarter of 2017, primarily due to the increase in staff costs. Other income increased by 30% year-over-year to RMB121 million for the third quarter of 2017.

Other income primarily consisted of RMB131 million gain from the quality assurance fund, resulting from the growth in loans facilitated on the platform that are protected by the quality assurance fund, and RMB42.4 million realized gain from financial guarantee derivatives due to the amount of investment programs maturing during the period, and a negative by RMB67.4 million fair value change of financial guarantee derivatives due to an upward adjustment in the expected default rate for loans underlying outstanding – our outstanding investment programs, resulting partly from our testing and experimentation in new products and customer segments.

Income tax expense was RMB158 million for the third quarter of 2017, compared with RMB21.3 million for the third quarter of 2016. The increase was primarily due to the improved profitability in the third quarter of 2017.

Because of the foregoing, net profit increased to RMB541 million for the third quarter of 2017 from RMB134 million in the year ago period.

Net loss attributable to ordinary shareholders of the company was RMB279 million for the third quarter of 2017, compared with net income attributable to ordinary shareholders of RMB60.8 million in the year ago period, due to the accretion losses on our Series A, B and C preferred shares. Turning to our balance sheet.

We have a solid balance sheet and ample liquidity. As of September 30, 2017, we had cash and cash equivalents of RMB715 million and short-term investments mainly in money market funds of RMB1.5 billion. These figures exclude the US$271 million of proceeds raised in our IPO in the concurrent private placement.

It is important to note that our investor protection programs are adequately funded.

The – firstly, the total balance of our quality assurance fund, which includes restricted cash of RMB930 million and the quality assurance fund receivable of RMB975 million was equivalent to 16.6% of the total outstanding loans protected by the quality assurance fund.

Secondly, the total balance of our investor reserve funds, which includes restricted cash of RMB194 million and the financial guarantee derivative of RMB245 million was equivalent to 4.5% of the total outstanding loans protected by the investor reserve funds. I would like to turn next to provide an update pertaining to an accounting treatment change.

To fully comply with the recent regulatory announcement since last week, since last week, we have discontinued charging upfront transaction fees on all our loan products and changed to a monthly fee model. We are now collecting transaction fees to be repaid over the first three months of the loan.

The – this adjustment will impact the accounting treatment for the recognition of our loan facilitation service fees for the remainder of December, in accordance with existing U.S. GAAP accounting standards. I say, for the remainder of December, because effective January 1, 2018, new U.S.

GAAP revenue recognition standards take effect that will allow us to recognize our loan facilitation service fees as revenues upfront upon loan origination. So in essence, from an accounting perspective, it is only for the brief period in December that our accounting treatment is impacted.

To be clear, there will be a small impact in the fourth quarter, but it will only be limited to three to four weeks in December, because the revised GAAP recognition standards become effective January 1, the adjustment to our transaction fee model will not have any meaningful impact on our reported revenues in 2018.

We have undergone extensive discussions with our auditors on the new standards and they are in agreement with this treatment. Now before we turn the call to questions, I would like to close with a few comments on our business trends.

In light of the recent uncertainty in the market, we have begun to take a more conservative stance on our lending activities in an effort to manage our risk. Overall, the industry is currently undergoing a tightening that could have an impact on our business in the short-term, as some players adjust and some players exit the market.

Having been through multiple lending and economic cycles, we know the current market uncertainty is just a bump in the long road that is before our industry. We see this development as necessary going pain that always precede development and eventual maturity.

Ultimately, we believe these changes will lead to consolidation in the market and allow for a healthy growth in the long-term. In view of these current conditions, we expect Q – fourth quarter loan volumes will up – will be approximately 15% to 25% self of third quarter 2017 levels.

We believe this is only temporary and we have taken appropriate cost structure adjustments during this time. At the same time, we are closely monitoring industry trends to be agile in making adjustments when market cycles occur.

We fully expect our industry will continue to go through changes that are necessary to create a healthy environment not only for companies in our space, but for all consumers in China.

As Chris has said many times in the past, we have just begun our evolution as a public company and we will remain focused on the long-term growth and prosperity of our company. China has over 440 million people underserved by the traditional banking system. This is larger than a total population in the U.S.

and presents a significant growth opportunity for us. As a technology-driven marketplace, our goal is to continue to grow and flourish as a leader in the online consumers finance marketplace industry and stay at the forefront of change and innovation.

Finally, I’m pleased to announce a disclosure earlier today in a press release that Paipaidai has entered into a joint cooperation partnership with Sun Hung Kai & Co. to jointly explore collaboration opportunities, including new products, Internet technologies, as well as asset and funding sides for each pie. Sun Hung Kai & Co.

is a leading Hong Kong-based investment firm with a diverse portfolio of financial service – services business and became Paipaidai’s strategic investor at the time of our IPO. We are excited to be collaborating with Sun Hung Kai & Co. and I encourage investors to reference today’s press release on this announcement for further details.

With that, I will conclude my prepared remarks. We will now open the call to questions. Operator, please go ahead..

[Operator Instructions] The first question comes from Alice Li of Credit Suisse. Please go ahead..

Hi. Thanks for taking my question. This is Alice from Credit Suisse. So I have two questions. The first question is about recap. So you mentioned that you have made adjustment to compare with a 26% borrowing cost limit. Could you please explain more about the adjustments and how does this affect your transaction fee rate? This is my first question.

And my second question is about your asset quality, because we know that when did delinquency ratio for the second quarter loan was higher than before? And the delinquency ratio in terms of the balance saw the similar trend.

So what are the main reasons? And I – you also mentioned that recent title regulation led to some – the actually of many payday loan players. So I would like to know what’s the latest trend of your delinquency ratio and how are you mitigating that impact? Thanks very much..

Thank you, Alice, for your question. I will take the first question and Feng, our COO will take the second question.

Regarding your first question with respect to what have – what changes have we made? We obviously, for loan tenures, we are now originating the longer end of our range for our standard loan products limiting to six to 12 months, but mostly nine to 12 months.

We have adjusted the quality assurance fund contributions slightly higher for certain categories to protect against risk. With regards to the take rate, we have made some adjustments, but it’s too early to confirm the eventual impact, because it’s only been a week since the change.

So far from what we have seen, the impact on our transaction fee has been relatively neutral. It’s been little changed versus before we made our changes. Specifically, we have lowered our fee rate for higher risk credit levels, but have offset this with slight increases of lower risk credit levels.

So it’s still too early to confirm the trend, because as you can see, the mix of the originations between the various credit levels is also an important factor that determines the overall transaction fee that you see. But so far from what we’ve seen, the change has been relatively neutral. And I hand over to Feng for the second question..

Hi, guys. This is Feng. I think, you alluded two parts to your question.

One is, we are seeing some delinquency rates in – as of September 2017 from our portfolio, what we call, loss level table? And the second question you asked was recent risk levels and given the recent regulatory development? For the first question, it is really as we have communicated in the road show as well, we have a target – risk target of 4% to 6%.

And if we saw our maintenance loss curve, our loss level for the past two years, maintenance [ph] levels is around 4% to 5%.

So given that, we have been doing some testing and experimenting in new products at a customer segments in the first-half of the year and that drives certain level of delinquency rates as we observe in Q3 2017, which is well expected within our expectation.

Now for the second part of your question, yes, we have seen an increase recently due to recent regulatory development. I will say, it is a still very early observation and it is too early to call ultimate impact.

Now we are very closely monitoring and have good proactive, we’re taking some measures, including tightening our credit policy for new bookings. I believe the impact will be short-term, as it is a credit squeeze caused by some film fares quitting the market and making adjustment and the payday loans has a very short period – very short durations.

We have been – I want to call, we have been very conservative in risk management in the past years and have built up a very healthy risk reserve, including the two protection funds, as Simon has mentioned in his early remarks.

Now going forward, we also believe tighter regulation will lead to healthy environment and overall the market opportunity remains best and Paipaidai as a leader, is well-positioned to consolidate the market and we assume fast development after a temporary short period..

Thanks very much.

And so, could I have a follow-up question, please?.

Sure, go ahead, please..

Yes, you mentioned that their impact on the delinquency ratio or the rate of delinquency ratio might be a short-term.

But do you have an estimate on how long the credit cycle will last, or how long could we see uptick of the delinquency ratio?.

Yes, Alice, that’s a great question. I’m afraid. I think, at this stage, it is just very, very early and it’s very, very difficult to call.

I think, our guess is it probably will last maybe like in a one to three, four months, and the guess would particularly based on the fact that most of the payday players, their loan tenor is around one month, two, three months. So the squeeze has really caused by most of these players making adjustment of some of those quitting the market.

And if that is the case, I think, the peak is probably in the next quarter also time. But again, I think, it is very early, it is very typical to predict, I mean, what we will do is, we will very closely monitor the trend, checking on the lead indicators taking goal and keep agile and adjust our strategies accordingly and equity..

Thanks very much..

The next question comes from Daphne Poon of Citi. Please go ahead..

Hi, management, thank you for taking my questions. So I’ve got the – lot of questions here. The first one is regarding the impact of reserve fund. So as you are stopping the IRF as you mentioned is to remove any regulatory concern regarding the offering of guarantee.

Does that mean any chance that we will – we may also stop offering the quality assurance fund in the future due to further regulatory tightening, as that is also sort of like a credit enhancement to the investor? And regarding the IRF, what will lead to if the remaining poor fund in the IRF, and also how will that impact on the investor with return for the investment program after we stop the IRF arrangement? And the second question is regarding the APL cap.

So given that, we noticed that actually most of our standard loans under credit level grade for 2017, they are mostly well above the price expectation than APL. So will we actually consider reducing loan exposure to this with GFRS and shifting to more prime borrower. And given that you’re trying to lengthen the loan duration to get around the APL cap.

How do you see that impacting on our delinquency rate and our forward section as going forward? And just part of the question is regarding the partnership with Sun Hung Kai & Co. So can you share with us more detail regarding what are we expecting this year, at least, in terms of this cooperation? Thanks..

Okay, Daphne, I will try to remember all your questions. So the first question, if I remember correctly is about whether our quality assurance fund will remain or not? And we have not received any specific regulatory notifications up or change our quality assurance fund.

And our belief is that the reg – our legal understanding is that regulator is not objective investor protection, but are against platforms providing unlimited guarantees okay? I think, that’s that sort of where we think things are.

The second part to your first question is about the investor reserve funds and how basically what impact will this have? And we’re still discussing internally how this new system will work in the future. But we don’t believe investor protections – the investor protection systems will go away.

And we’ll obviously continue to monitor our – and feedback we get.

And also from a financial perspective, as I said before, we expect the spread between the return on our underlying assets and the return we gave to investors in our investment programs will continue – this split will continue to exist and will continue to be reflected in our income statement.

So overall, we don’t expect this change to have a material impact on our business. Now to your second question, if I get it right, your second question was firstly whether we are originating higher quality credits as opposed to previously.

Is that correct?.

Yes..

Yes, I think, in this environment, we have obviously lean on the conservative side. We’re generally being much more conservative than earlier in the year. And, yes, so the answer is yes, we’re leaning towards the higher-quality borrowers at this stage. I’m sorry, and the second part of your question was….

It’s about the measure to lengthen the loan duration, how do you see that impacting on your delinquency rate and also your borrowers expecting repeating ratio?.

Yes, the repeat ratio will suffer a little bit as a result, because previously, as you remember, first nine months of the year, our average loan duration in the platform was about, I think, close to eight months, okay? However, I think, moving from an average tenure of eight months to between 9 to 12 or 9 to 10, ultimately, we don’t think it’s going to have a material impact in the risk profile of our business..

. :.

Okay, thanks. As you can follow-up a bit on the IRF. So actually, it’s the most to suspend the IRF arrangement due to regulatory pressure.

Any like – any notice from the regulator, or is it our government like goes to suspend?.

So, Daphne, so as disclosed in our IPO prospectus, the authority have commented on our IRF before and they asked us to change the way we market this protection system in order to avoid misperception by investors that our investment programs are fully guaranteed.

And as I said, our understanding isn’t – is not that the regulator objection investor protections. And we have therefore decided to proactively discontinue our IRF to avoid any potential misperception..

Okay..

The next question comes from Sanjay Sakhrani of KBW. Please go ahead..

Yes, thank you, and congratulations on the IPO. I guess, I’m trying to pull up and think about 2018 and the respective implications. It sounds like the Handy Cash Loan you think you can offset doing the standard loan product, the IRF, Simon, you’re saying is not a material impact.

So when we think about the implications to 2018, is it just the origination volumes and whatever impact there might be to credit and how it affects the QAF and the IRF?.

Well, I think, Sanjay, as you know our top line is obviously that were dependent on loan origination volumes. And I think, your assessment would be largely correct..

And then when we think about this 15%, 20% decline in loan originations you’re expecting, I mean, that’s how we should think about 2018, or is it too early to say?.

As we previously discussed, I think, it’s clearly, it’s too early to say. The – we are – as our CEO said, we are keeping nimble, agile. We are paying close attention to all the indicators of our business and will adjust accordingly..

Okay. I’m also trying to understand the IRF piece and sort of the resetting of it and how it will work going forward.

Maybe if you could just go back and explain, Simon, sort of what happens with the IRF on a go-forward basis? And then what happens in terms of the wind down of the excess that’s in there, given you’re discontinuing that fund?.

I think, Sanjay, as we said before, the – we are still looking internally and how this new system will work. And we are still in discussions with our auditors in terms of how the accounting treatment will play out in the future. So at this moment, I think, it would be premature to try to give too much – too many comments on this piece..

Okay.

And I want to be clear, the QAF, that would be a part of the rate cap that they’ve instituted, is that correct?.

Yes, we have assumed and we built that into the 36% cap..

Okay.

So to the extent that you guys went to the QAF, you can enhance the yield in some capacity the account for the risk that you are taking on?.

I guess, technically, yes, because we have been running the policy of requiring higher contributions from borrowers into the QAF than our expected payout.

So if you – if you’re – what you’re implying is that, without the QAF then – we – there’s none of this excess contribution required, right? From that perspective, I think, you’re logic maybe correct..

Okay..

But I think, again, I think, we’re expecting waiting too much here..

No, understood, understood. There’s a lot in, I understand And two more questions. Just on the funding again and as far as the IRF is concerned, the decent amount of your investors take the IRF.

As we look ahead, do you think it affects their appetite to want to invest with you all? And then, as you sort of deemphasized the retail channel for now, how are you staying relevant and engaged with those people, so that they come back when you need them?.

Yes, I think, the – in terms of the volume mix, the IRF portion of the volumes have been coming down and we would anticipate that it will run at a lower level than before. And in terms of how our investors grow yet, again, we – in a longer market, the IRF protection to our investors.

But as I said earlier, we don’t believe our investor protection systems will go away. And as such, we will continuously monitor investor feedback and minimize any impact that we can see..

Okay.

My final question is just on the peer-to-peer license and sort of where we are, there were any updates? Have there been any constructive movements along that path, or anything that you could discuss with us and share?.

Yes. So we believe we remain on track for registration as a marketplace vendor. And we’re inline with what we’ve been telling investors during the IPO is, we do hope to receive registration approval in the first-half of 2018. And just to add on top of that, we do not require an online micro credit license to operate.

So because there has been a lot of squeeze lately about online micro credit companies and licensor..

Okay. Oh, great. Thank you very much. Those are my questions..

[Operator Instructions] The next question comes from Chris Birney of JPMorgan Asset Management. Please go ahead..

Hi. My question is about the wealth management initiative that you’ve mentioned. I mean, as I understand your wealth management products are specifically not allowed to be sold by peer-to-peer platform. So I’m just – I guess, you probably didn’t mean, but really have you on fee products in that form.

But can you elaborate more on where you’re going with this business, these initiatives?.

Hi, Chris, this is Feng. I would say. Like our situation has not changed much since we last spoke in IPO process. I think, at this point, we – as you corrected your point out that was management acquired certain license and we’re in the same process of acquiring certain licenses..

Was there a follow-up, Mr.

Birney?.

No, thanks. I’ll leave it there..

Okay. The next question comes from Matthew Larson of Wells Fargo. Please go ahead..

Hi, thanks for taking my call. Is it the real question about investing with your firm and related firms? Is that – the prices have come down dramatically from where they were just a few weeks ago because of some of these initiatives, but which might truncate some of your top line growth near-term.

But isn’t the real investment thesis, is that – this is kind of long-term coming, it’s been a pretty much of a Wild West type of industry.

But in the long-term and it should be a quite a positive for well-capitalized established companies like your firm, because there’s probably thousands of these short-term consumer lenders and only a few hundred will probably survive.

So in the long-term, it would seem to me, which is make it up on volume, even if it’s at a slightly reduced fee structure.

And also the quality of your borrower is going to be better, because some of the borrowers who are effectively able to borrow funds now will be excluded, because people aren’t going to be interested in lending the money at a slightly reduced maximum rate, I mean, is that the simple investment thesis going forward?.

Yes, I think, you pretty much hit the nail on the head. And the reality is that, the addressable market remains very significant. The underserved population in China, as we said earlier, is larger than the population of U.S. and a lot of lending will move online. The barriers to entry is rising very rapidly due to regulations.

The amount of competition will reduce already happening right now. And there, clearly, the number of well-capitalized listed players are huge and we are one of them.

And we are already one of the largest in this space in China with 10-year operating history with a proven track record and very strong core capabilities from customer acquisition to risk management. An so, we are very optimistic about the long-term future of the industry and/or Paipaidai’s position in that industry.

And we anticipate that, we should be able to consolidate future market share in what is a healthier competitive environment going forward..

All right. Thank you. I appreciate it..

[Operator Instructions] And we have a follow-up from Chris Birney of JPMorgan Asset Management. Please go ahead..

So this is a different question, which is about, if you think that the clearing out of so many competitors in the kind of cooling off of the market, is that help at all on the expense side about getting ad placement or getting rankings on kind of financial supermarkets, things like that, like I was on the gen 2 technology and I said that they don’t think that their pricing is going to move, but I wonder if you think this will, will fruits produce any bedheads on the cost side?.

Jun Zhang:.

In the short-term, I can describe to you what we expect on some of the trends is, we do expect that the CPA, this is the cost per registered account and market will decline. But also the – our conversion rate in the near-term will also decline as we tighten our credit risk standards, okay? So there’s two offsetting items here in the near-term.

But in the longer-term, as the industry consolidates, we do believe there is room for customer acquisition costs to be more efficient going forward..

And we have a question from Tian Hou of T.H. Capital. Please go ahead..

Good evening, management. I have two questions relating to the recent – the regulation and two things. One is, so the recognition request that at present you guys are in needs a consumption scenario [indiscernible]. So I wonder how you guys are going to deal with that issue? That’s number one.

And number two, in your press release, you said, you guys are going to see should collect upfront transaction fees. So I wonder, most impact of this as fees, upfront transaction fees going to have on your future business? That’s my two questions. Thank you..

Yes, thank you very much. I think, the first question is about the whether that requires a consumption scenario for our type of lending? And the answer is, no, there is no such requirement. The requirement that you need and you see being reported only applies in our – from our understanding to micro – online micro credit companies.

This is not a requirement or online peer-to-peer vendors, okay? That’s the first question..

Okay..

Your second question is about the upfront transaction fee. I’m assuming I don’t need to repeat the accounting impact, right? You’re just asking whether users and borrowers will – there will be an impact. While we’ve been testing this in the last several months well before the regulations come out and we believe this is well manageable.

We don’t see a significant impact, and of course, the entire industry is moving in this direction anyway..

Yes. This is Feng. I’ll just add like, this is actually a set of customer experience on the borrowers, because it’s been understandable, right, I mean, you borrow for 10,000 yuan and now you get 10,000 yuan, and you pay the fees in three installments. So rest install better acceptance rate by making a change..

Okay, I see. Thank you for the answer. It’s clear to me now..

This concludes our question-and-answer session. I would like to turn the conference back over to the company for any closing remarks..

Thank you once again for joining us today. If you have any further questions, please feel free to contact Paipaidai’s Investor Relations through the contact information provided on our website..

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect..