OneConnect

Prospectus Summary

PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our ADSs discussed under "Risk Factors," before deciding whether to invest in our ADSs. This prospectus contains information from an industry report commissioned by us and prepared by Oliver Wyman, an independent management consulting firm, to provide information regarding the China technology service market for financial institutions. We refer to this report as the "Oliver Wyman Report."

Our Company

Overview

We are a leading technology-as-a-service platform for financial institutions in China. Our platform provides cloud-native technology solutions that integrate extensive financial services industry expertise with market-leading technology. Our solutions provide technology applications and technology-enabled business services to financial institutions. Together they enable our customers' digital transformations, which help them increase revenue, manage risks, improve efficiency, enhance service quality and reduce costs. As of September 30, 2019, we had over 3,700 customers and the largest number of financial institution customers among technology-as-a-service platforms in China. As of September 30, 2019, our broad customer base includes all of China's major banks, 99% of its city commercial banks, and 46% of its insurance companies, collectively reaching hundreds of millions of end-customers. Since our establishment in December 2015, our platform has supported Chinese financial institutions in serving RMB1.8 trillion (US$0.3 trillion) of transactions for their end-customers. Through our platform, in the nine months ended September 30, 2019, on a daily basis we facilitated over 135,000 anti-fraud checks, 4.2 million credit risk assessments, and the processing of approximately 13,000 auto insurance claims.

Massive market. Financial institutions around the world face challenges resulting from advancements in technology, and they will require sweeping digital transformations of their businesses to improve their competitiveness. The only path to a successful transformation will be an integration of industry expertise and advanced technology. Most financial institutions lack the capital, talent and capabilities needed to support this long and expensive transformation, and they therefore will need to rely on external solutions. In China, the need for digital transformation is especially acute because Chinese financial institutions not only need to compete with internet competitors seeking to disrupt their industry, but also cope with structural shifts in their business resulting from China's ongoing economic transformation. China's financial services industry had RMB334.9 trillion (US$46.9 trillion) of total assets as of December 31, 2018 and generated RMB14.1 trillion (US$2.0 trillion) of revenue in 2018. Oliver Wyman estimates that the technology spending market for Chinese financial institutions totaled RMB152.2 billion (US$21.3 billion) in 2018, and this market is expected to grow at a compound annual growth rate, or CAGR, of 21.4% to RMB400.8 billion (US$56.1 billion) in 2023.

Strong value proposition. Our technology-as-a-service platform strategically covers multiple verticals in the financial services industry and across the full scope of their operations—from sales and marketing and risk management to customer service. We also provide technology infrastructure solutions critical to financial institution digitalization such as data management and cloud services. Our cloud-native platform is flexible by design, so we can deploy independent solution modules to quickly respond to customer requirements, and we can also combine modules into customized end-to-end solutions. Our proven applications are driven by extensive industry expertise and customer insight data, and they are secure and effective at large scale. We deliver great value to our customers in multiple dimensions: generating new revenue, improving sales productivity, enhancing risk management, improving customer service quality and reducing costs.

Leading technology. We started our operation as the financial technology solution arm of Ping An Group. As of September 30, 2019, Ping An Group was China's second-largest financial institution and the sixth-largest globally by market capitalization. Ping An Group is a global leader in the digital transformation of financial services through the integration of industry experience with advanced technology. Over the past five years, Ping An Group invested over US$15 billion in research and technology development. It employs approximately 101,000 staff in technology-focused businesses. We have leveraged our strong partnership with Ping An Group to establish world-leading technology capabilities for financial services in AI, big data analytics and blockchain. As of September 30, 2019, we had won 23 technology awards in international competitions, and had submitted 2,850 patent applications in China and 542 in other countries or regions. Our first-class technology is a major source of our competitive advantage, and it serves as a solid foundation for our continuous application innovation and product commercialization.

Innovative business model. Under our "adopt-deepen-integrate" customer-development approach, we provide "hook products" to financial institutions, at low or even no charge, to encourage adoption. We subsequently seek to deepen our relationships with these customers through cross-selling and, ultimately, platform integration. In addition to technology applications, we also provide our financial institution customers with business services to enable them to grow their businesses rapidly and sustainably, while we can capture greater value-upside with our transaction-based revenue model. This combination allows us to achieve visible revenue streams that are fast-growing and highly recurring.

Outstanding growth. Our business has grown rapidly since our establishment in December 2015. Our revenue increased by 142.9% from RMB581.9 million (US$81.4 million) in 2017 to RMB1,413.5 million (US$197.8 million) in 2018, and we recorded revenue of RMB1,554.9 million (US$217.5 million) in the nine months ended September 30, 2019. Our total number of customers grew from over 1,600 at the end of 2016 to approximately 3,500 at the end of 2018. On average, each of our premium customers purchased 3.0 products in 2018, growing from 1.7 in 2016. Our net expansion rate in 2018 for our 2017 customers was 224% and for 2017 premium customers was 167%. Our net loss was RMB607.0 million, RMB1,190.3 million (US$166.5 million) and RMB1,049.0 million (US$146.8 million) in 2017, 2018 and the nine months ended September 30, 2019, respectively. Our net loss as a percentage of total revenue decreased from 104.3% in 2017 to 84.2% in 2018 and further to 67.5% in the nine months ended September 30, 2019.

Industry Background and Market Opportunity

China's financial services industry is massive and growing, but it faces challenges

China's financial services industry is massive and growing. The country's financial services industry had, in aggregate, 62,000 financial institutions and US$46.9 trillion of total assets as of December 31, 2018, and it generated US$2.0 trillion of revenue in 2018; these compare to US$98.2 trillion of total assets and US$3.0 trillion of revenue for the financial services industry in the United States. Driven by China's robust GDP growth, its financial services industry will grow at a steady CAGR of 12.0% from 2018 to 2023, according to Oliver Wyman. At the same time, China's financial services industry is experiencing challenges:

•

Customer preference: technological changes, including widespread use of mobile technologies and rapidly expanding data availability, have led to customers' evolving preferences for easy access to quality financial services and efficient financial transactions.


•

Structural shift: transitions within the Chinese economy that are shifting the growth focus of the financial services industry from large corporates towards the underpenetrated retail and SME segments, which are expected to experience strong growth.

To address challenges and capture new opportunities, Chinese financial institutions must undertake digital transformations to adopt new business models that include:

•

Digitally-enabled distribution capabilities. Because their end-customers have become more digitally savvy, China's financial institutions need new tools to engage with, manage and cross-sell to their end-customers.


•

Data-driven risk management. Financial institutions must use data-driven analytic approaches to effectively and efficiently assess their customers' credit risk.


•

High quality "anytime anywhere" services. Increasing digital competition has made traditional offline-based customer service approaches unsustainably inconvenient and costly. Changing customer expectations and efficiency requirements now require Chinese financial institutions to provide an online-to-offline omni-channel platform across their operations. Efficiency requirements and the quick turn-around times demanded by customers will require financial institutions to adopt digital analytical tools.


•

Digitalized management and operations. To cost-effectively enable these new business models, Chinese financial institutions will need to operate in a truly digital way, replacing their current paper- and people-intensive processes and legacy infrastructure.

Most financial institutions cannot support digital transformation on their own

To resolve their pain points, China's financial institutions must undertake transformations to structurally enhance their competitiveness. The only effective way to achieve these transformations will be applying technology integrated with industry expertise. It would be a long and expensive process for China's financial institutions to do this on their own, especially because:

•

Prohibitive investment requirements. The world's top financial institutions have made substantial investments on technology in recent years. For example, the world's top three banks by total assets alone spent US$19 billion collectively in 2018; Ping An Group spent US$1.4 billion on technology in 2018. Most financial institutions cannot afford long-term investments of this scale.


•

Scarcity of talent. Digitalization requires large teams of interdisciplinary talent. For example, on average 15-20% of the workforce at the top five global financial institutions outside of China by total assets were in technology-focused jobs. In comparison, China's banks on average have only 3-5%, according to the China Banking and Insurance Regulatory Commission, or the CBIRC. Identifying talent with both technological skills and financial domain knowledge is particularly difficult.


•

Limited application scenarios and data. Software developers may lack the application scenarios and data needed to develop sophisticated industry-specific solutions for financial services. Although financial institutions have large amounts of data, they may not be able to use these data effectively because they are unstructured and unconnected across different legacy systems.

There are massive market opportunities for technology-as-a-service providers

We believe that external technology platforms provide a proven means for financial institutions to upgrade their revenue-generating and operating capabilities. Platforms that integrate extensive industry knowledge and technology excellence are scarce, which well positions us to capture this fast-growing, underpenetrated market.

The total market opportunity for the technology spending of financial institutions includes spending on software and IT solutions, internal services, data center systems, and business solutions. Oliver Wyman estimates that the technology spending market for Chinese financial institutions was RMB152.2 billion (US$21.3 billion) in 2018 and that it is expected to grow at a CAGR of 21.4% to RMB400.8 billion (US$56.1 billion) in 2023.

Our Platform and Products

We provide holistic coverage of financial services verticals with end-to-end technology solutions

We are the largest technology-as-a-service platform for financial institutions in China by number of customers, according to Oliver Wyman. Our platform provides more than 50 cloud-native products that can be deployed on a modular basis to quickly respond to customer requirements or combined to deliver end-to-end solutions. Our twelve technology solutions strategically cover multiple verticals in the financial services industry, including banking, insurance and asset management, across the full scope of their businesses—from sales and marketing and risk management to customer services and operations, as well as technology infrastructure such as data management and cloud services.

The matrix below sets forth the twelve solutions we currently offer across the financial services industry verticals we serve and two solutions that we expect to offer in the near future.

Our products are proven at large scale to create enormous value for our financial institution customers

Our innovative solutions are based on extensive industry expertise, driven by customer insight and tested in large-scale real world applications. We deliver enormous value to our financial institution customers in their digital transformations:

•

Generating new revenue. Our advanced technology enables China's financial institutions to expand into new markets, such as serving retail and SME customers, that were difficult for them to address using their traditional models. For example, Oliver Wyman estimates that in 2018 53.3% of China's SMEs did not have access to bank financing and SME's total unmet financing needs were approximately RMB78.5 trillion (US$11.0 trillion). We have used our proprietary blockchain technology to build a network that connects SMEs with financial institutions, companies along the supply chain, government agencies and various third-party service providers. Through SMEs' interactions with this network and the application of our data analytics, the creditworthiness of these SMEs becomes more transparent. We also provide an end-to-end, online-to-offline operations platform for financial institutions to serve large numbers of SME customers cost-effectively.


•

Improving sales productivity. We provide solutions that enable financial institutions to better understand their customer' needs and tailor their sales efforts to improve productivity. Our AI-empowered sales force management tool, or SAT, enables financial institution sales representatives and agents to engage with their customers through social media, to close sales with on-site visits, and to provide any-time-any-where service with AI-assisted phone calls and text messages. As of December 31, 2018, more than 2.4 million financial institution sales representatives and agents across China were SAT users.


•

Managing risks. Our solutions enable financial institutions to automate their credit assessment process and manage risk more effectively. For example, our retail risk management solution provides financial institutions with tools for anti-fraud, credit analytics and decisioning, and post-lending monitoring, as well as a credit management system. This solution integrates Ping An Group's extensive consumer lending experience and a wide variety of algorithms and models. As of September 30, 2019, since our inception we had provided 106.7 million anti-fraud checks and 4.0 billion credit risk assessments.


•

Enhancing service quality. We deliver convenient and proven products that customers can use right out of the box. For example, China's insurance companies collectively manage approximately 100,000 adjusters to process auto claims, according to Oliver Wyman. To help insurance companies more efficiently meet these demands, our AI-based intelligent fast claim solution features image-recognition capabilities that allow insurers to remotely inspect car accidents, identify potential fraud and determine damage amounts more accurately and efficiently. These capabilities are made possible by leveraging a huge database of approximately 114,000 car types and information on 33.5 million spare parts, accumulated from Ping An Group's 30 years of experience in the auto insurance business. Customers using our solution processed an average of approximately 13,000 auto insurance claims per day in the nine months ended September 30, 2019.


•

Reducing costs. Our solutions help customers reduce costs and optimize efficiency by eliminating manual operations through automation and digitalization of business operations. Take customer services as an example: Oliver Wyman estimates that China's top five banks dedicate 34-39% of their collective workforce to customer services. In contrast, in September 2019, 76% of Ping An Group's customer service cases were answered by a chatbot, which uses phone calls and text messaging in a human-like manner.

THIS IS THE END OF A COMPOSITION COMPONENT

We have successfully expanded overseas and are recognized by overseas financial institutions and regulators.

We began expanding our business outside China in 2018, establishing subsidiaries in Hong Kong SAR, Singapore and Indonesia. We won the bid to develop the Hong Kong Monetary Authority's eTradeConnect platform, a large-scale interbank blockchain trade finance platform, which serves 13 major banks. As of September 30, 2019, we had provided service to three out of the top ten banks in Thailand, leading banks in Indonesia, Malaysia and the Philippines, as well as some of the largest non-bank financial institutions in Southeast Asia. We also established a joint venture with a subsidiary of SBI Holdings, Inc. to serve Japanese financial institutions.

Our Business Model

We believe that partnering with our financial institution customers is important in driving our success.

Our Adopt-Deepen-Integrate customer-development approach

•

Adopt. Our relationship managers, many of whom have previously worked as senior management of financial institution and have deep industry expertise, have direct C-level access to prospective customers. To win them as new customers, we use our understanding of financial institutions' decision-making process in procurement, apply standardized customer relationship management, and offer easy-to-adopt hook products with limited or no upfront fees. As a result, as of September 30, 2019, we had over 3,700 customers, including all major banks, 99% of city commercial banks, and 46% of insurance companies in China.


•

Deepen. Once a customer adopts our platform, we focus on increasing its use of our solutions and the value it creates on our platform. We provide cloud-based product modules as well as customized end-to-end solutions covering multiple verticals across all functions. Our premium customers on average each purchased 3.0 products in 2018, growing from 1.7 in 2016, and our number of premium customers grew from 40 in 2017 to 221 in 2018.


•

Integrate. As our customers grow their volume on our platform, we become an integral part of their operations. Our solutions are structured on modules that can be adopted individually, but they are comprehensive in scope—covering the full range of our financial institution customers' operations. As our customers implement more of our solutions, especially our infrastructure solutions, they become deeply integrated with our platform.

Transaction-based revenue model

We adopted a transaction-based revenue model, where we require small upfront implementation fees and primarily charge our financial institution customers based on the transaction volume generated on our platform or their other usage of it. We believe this model allows financial institutions to quickly begin using our platform. As customers use our platform, our transaction-based pricing allows us to participate in their success, rather than being limited to fixed subscription income. We monetize a variety of transaction types, including loans generated, claims processed, databases queried and API calls made. In 2018, 77% of our revenue was transaction based.

Technology + Business service model

We provide financial institutions with tailor-made business services, including customer referrals, technology-enabled product design, marketing assistance, service recommendations, and transaction facilitation. These value-added services, delivered through our highly automated platform and based on our extensive industry expertise, help financial institutions grow sustainably. Correspondingly, part of our costs are also associated with serving the transaction volumes we facilitate for our financial institution customers. Since our establishment in December 2015, our platform has supported our financial institution customers in serving RMB1.8 trillion (US$0.3 trillion) of transactions for their end-customers.