Qifu Technology: Lending Efficiency at Scale

Qifu Technology is a leading player in China’s Credit-Tech industry, connecting consumers and small businesses with financial institutions through its AI-powered lending platform. With a capital-light model, strong returns, consistent free cash flow and no debt, Qifu is well positioned to benefit as China pushes to boost consumer credit. The question is whether this efficient, data-driven lender deserves a place in your long-term portfolio.

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in Qifu Technology at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Qifu Technology, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Qifu Technology is a leading AI-powered credit-tech company in China, founded in 2016 and headquartered in Shanghai. Formerly known as 360 DigiTech, the company operates under the Qifu Jietiao brand and connects borrowers - both consumers and SMEs - with a network of over 160 financial institutions. It provides a full suite of services throughout the loan lifecycle, including customer acquisition, credit assessment, fund matching, and post-loan servicing. Qifu’s business operates under two models. The credit-driven, or capital-heavy, model involves Qifu taking on credit risk by directly funding loans through its licensed micro-lending entity or by providing guarantees for loans issued by its financial institution partners. This model generates higher take rates but also exposes the company to credit losses. The capital-light model, by contrast, facilitates loans without assuming credit risk. In this setup, Qifu offers technology-enabled services to financial institutions - such as borrower acquisition, credit evaluation, post-facilitation servicing, and risk management - earning revenue through service fees. Qifu’s competitive moat lies in its AI system, called the Argus Engine. This technology helps the company spot fraud, evaluate creditworthiness, predict risk, and recommend loan pricing. It uses a huge amount of data—both real-time and historical - to give each borrower a personalized credit score. There are different scores depending on the situation: one for new applicants, one for returning borrowers, and one for people who fall behind on payments. Because the system is constantly learning and improving, Qifu is able to keep loan defaults low, even though it serves many people who might not qualify for loans from traditional banks. Qifu also benefits from scale advantages, having facilitated more than RMB 2,2 trillion in cumulative loans as of 2024 and maintaining a user base of nearly 57 million with approved credit lines. Repeat borrowers account for over 90% of loan activity, reinforcing strong customer loyalty and reducing acquisition costs. This scale feeds a data flywheel that improves the accuracy of its AI models, giving the company a sustained edge in risk assessment. Another reason Qifu has an advantage is its ability to offer banks and lenders a full set of digital tools to help them manage loans and credit risk. These tools, provided through its ICE platform and software services, make it easier and more efficient for partners to work with Qifu - so much so that switching to another provider would be difficult and costly.

Management

Haisheng Wu serves as the CEO of Qifu Technology, a role he assumed in 2019 after co-founding the company and previously serving as its President. He brings a blend of entrepreneurial drive and operational expertise, with a deep understanding of China’s fintech landscape. Prior to founding Qifu Technology, he held various leadership roles at 360 Group and Baidu, two of China’s leading internet companies, where he gained valuable experience in internet security, digital platforms, and consumer engagement. Haisheng Wu holds a bachelor’s degree in Media Economics from the Communication University of China and a master’s degree in Communication Studies from Peking University. His academic background, combined with his professional experience, has shaped his approach to building user-centric digital financial services. One of the defining moments of his leadership came in July 2021, when Qifu’s flagship app, 360 Jietiao, was removed from app stores by order of the financial regulator due to data compliance issues. Under Haisheng Wu’s direction, the company swiftly responded, aligning the platform with new data protection regulations and achieving reinstatement in just one month. This episode highlighted his ability to lead effectively under regulatory pressure and adapt quickly to changing requirements - an essential skill in China’s tightly regulated fintech environment. Although there isn’t much public information available about Haisheng Wu, his actions during that period - and the company’s strong performance since - suggest that he is a capable and focused leader. As a co-founder, he also has a clear long-term interest in the company’s success, which adds to my confidence in his leadership.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Qifu Technology made its IPO in late 2018, so we only have data from 2019 onwards. Since then, Qifu has consistently reported strong ROIC, with the figure never falling below 20%, which is very impressive. There are several factors that contribute to Qifu’s high ROIC. Its Argus Engine is an advanced AI system that helps the company quickly and accurately assess loan applicants, detect fraud, and set loan pricing. Because it constantly learns from new data, it improves over time. This allows Qifu to approve more reliable borrowers while avoiding risky ones, keeping losses low. Smarter lending decisions, made quickly and with fewer staff, help Qifu generate more profit from each unit of capital it invests. Qifu also provides the software and tools that banks use to manage loans, assess risk, and handle collections. These services are tightly integrated into how its partners operate, making them difficult to replace. This creates stable, recurring income with relatively low costs - further improving capital efficiency. In addition, Qifu works with major online platforms, such as e-commerce and ride-hailing apps, to reach users directly. This strategy helps attract borrowers at lower cost, without needing to spend heavily on marketing or infrastructure, which supports higher returns on capital. Qifu’s ROIC declined slightly in 2024, mainly because the total volume of loans it facilitated dropped and there was a shift away from its higher-margin credit-driven services. Slower lending activity and a tougher economic environment meant the company earned slightly less profit for each unit of capital it invested. However, the decline in 2024 doesn’t concern me. I believe Qifu’s business model - centered around advanced technology, strong partner relationships, and efficient user acquisition - will continue to support a high ROIC in the years ahead.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. These numbers are encouraging, as Qifu Technology has managed to grow its equity every year since its IPO in 2018. This steady increase is mainly driven by strong and consistent profitability. The company generates meaningful net income year after year and retains a large share of it, which builds book value over time. Qifu also operates with very little debt, which means less money goes toward interest payments and more can be reinvested into the business. By focusing on technology and long-term partnerships, Qifu continues to expand without relying heavily on borrowed capital. In short, Qifu’s consistent equity growth reflects a healthy mix of strong earnings, careful financial management, and a long-term approach to value creation.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins offer a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Qifu Technology has delivered positive free cash flow every year since its IPO, which is very encouraging. Even more impressive is that free cash flow has grown in every year except one and reached a record high in 2024. The company has also consistently achieved strong levered free cash flow margins, which also hit a record high that same year. This steady growth is driven by a few key factors. First, Qifu is consistently profitable and keeps its cost structure lean. It uses AI to automate functions like credit assessment and fraud detection, allowing the business to operate efficiently without needing to hire large teams or invest heavily in infrastructure. Second, Qifu operates with very little debt. This means it doesn’t have to use much of its cash to cover interest payments, allowing more of its operating cash flow to be reinvested into the business or returned to shareholders. Third, Qifu benefits from smart partnerships with major online platforms. These collaborations help it reach large numbers of users in a cost-effective way, which keeps customer acquisition costs low and supports strong cash generation. Together, these factors allow Qifu to convert a large portion of its earnings into actual free cash flow, giving it financial flexibility and the ability to return value to shareholders. And Qifu does prioritize returning cash to shareholders. Management has stated that the total payout in 2024 was close to 100% of 2023 earnings. Looking ahead, Qifu plans to maintain a payout ratio above 70% over the next few years. In addition, the company aims to significantly reduce its share count while continuing to pay dividends. This means shareholders should continue to benefit from both repurchases and dividends as Qifu’s free cash flow grows. While the free cash flow yield is currently at its lowest level since the IPO, it still stands above 20%, which suggests the shares may be trading at a very attractive valuation. However, we will revisit valuation later in the analysis.

Debt

Another important aspect to consider is the level of debt. It’s crucial to assess whether a company’s debt is manageable - ideally, it should be possible to repay all long-term debt within three years of earnings. We normally calculate this by dividing total long-term debt by annual earnings. In Qifu Technology’s case, this calculation isn’t necessary because the company has no debt. In fact, it has never carried any debt since its IPO, which is a strong positive. Management has also stated that they intend to maintain this debt-free position going forward, suggesting that debt is unlikely to become a concern in the future either.

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Risks

The Credit-Tech industry being new in China is a risk for Qifu Technology. Because the industry is still in its early stages, it lacks long-term performance data across different economic conditions. Qifu itself was founded in 2016 and launched its capital-light model in 2018, which means the company has a limited track record and hasn’t experienced a full credit cycle. It’s still unclear how the business would perform during a major economic downturn, a funding squeeze, or a widespread increase in borrower defaults. Another concern is that the industry has evolved quickly in recent years, and what has worked during a growth phase may not work as well in a more mature or slower-growth environment. For Qifu to sustain its past success, it must continue expanding its borrower base, improving the usage of its products, and maintaining strong relationships with its financial partners. That also includes making sure it can continue to secure enough funding and keep delinquency rates low - even if borrower behavior or credit demand changes. The company's strong performance so far has been supported by favorable conditions, but there’s no guarantee that growth can continue at the same pace as the market matures. In short, the limited operating history of both Qifu and the broader Credit-Tech industry makes it more difficult to predict how well the company would adapt if the environment becomes more challenging.

Laws and regulations are a key risk for Qifu Technology. While the company operates legally and has taken steps to remain compliant, the regulatory environment around China’s Credit-Tech industry is complex, evolving, and often uncertain. Many aspects of Qifu’s business - such as loan facilitation, credit assessment, micro-lending, and guarantee services - are subject to overlapping and sometimes loosely defined rules. What is allowed today could be reinterpreted or restricted in the future. For instance, Qifu provides credit guarantees through licensed subsidiaries and occasionally uses a back-to-back guarantee structure. While this model is currently considered compliant, the lack of clear, authoritative regulatory guidance means there is no assurance that all regulators will continue to view it the same way. Its micro-lending and guarantee businesses are also closely supervised, with rules limiting leverage, loan sizes, and geographic scope. If new regulations introduce stricter licensing requirements or operating restrictions, Qifu may need to adjust its business model, reduce its lending footprint, or incur added compliance costs. Finally, the company has already been part of a broader regulatory review of major fintech platforms and completed rectification measures as required. Although Qifu believes it has addressed these issues, it remains under ongoing regulatory supervision. This leaves the door open to further inspections, compliance demands, or policy shifts that could disrupt operations.

Competition is a significant risk for Qifu Technology. The Credit-Tech industry in China is fast-growing but also highly competitive, with new players entering the market and existing ones constantly evolving. Qifu primarily competes with other digital lending platforms focused on consumer credit, many of which operate with different business models or focus on niche segments. These competitors may be more agile or better equipped to adapt to changes in technology, regulation, or consumer behavior. Some of Qifu’s current and potential competitors—including large tech firms and traditional financial institutions—have significantly more financial, technical, and marketing resources. They may also have larger user bases, more extensive data sets, and deeper partnerships, which can give them an edge in product development, pricing, and customer retention. As the market matures, pricing pressure is likely to increase. Competitors may try to gain market share by offering loans at lower fees or under more attractive terms. In an industry where borrowers are highly sensitive to interest rates and have little brand loyalty, Qifu may be forced to lower its pricing to stay competitive, which could hurt margins and profitability. There's also a risk that Qifu’s business partners - such as financial institutions - may shift their loyalty to competitors offering more favorable terms. If Qifu cannot match these offers, it could lose valuable funding partners or be forced to accept less favorable deal structures.

Reasons to invest

Higher volume is a reason to invest in Qifu Technology because it leads to stronger financial performance through increased revenue, better operating leverage, and improved customer lifetime value. As more borrowers use Qifu’s platform - both new and repeat - the total number and value of loans facilitated grows. This, in turn, drives more fee income, since Qifu earns service fees on each loan it helps facilitate. Because the platform is largely digital and powered by proprietary AI systems, it doesn’t cost much more to process a higher number of loans. This means that as volume rises, the company’s fixed costs are spread across a larger revenue base, which boosts profitability. Volume growth also improves the lifetime value of each customer. New borrowers may return multiple times, generating additional revenue with little or no additional acquisition cost. And the more borrowers Qifu serves, the more data it gathers - allowing it to improve risk models, reduce defaults, and further strengthen margins over time. Finally, Qifu’s shift toward its capital-light model makes volume even more important. In this model, the company doesn’t use its own balance sheet to fund loans but instead earns fees for matching borrowers with financial institutions. This makes the business highly scalable - more volume leads directly to more income, without increasing credit risk or requiring more capital. In short, higher loan volume isn’t just a sign of growth - it’s a core driver of Qifu’s ability to generate more revenue, scale efficiently, and deliver stronger returns for shareholders.

China’s push to boost domestic consumption is a compelling reason to invest in Qifu Technology because it directly supports the company’s core business model: providing consumer credit. In a recent policy signal, China’s National Financial Regulatory Administration called on financial institutions to expand access to consumer finance and increase loan availability - especially for everyday spending. This aligns perfectly with what Qifu offers through its AI-powered Credit-Tech platform, which connects borrowers with financial institutions in a fast, digital, and user-friendly way. As the government looks to shift the country’s growth model from investment- and export-driven to one that is more consumption-led, consumer credit becomes a crucial enabler. People are more likely to spend when they have access to affordable, flexible financing - particularly younger consumers or small business owners who may not qualify for traditional bank loans. This creates a larger market opportunity for platforms like Qifu that specialize in serving these underserved or overlooked borrowers. What makes this especially relevant for Qifu is the nature of the policy support. The government is not only encouraging banks and lenders to offer more consumer loans, but also signaling flexibility on loan terms and greater liquidity to fund these efforts. That could make financial institutions more willing to partner with Credit-Tech platforms like Qifu, which already provide the tools, data, and infrastructure to scale lending efficiently and responsibly.

Operational efficiency is a reason to invest in Qifu Technology because it allows the company to grow profitably, scale more easily, and generate stronger returns without relying on heavy spending or increased risk. In 2024, Qifu delivered record-high profitability - even in a challenging macroeconomic environment—thanks in large part to continued improvements in efficiency across nearly every area of the business. Much of this is driven by Qifu’s deep integration of AI. The company uses AI tools across the entire loan lifecycle - from marketing and borrower outreach to fraud detection, credit analysis, loan servicing, and collections. These systems don’t just automate tasks - they make them smarter. For example, Qifu’s AI-generated marketing content and automated ad placements have significantly reduced customer acquisition costs while improving ROI. In collections, AI-driven assistants help team members handle calls more effectively, boosting productivity without expanding headcount. This broad use of AI reduces reliance on manual labor, speeds up decision-making, and allows the business to serve more borrowers at lower cost. That efficiency directly translates into higher margins and stronger free cash flow. It also makes Qifu more resilient. Because its operating model is not heavily dependent on fixed costs or physical infrastructure, the company can stay agile even in slower-growth environments. Qifu is doubling down on this strategy through its "AI-Plus" initiative, which aims to build a digital operating layer where AI agents function as virtual employees, automating core processes at scale. The goal is for one-third of its operations to be powered by this platform within the next couple of years. In short, Qifu’s operational efficiency gives it a powerful advantage: it can grow faster, serve more customers, and generate higher profits - all without meaningfully increasing its cost base.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first calculation is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 5,66, which is from the year 2024. I have selected a projected future EPS growth rate of 11%. Finbox expects EPS to grow by 11,8% in the next five years. Additionally, I have selected a projected future P/E ratio of 22, which is double the growth rate. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $87,40. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Qifu Technology at a price of $43,70 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 1.280, and capital expenditures were 21. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 15 in our calculations. The tax provision was 225. We have 155,3 outstanding shares. Hence, the calculation will be as follows: (1.280 – 15 + 225) / 155,3 x 10 = $95,94 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Qifu Technology's Free Cash Flow Per Share at $8,11 and a growth rate of 11%, if you want to recoup your investment in 8 years, the Payback Time price is $106,76.

Conclusion

I believe that Qifu Technology is an intriguing company with great management. The company has built a moat through its AI system, called the Argus Engine. It has consistently achieved a high return on invested capital and is likely to continue doing so due to its efficient and scalable business model. In 2024, the company delivered record-high free cash flow and levered free cash flow margin, and it rewards shareholders through both dividends and share repurchases. It also operates with no debt, which strengthens its financial position. The Credit-Tech industry being new in China is a risk for Qifu Technology because both the company and the sector lack a long-term track record, making it uncertain how well they would perform through a full credit cycle or under tougher economic conditions. Much of Qifu’s success so far has occurred during favorable market phases, and it remains to be seen whether its business model can maintain the same effectiveness as the industry matures. Laws and regulations are another risk, as the regulatory environment for Credit-Tech in China is still evolving. New rules or reinterpretations could affect key parts of Qifu’s business, such as lending, credit assessment, or guarantee services, potentially requiring costly adjustments or limiting growth. Competition is also a concern. Qifu operates in a dynamic, crowded market where well-funded rivals - ranging from traditional financial institutions to large tech companies - can compete aggressively on pricing, partnerships, and user experience. Because borrowers are highly price-sensitive and brand loyalty is low, Qifu must continuously innovate to defend its market position and margins. On the positive side, growing loan volume is a strong driver of long-term value. As more borrowers use Qifu’s platform, revenue and profitability improve due to the company’s fee-based, capital-light model and operating leverage. This is further supported by China’s push to boost domestic consumption, which directly aligns with Qifu’s mission of providing accessible credit. Government support for consumer lending could unlock new demand and make financial institutions more eager to work with platforms like Qifu. Operational efficiency is another core strength. Qifu’s deep integration of AI allows it to automate and optimize everything from marketing and credit assessment to collections. This lowers costs, enhances scalability, and improves margins. I believe Qifu Technology is a great company, and if one can stomach the volatility associated with Chinese stocks, it could be a good long-term investment at a Margin of Safety price of $43.

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