LexinFintech Holdings Ltd., a leading fintech platform for educated young adults in China, has been awarded the Best Lending Technology Initiative, Application or Programme in China by The Asian Banker, whose awards are seen as undisputed benchmarks measuring the performance of the best banks and fintech companies in Asia.
“The technology combination of big data and artificial intelligence (AI) adopted by Lexin to assess customers’ creditworthiness has enabled the company to develop a risk management system that can automatically handle 98% of all loan applications while maintaining a charge-off rate of under 2%,” The Asian Banker commented.
Behind the technological achievement is Lexin’s heavy investment into research and development (R&D). Lexin’s R&D expenses increased by 37.8% year-on-year to RMB93.8 million, representing approximately 25% of Lexin’s total operating expenses in the first quarter of 2019. Every one out of three employees at Lexin works for the company’s R&D and risk management teams.
The investments into technology enables Lexin to tap into China’s burgeoning fintech sector by creating a more efficient lending process. It also allows Lexin to assess the creditworthiness of tens of millions of educated young adults who have been underserved by traditional financial institutions because of a lack of credit history.
AI and big data play a pivotal role in enhancing financial efficiency
Lexin incorporates advanced technologies, including AI, big data, and cloud computing, into every step of the transaction process. This helps the company to streamline the traditional loan applications, making it possible for Lexin customers to complete a credit application on the company’s APP within just a few minutes without having to submit a significant amounts of paperwork.
The company leverages its proprietary risk management system Hawkeye, which can process more than 1,000 decision rules and over 7,500 data variables, to generate a credit assessment of each customer within seconds. This has reduced the headcount of Lexin’s loan review team by 40% while the number of loan applications on its platform has surged 70 times in the past few years.
Lexin then matches the approved loan requests with more than 100 institutional funding partners through the company’s Wormhole system in real time, minimizing manual approvals by its funding partners, and instantaneously allocates funding needs to various funding sources with different risk-and-return parameters.
The customers approved for credit lines on Lexin platform can receive funds within a few minutes following their applications a process which can otherwise take weeks in the traditional financial system.
Lexin has continuously improved its operating efficiency through technology. Its IT cost for per loan application has been reduced to 10% of that of traditional financial institutions. The company’s operating expenditure as a percentage of loan balance has steadily declined from 17.3% in 2015 to 4.5% in the first quarter of 2019.
An anti-fraud system that prevents over RMB30 million worth of monthly losses
As part of the risk management process, Lexin adopts an anti-fraud model to both identify individual fraud and to spot collusion and patterns among multiple individuals, which has become increasingly the focus of anti-fraud efforts in the region.
AI-backed anti-fraud technologies include Complex Networks, which evaluates the possibility of fraud by analyzing the connections between customers based on a wide range of metrics including shared devices, Wi-Fi networks, and contact lists, and User Behavior Risk Analysis, which quantifies the levels of risks based on customers’ behaviors on Lexin’s platform including the initial sign up and changes in devices.
With these technologies in place, organized fraud involving more than 50 individuals have all but been eliminated on Lexin’s platform since the beginning of this year. Lexin has prevented over 2,000 cases of fraud last year, representing savings of an average of over RMB30 million worth of losses per month for the company’s customers. This is reflected in Lexin’s stable credit quality, with its 90 day+ delinquency ratio remaining low at 1.42% as of March 31, 2019.
The Asian Banker awards are generally viewed by executives as one of the most rigorous, prestigious and transparent financial awards in Asia. Lexin was one of over 150 applications that The Asian Banker’s research team spent over 3 months reviewing and investigating before making the final decisions. Previous winners of the award include world-renowned financial institutions such as Standard Chartered Bank, Citi Group and ICBC.