Annual Report for Fiscal Year Ending December 31, 2024 (Form 20-F)

Operating and Financial Review and Prospects

The following discussion of our financial condition and results of operations is based upon, and should be read in conjunction with, our audited consolidated financial statements and the related notes included in this annual report on Form 20-F. This report contains forward-looking statements. See "Forward-Looking Information." In evaluating our business, you should carefully consider the information provided under the caption "Item 3. Key Information-D. Risk Factors" in this annual report on Form 20-F. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties.

Overview

We are an advanced, AI-powered platform providing a comprehensive suite of financial and lifestyle services in China. Our mission is to elevate customers' financial well-being and enhance their quality of life by delivering digital financial services, tailor-made insurance solutions, and premium lifestyle services. We support clients at various growth stages, addressing financing needs arising from consumption and production activities, while aiming to augment the overall well-being and security of individuals, families, and businesses.

We are currently primarily engaged in the operation of our financial services business, insurance brokerage business and consumption and lifestyle business in China. In 2024, the majority of our revenues were generated from our financial services business, which included (i) loan facilitation service fees paid by institutional partners for our technology-enabled borrower acquisition services; (ii) post origination service fees paid by institutional partners for our post-origination loan management and collection services; (iii) financing service fees paid by borrowers for loans funded by our subsidiaries; (iv) guarantee service fees paid by borrowers for loans guaranteed by our subsidiaries; and (v) revenue from other financial services, such as referral services related to borrower referral for other loan platforms. Our insurance brokerage business generates revenues primarily from insurance commission fees paid by insurance companies when clients purchase insurance products through Hexiang Insurance Brokers. Our consumption and lifestyle business generates revenues primarily from sales of non-financial products and services on e-commerce platforms such as Yixianghua and Yiren Select.

Basis of Management's Discussion of Operating Results

On December 31, 2020, we consummated another business restructuring with CreditEase to streamline our service lines and reposition us as a comprehensive digital personal financial management platform in China. In connection with the business restructuring, we disposed of the online consumer lending platform targeting individual investors as the funding source (the "Disposed Business"). The Disposed Business was operated by Hengcheng, and CreditEase, through its subsidiaries and affiliates, paid the designated subsidiaries of our company an aggregate amount of RMB67.0 million in cash.

Major Factors Affecting Our Results of Operations

Major factors affecting our results of operations include the following:

Economic Conditions in China

The demand for online consumer finance from borrowers is dependent upon overall economic conditions in China. General economic factors, including the interest rate environment and unemployment rates, may affect borrowers' willingness to seek loans. For example, significant increases in interest rates could cause potential borrowers to defer obtaining loans as they wait for interest rates to become stable or decrease. Additionally, a slowdown in the economy, such as from a rise in the unemployment rate and a decrease in real income, may affect individuals' level of disposable income. This may negatively affect borrowers' repayment capability, which in tumay decrease their willingness to seek loans and potentially cause an increase in default rates.

Ability to Acquire Borrowers and Clients Effectively

Our ability to increase the loan volume facilitated through our marketplace largely depends on our ability to serve our existing borrowers and to attract potential new borrowers through sales and marketing efforts. Our sales and marketing efforts include those related to borrower acquisition and retention and general marketing. We intend to continue to dedicate significant resources to our sales and marketing efforts and constantly seek to improve the effectiveness of these efforts, in particular with regard to borrower acquisition.

For our financial services business, our company and the VIEs attract borrowers through online channels, such as social media platforms, search engine marketing, search engine optimization, mobile application downloads through major application stores, as well as various marketing campaigns and membership services. For our insurance brokerage business, we acquire clients through a variety of sources, such as online direct marketing, CreditEase ecosystem, member referral, channel partnership and social media platforms. For our consumption and lifestyle service business, we primarily serve our existing customers from other business lines.

Effectiveness of Risk Management

Our ability to effectively segment borrowers into appropriate risk profiles affects our ability to offer attractive pricing to borrowers as well as our ability to refer qualified borrowers to our institutional funding partners, both of which directly relate to the level of user confidence in our marketplace. Our proprietary risk management system is built upon data accumulated through our operations, and is further supported by an extensive database accumulated by CreditEase over the past ten years. Our risk management model utilizes big data capabilities to automatically evaluate a borrower's credit characteristics. At the same time, we use automated verification and fraud detection tools to ensure the quality of the loans facilitated on our marketplace, and supplement these technology-driven tools with manual processes when necessary. Furthermore, our ability to effectively evaluate a borrower's risk profile and likelihood of default may directly affect our results of operations.

We have provided guarantee services in connection with some of the loans facilitated on our marketplace by institutional funding partners, through two of our wholly owned subsidiaries, Fujian Jiaying and Chongqing Jintong. We also provide back-to-back guarantee services to Chongqing Jintong and third party guarantee companies for some loans facilitated under our risk-taking model.

Product Mix and Pricing

Our ability to maintain profitability largely depends on our ability to continually optimize our product mix and to accurately price the loans facilitated through our platform. The expected net charge-off rate and actual observed results for each of these customer groups divide potential borrowers into distinctively different credit segments. See "Item 4. Information on the Company-B. Business Overview-Risk Management-Proprietary Credit Scoring Model and Loan Qualification System." In response to market competition or further developments, we may spend more effort promoting certain loan products, managing the growth in volume of other loan products, introducing new products with new risk grades or adjusting the pricing of our existing products. Any material change in the product mix could have a significant impact on our profitability and net income margin.

Ability to Innovate

Our success to date has depended on, and our future success will depend in part on, successfully meeting borrower demand with new and innovative loan products. Our company and the VIEs have made and intend to continue to make efforts to develop loan products for borrowers. We constantly evaluate the popularity of our existing product offerings and develop new products and services that cater to the ever evolving needs of our borrowers.

From a financial services perspective, as we continue to optimize our product offerings, we are developing a more diversified range of credit products tailored to meet the specific needs of our target borrowers and institutional funding partners, all at competitive prices in line with updated regulatory guidelines. As our marketplace grows, we have enhanced our ability to offer risk-based loan pricing. For instance, we have introduced lower-priced loan products and regularly adjust our pricing strategy as we shift towards serving a higher-quality customer segment in response to regulatory directives. Moving forward, we will continue to diversify our product offerings and strengthen synergies across our various business lines.

In the insurance brokerage business, we remain committed to driving innovation and customization in our product offerings as we expand our client base and strengthen partnerships with external stakeholders. We closely monitor both domestic and international markets, continually introducing new insurance products that target low-penetration segments with high growth potential. For example, since the second half of 2022, we have been offering overseas engineering liability insurance services to address the growing security needs of engineering projects in Belt and Road countries. Additionally, since 2022, we have introduced "New Citizen" insurance services, designed to meet the protection needs of flexible workforce members and part-time workers who are not covered by traditional social security systems. In 2024, we expanded our reach by launching online channels, including social media platforms, to offer more flexible insurance products, such as healthcare and retirement plans.

In the consumption and lifestyle business, we continue to enhance our product and service offerings to better meet the diverse needs of our customers across various life scenarios. As we refine our customer segmentation and optimize our customer mix, we are strategically scaling back the offering of historical and existing products. This shift allows us to focus on studying and analyzing the profiles and needs of our newly upgraded customer group, enabling us to develop tailored products that more effectively address their requirements.

Failure to continue to successfully develop and offer innovative products and for such products to gain broad customer acceptance could adversely affect our operating results and we may not recoup the costs of launching and marketing new products.

Ability to Compete Effectively

Our business and results of operations depend on our ability to compete effectively in the markets in which we operate. For our financial services business, we compete with other consumer finance marketplaces and loan facilitation platforms in China. The industry was intensely competitive before the year 2018. However, as the domestic regulations on the industry evolve and entry barriers continue to increase in recent years, fewer national-level players like us remain in the market while smaller platforms cease their operations, leaving more market share opportunities for us. Meanwhile, as we expand our financial service businesses overseas, such as in the Philippines, we are facing competition from regional peers.

For our insurance brokerage business, we compete with other insurance brokerage companies in China. Given the overall low penetration rate of insurance services in China compared with the US and the Europe, we believe that our strategic deployment in insurance business has navigated us towards a large market with high growth potential. In light of a tightening regulatory landscape domestically, our ability to customize and innovate products, coupled with robust channel partnerships, will play a vital role in maintaining our competitiveness.

For our consumption and lifestyle business, we fully embrace AI to offer selected high-quality products and services that align with our customers' preferences. Our primary goal in this segment is to enhance user experience and engagement, thereby increasing the long-term value of our existing customers through enriched products and upgraded services. We are currently scaling back product offerings in our consumption and lifestyle business and conducting a strategic review on how to better serve customers following the upgrade of our borrower segment and optimization of borrower profiles.

If we are unable to compete effectively, the demand for our marketplace could stagnate or substantially decline, we could experience reduced revenues or our marketplace could fail to maintain or achieve more widespread market acceptance, any of which could harm our business and results of operations.

Regulatory Environment in China

The regulatory environment for the online consumer finance industry in China is developing and evolving, creating both challenges and opportunities that could affect our financial performance. The Chinese government has been putting the pieces in place for a more mature regulatory framework covering all aspects of our business. New regulations may result in both opportunities and challenges for us by weeding out weaker players, triggering consolidation within the industry and increasing compliance risk. We will continue to make efforts to ensure that we are compliant with the existing laws, regulations and governmental policies relating to our industry and to comply with new laws and regulations or changes under existing PRC laws and regulations that may arise in the future. While new laws and regulations or changes to existing laws and regulations could make products more difficult to be accepted by clients on terms favorable to us, or at all, these events could also provide new product and market opportunities. We will continue to diversify funding sources, expand our loan product mix and enhance our risk management to support our business growth.

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Loan Performance Data

Delinquency Rates

As of December 31, 2024, the delinquency rates for loans under our loan facilitation model, except loans originating outside mainland China, that are past due for 1-30 days, 31-60 days and 61-90 days are set forth below:

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30+ Days Delinquency Rates

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To more effectively capture fluctuations in the credit risk profiles of borrowers on our platform, we have utilized the 30+ delinquency rate as a key metric since the second quarter of 2024. This measure provides earlier visibility into emerging risks associated with borrower performance.

The 30+ days delinquency rate by vintage refers to the outstanding principal balance of loans facilitated over a specified period that are more than 30 days past due, as a percentage of the total loans facilitated during that same period.

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The following chart displays the 30+ Days Delinquency Rates by vintage as of December 31, 2024, for loans facilitated under our loan facilitation model, except loans originating outside mainland China, for each of the months shown:

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30+ Days Delinquency Rates

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M3+ Net Charge-off Rates

We currently define M3+ Net Charge-off Rate, with respect to loans facilitated during a specified time period, which we refer to as a vintage, as the difference between (i) the total balance of outstanding principal of loans that become over three months delinquent during a specified period and (ii) the total principal of recovered past due payments in the same period with respect to all loans in the same vintage that have ever become over three months delinquent, divided by (iii) the total initial principal of the loans facilitated in such vintage.

The following chart displays the historical lifetime cumulative M3+ Net Charge-off Rates by vintage as of December 31, 2024, for loans facilitated under our loan facilitation model, except loans originating outside mainland China, for each of the months shown:

Cumulative M3+ Net Charge Off Rates

The expected M3+ Net Charge-off Rates and actual observed results for each of these customer groups divide potential borrowers into distinctively different credit segments. See "Item 4. Information on the Company-B. Business Overview-Risk Management-Proprietary Credit Scoring Model and Loan Qualification System."

Our business and financial performance depend on our ability to manage and forecast net charge-off rates. However, given our limited operating history, we have limited information on historical charge-off rates, and as a result, we may not be able to conduct an accurate charge-off forecast for our target borrower group. In addition, due to the uncertainty of industry regulations, we expect borrower credit performance may be volatile in the foreseeable future, which may lead to higher default rates and adverse impacts on our reputation, business, results of operations and financial position. See "Item 4. Information on the Company-B. Business Overview-Risk Management."

Selected Statements of Operations Items

Net revenue

Our net revenue consists of revenue from loan facilitation services, post-origination services and guarantee services in connection with loans funded by third-party institutions, financing services in connection with loans funded by our subsidiaries (and consolidated entities in 2022), insurance brokerage services, electronic commerce services, and others. The following table sets forth the breakdown of our net revenue, both in an absolute amount and as a percentage of our total net revenue, for the periods presented:

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Loan facilitation, post-origination and guarantee service fees

We provide loan facilitation services to third-party institutional funding partners and borrowers. The loans funded by these third parties are primarily unsecured small revolving loans and small business loans. For more details of these loan products, please see "Item 4. Information on the Company-B. Business Overview-Financial Services Business-Our Loan Products." For these loans, we receive from the third-party funding partners, guarantee companies, and borrowers if any, (i) the loan facilitation service fees for our technology-enabled borrower acquisition services, (ii) the post-origination service fees for our post-origination loan management and collection services, including payment reminder services, payment collection services, overdue payment monitoring services, and lawsuit filing services under certain circumstances, among others, and (iii) the guarantee service fees for guarantee services provided to borrowers, if any.

All of the loan products facilitated by us feature fixed monthly payments. After our third-party funding partners, and guarantee companies if any, receive the principals, interests and guarantee service fees from the borrowers in monthly installments, they will in tupay us the service fees according to the settlement agreed period.

We recognize revenue when (or as) we satisfy the service performance obligation by transferring a promised service to a customer. Revenues from loan facilitation services are recognized at the time a loan is originated between the investor and the borrower and the loan principal is transferred to the borrower, at which time the loan facilitation service is considered completed. Revenues from post-origination services are recognized on a straight-line basis over the term of the underlying loans as the services are provided. Revenue from guarantee services is recognized on a straight-line basis over the term of the guarantee liability. As these services are provided in respect of loans funded by third parties, we only recognize such service fees as revenue, and do not record the principal and interest amounts of loans provided by such third-party funding partners on our consolidated balance sheet.

The respective rate of loan facilitation service fees and post-origination service fees that we charge varies mainly depending on the different risk grade of the loans facilitated. For loans within the same risk grade, the fee rate also varies depending on the different terms of the loans and different repayment schedules. In 2022, 2023 and 2024, our weighted average service fee rate for our loan facilitation services and post-origination services was 7.0%, 7.5% and 7.9%, respectively. The increase in the weighted average fee rate from 2022 to 2024 was primarily due to a longer average maturity term.

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We have implemented and will continue to implement a tighter risk policy to proactively control our business growth in order to improve the asset quality of new loans facilitated through our marketplace.

Financing service fees

We also offer loans funded by our subsidiaries and charge financing service fees that consist of interest income charged from borrowers. In 2022, subsidiaries of the consolidated variable interest entities, such as microloan companies and financial leasing companies, also provided loans to borrowers using their own capital. The loans funded by these entities were primarily auto-secured loans and property-secured loans. We recognize the financing services revenue over the lifetime of the loans using the effective interest method. The principal and interests of such loans are recorded on our consolidated balance sheet.

Insurance brokerage commissions

We provide insurance brokerage services and sell various health and life insurance products and property and casualty insurance products on behalf of insurance companies. The terms of health and life insurance products vary and are typically five to ten years. We eabrokerage commissions on health and life insurance products from both the first-year initial premium and the renewal premiums for each subsequent year throughout the policy term, as calculated based on pre-agreed percentages of the premiums paid by the policy holder.

The term of property and casualty insurance products is typically one year, and we receive a pre-agreed percentage of the premiums paid by the policy holder for such year as the commission. The range of commission rates of these insurance products varies significantly depending on the different types of insurance products. For example, commissions from certain property and casualty insurance products may be less than 1%, while a five-year term health and life insurance products may yield commissions of over 50% for the first year, 5% for the second year, and 1.5% for the third year.

We have identified our promise to sell insurance policies on behalf of the insurance companies as the performance obligation in our contracts with the insurance companies. Our performance obligation to the insurance companies is satisfied and commission revenue, including renewal commission revenue, is recognized at the point in time when an insurance policy becomes effective. The renewal commission revenue is recognized based on the projected renewal rate.

Electronic commerce services fees.

We generate revenue from sales of products and services provided on our comprehensive life service platform.

Others.

We also charge referral service fees, penalty fees for loan prepayment and late payment, and other service fees, such as technical support services provided to the third party companies. We refer potential borrowers to third-party companies and related parties and charge them a fixed rate on certain criteria (principal amount, investment amount, click amount, etc.). Revenue from referral services is recognized when successful referrals are completed. Penalty fees are calculated as a certain percentage of past due amounts in the case of late payment, or a certain percentage of the contract amounts in case of prepayment, and we recognize the relevant revenue when the fees are received. We provide technical support services to the third party companies by authorizing the use of our proprietary software systems and the technical service revenue is recognized at a fixed rate based on usage volume.

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Operating Costs and Expenses

Our operating costs and expenses consist of sales and marketing expenses, origination, servicing and other operating costs, research and development expenses, general and administrative expenses, provision for contingent liabilities and allowance for contract assets, receivables and others.

The following table sets forth our operating costs and expenses, both in an absolute amount and as a percentage of our total operating costs and expenses, for the periods indicated:

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Sales and marketing expenses. Sales and marketing expenses consist primarily of variable marketing expenses, including those related to borrower and client acquisition and retention and general brand and awareness building.

The following table presents the sales and marketing expenses allocated to each business segment, both in an absolute amount and as a percentage of total sales and marketing expenses, during the periods indicated:

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Origination, servicing and other operating costs. Origination, servicing and other operating costs consist primarily of variable expenses and vendor costs, including costs related to credit assessment, customer and system support, payment processing services and collection associated with facilitating and servicing loans. It also consists of costs in connection with the distribution of insurance products, including payroll and related expenses for insurance agents and transaction fees charged by third-party payment platforms.

Research and development expenses. Research and development expenses consist primarily of salaries and benefits related to technology and technological innovations.

General and administrative expenses. General and administrative expenses consist primarily of salaries and benefits related to accounting and finance, business development, legal, human resources and other personnel.

Provision for contingent liabilities. Provision for contingent liabilities is the expected future net-payout for loans facilitated under our risk-taking model where we reimburse the loan principal and interest to the financial institution partners upon borrower's default.

Allowance for contract assets, receivables and others. Allowance for contract assets, receivables and others is the credit loss of contact assets, which represents our right to consideration in exchange for services that we had transferred to the customer before payment was due.

Taxation

Cayman Islands

We are incorporated in the Cayman Islands. The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution, brought within the jurisdiction of the Cayman Islands. In addition, the Cayman Islands does not impose withholding tax on payments of dividends to shareholders.

Hong Kong

Our subsidiaries incorporated in Hong Kong are subject to 16.5% Hong Kong profit tax on their taxable income generated from operations in Hong Kong for the years of assessment 2015/2016, 2016/2017 and 2017/2018. Commencing from the year of assessment 2018/2019, the first HK$2 million of profits earned by our subsidiaries incorporated in Hong Kong will be taxed at half the current tax rate (i.e., 8.25%) while the remaining profits will continue to be taxed at the existing 16.5% tax rate. Under the Hong Kong tax laws, we are exempted from the Hong Kong income tax on our foreign-derived income. In addition, payments of dividends from our subsidiaries incorporated in Hong Kong to us are not subject to any Hong Kong withholding tax.

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China

Generally, our subsidiaries and the consolidated variable interest entities in China are subject to enterprise income tax on their taxable income in China at a rate of 25%. The enterprise income tax is calculated based on the entity's global income as determined under PRC tax laws and accounting standards. YouRace Hengchuang, one of our PRC subsidiaries, was qualified as a "high and new technology enterprise" in November 2018 and the status was reaffirmed in 2024. Accordingly, it has been eligible for a preferential income tax rate of 15%. However, YouRace Hengchuang's qualification as a "high and new technology enterprise" is subject to evaluation by the relevant authorities in China every three years. If YouRace Hengchuang fails to maintain its "high and new technology enterprise" qualification, its applicable corporate income tax rate would increase to 25%, which could have adverse effects on our financial condition and results of operations. Yiren Hengsheng, one of our PRC subsidiaries, was qualified as a "software enterprise" in March 2021 and the status was reevaluated in 2024, and accordingly has been eligible for an exemption of enterprise income tax for 2020 and 2021 and a reduced enterprise income tax at the rate of 12.5% from 2022 through 2025. However, Yiren Hengsheng's qualification as a "software enterprise" is subject to annual evaluation by the relevant authorities in China. If Yiren Hengsheng fails to maintain its "software enterprise" qualification, its applicable corporate income tax rate would increase to 25%, which could have adverse effects on our financial condition and results of operations. Dingrui Zhijie Technology Development (Guangxi) Co., Ltd., one of our PRC subsidiaries, is a small-scale VAT taxpayer and accordingly is eligible for a reduced enterprise income tax rate of 5%. In addition, Hengyuda, one of our PRC subsidiaries, has been eligible for a reduced enterprise income tax rate of 15% since 2017 pursuant to the Catalogue of Encouraged Industries in WesteRegions, the Catalogue of Industries for Guiding Foreign Investment, Announcement on Renewing the Enterprise Income Tax Policy for Great WesteDevelopment, and the related rules granting favorable tax treatment to companies in specified industries in westeChina under the PRC government's policy initiative to promote the development of the westeregion of China. However, the favorable tax treatments for Hengyuda are subject to an annual filing requirement. Besides, Chongqing Hengfengyi Technology Co., Ltd., Beihai Youce Yike Technology Co., Ltd., Beihai Hengze Innovation Technology Co., Ltd., and Beihai Youjia Innovation Technology Co., Ltd., as newly setup PRC subsidiaries are also eligible for a reduced enterprise income tax rate of 15% pursuant to the same set of policies and regulations applicable to Hengyuda. Beihai Youce Yike Technology Co., Ltd., Beihai Hengze Innovation Technology Co., Ltd., and Beihai Youjia Innovation Technology Co., Ltd. are also eligible for an exemption of local portion of enterprise income tax for five years since the tax year they generate their first sum of main business revenue according to the Notice on Several Policies to Promote High-Level Opening-Up and High-Quality Development of the Beibu Gulf Economic Zone in the New Era. In addition, Xinjiang Hengyu Innovation Technology Development Co., Ltd., Hesi Shengju Technology Development (Xinjiang) Co., Ltd., and Hesi Shengrui Technology Development (Xinjiang) Co., Ltd., as newly setup PRC subsidiaries are eligible for an exemption of enterprise tax for five years since the tax year they generate their first sum of production and business revenue according to the Notice on Corporate Income Tax Incentives for Newly Established Enterprises in Xinjiang's Difficult Areas and the Kashgar and Khorgos Special Economic Development Zones. However, the relevant rules and policy initiative may change, and the favorable tax treatment under these rules is available only to companies meeting certain qualifications.

We are subject to VAT at a rate of 6% on the services we provide to borrowers and clients, less any deductible VAT we have already paid or borne. We are also subject to surcharges on VAT payments in accordance with PRC law.

Dividends paid by our wholly foreign-owned subsidiaries in China to our intermediary holding company in Hong Kong will be subject to a withholding tax rate of 10%, unless the relevant Hong Kong entity satisfies all the requirements under the Arrangement between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital and receives approval from the relevant tax authority. If our Hong Kong subsidiary satisfies all the requirements under the tax arrangement, then the dividends paid to the Hong Kong subsidiary would be subject to withholding tax at the standard rate of 5% by filing necessary forms and supporting documents when performing tax filings, which will be subject to post-tax filing examinations by the relevant tax authorities. See "Item 3. Key Information-D. Risk Factors-Risks Related to Doing Business in China-We rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business."

If our holding company in the Cayman Islands or any of our subsidiaries outside of China were deemed to be a "resident enterprise" under the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See "Item 3. Key Information-D. Risk Factors-Risks Related to Doing Business in China-If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders."

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Results of Operations

The following table sets forth a summary of our consolidated results of operations for the periods indicated, both in an absolute amount and as a percentage of our net revenue. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report:

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Notes:

Segment Information

In 2023, we adjusted the categorization of our business segments to more accurately reflect the nature of each segment's operations. Following this adjustment, our business is organized into three segments: the financial services business, the insurance brokerage business, and the consumption and lifestyle business and others.

We believe this reclassification allows for a clearer understanding and representation of our diverse operations and strategic focus. For details on each business segment, see "Item 4. Information on the Company-B. Business Overview."

The table below provides a summary of our operating segment results for the years ended December 31, 2022, 2023 and 2024:

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Set forth below is a breakdown of net revenue for each segment, both in an absolute amount and as a percentage of total net revenue:

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Financial Services Business (formerly known as consumer credit segment)

The revenue from our financial services business increased by 38.1% from RMB2,515.1 million in 2023 to RMB3,473.1 million (US$475.8 million) in 2024, primarily due to the growing demand for our small revolving loan products. In particular, the revenue from our loan facilitation services increased by 21.4% from RMB2,240.9 million in 2023 to RMB2,721.4 million (US$372.8 million) in 2024, primarily due to the growing loan volume. The revenue from our guarantee services increased by 744.0% from RMB50.9 million in 2023 to RMB429.3 million (US$58.8 million), primarily due to the increasing loan volume guaranteed by our subsidiaries. The revenue from others increased by 48.6% from RMB150.2 million to RMB223.2 million (US$30.6 million), primarily due to an increase in referral services. The revenue from our financing services increased by 66.6% from RMB56.0 million to RMB93.2 million (US$12.8 million), primarily due to an increase in self-funded loans. The increases were partially offset by a decrease in the revenue from our post-origination services of 65.4% from RMB17.2 million in 2023 to RMB6.0 million (US$0.8 million) in 2024, primarily due to the reduced demand from institutional funding partners for such services.

The revenue from our financial services business increased by 28.3% from RMB1,959.7 million in 2022 to RMB2,515.1 million in 2023, primarily due to the growing demand for our small revolving loan products. In particular, the revenue from our loan facilitation services increased by 64.4% from RMB1,362.7 million in 2022 to RMB2,240.9 million in 2023, mainly due to the growing loan volume. The revenue from guarantee services increased by 362.4% from RMB11.0 million in 2022 to RMB50.9 million in 2023, primarily as we gradually expand guarantee business. The revenue from others increased by 46.0% from RMB102.9 million in 2022 to RMB150.2 million in 2023, mainly as a result of the increase in referral services. The increases were partially offset by a decrease in revenue from post-origination services of 91.6% from RMB204.3 million in 2022 to RMB17.2 million in 2023, primarily due to the reduced demand from institutional funding partners for such services in 2023, as well as a decrease in the revenue from financing services of 79.9% from RMB278.8 million in 2022 to RMB56.0 million in 2023, primarily as the secured loan facilitation was discontinued in 2022.

The following table provides a breakdown of others in financial services business:

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Others in financial services business mainly include referral services related to borrower referral for other loan platforms, penalty fees and technical support service.

The revenue generated from other financial services business increased by 48.6% from RMB150.2 million in 2023 to RMB223.2 million (US$30.6 million) in 2024. The increase was primarily attributable to an increase in the revenue from referral services of 70.7% from RMB120.2 million in 2023 to RMB205.2 million (US$28.1 million) in 2024, which was primarily due to the growing number of borrowers referred. Conversely, the revenue from penalty fees decreased by 74.8% from RMB11.2 million in 2023 to RMB2.8 million (RMB0.4 million) in 2024, as a result of the discontinued secured loan facilitation in 2022. The revenue from technical support services decreased by 18.9% from RMB18.7 million in 2023 to RMB15.1 million (US$2.1 million) in 2024, as a result of a decrease in intellectual property franchising.

The revenue generated from other financial services business increased by 46.0% from RMB102.9 million in 2022 to RMB150.2 million in 2023. The increase was primarily attributable to an increase in the revenue from referral services of 85.3% from RMB64.9 million in 2022 to RMB120.2 million in 2023, which was primarily due to the growing number of borrowers referred. The revenue from technical support services increased by 53.2% from RMB12.2 million in 2022 to RMB18.7 million in 2023, driven by the growth in intellectual property franchising. Conversely, the revenue from penalty fees decreased by 56.4% from RMB25.7 million in 2022 to RMB11.2 million in 2023, as a result of the discontinued secured loan facilitation in 2022.

Insurance Brokerage Business (part of historical holistic wealth segment)

The revenue from our insurance brokerage business decreased by 57.6% from RMB963.8 million in 2023 to RMB408.4 million (US$55.9 million) in 2024, primarily due to the ongoing impacts from regulatory changes. The revenue from our insurance brokerage business increased by 31.7% from RMB731.8 million in 2022 to RMB963.8 million in 2023, primarily due to our improved customer acquisition and serving capabilities.

Consumption and Lifestyle Business and Others (consolidation of historical others segment and part of holistic wealth segment)

The revenue from our consumption and lifestyle business and others increased by 35.8% from RMB1,416.7 million in 2023 to RMB1,924.4 million (US$263.6 million) in 2024, primarily due to the continuous growth of this segment in the first half of the year, followed by a strategic scale-back in the second half.

The revenue from our consumption and lifestyle business and others increased by 90.6% from RMB743.1 million in 2022 to RMB1,416.7 million in 2023. The revenue from electronic commerce services increased by 318.3% from RMB302.9 million in 2022 to RMB1,267.1 million in 2023, primarily due to the continuous growth of paying customers on our e-commerce platform. The increase was offset by a decrease in revenue from others of 66.0% from RMB440.2 million in 2022 to RMB149.6 million in 2023, primarily due to the strategic shift towards focusing on offering consumption and lifestyle products and services, which resulted in an increased revenue contribution from the e-commerce business and decreased revenue contribution from the Yiren Select wealth business since the second half of 2023.

Our revenue was predominately generated from the PRC and all of our long-lived assets were located in the PRC. Depreciation and amortization expenses of financial services business in 2022, 2023 and 2024 were RMB19.0 million, RMB1.0 million and RMB1.9 million (US$0.3 million), respectively. Depreciation and amortization expenses of insurance brokerage business in 2022, 2023 and 2024 were RMB0.1 million, RMB0.1 million and RMB0.4 million (US$49.2 thousand), respectively. Depreciation and amortization expenses of consumption and lifestyle business and other segment in 2022, 2023 and 2024 were RMB1.8 million, RMB1.5 million and RMB1.0 million (US$0.1million), respectively.

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

Net revenue. Our net revenue increased by 18.6% from RMB4,895.6 million in 2023 to RMB5,805.9 million (US$795.4 million) in 2024, primarily due to (i) an increase of 21.4% in the revenue from our loan facilitation services from RMB2,240.9 million in 2023 to RMB2,721.4 million (US$372.8 million) in 2024, mainly due to the growing demand for our small revolving loan products, and (ii) an increase of 744.0% in the revenue from our guarantee services from RMB50.9 million in 2023 to RMB429.3 million (US$58.8 million), primarily due to the increasing loan volume guaranteed by our subsidiaries. The revenue from our insurance brokerage business decreased by 57.6% from RMB963.8 million in 2023 to RMB408.4 million (US$55.9 million) in 2024, mainly due to the ongoing impacts from regulatory changes. The revenue from our consumption and lifestyle business and others increased by 35.8% from RMB1,416.7 million in 2023 to RMB1,924.4 million (US$263.6 million) in 2024, mainly due to the continuous growth of this segment in the first half of the year, followed by a strategic scale-back in the second half.

Operating costs and expenses. Our total operating costs and expenses increased by 80.8% from RMB2,300.9 million in 2023 to RMB4,158.8 million (US$569.8 million) in 2024, primarily attributable to increases in sales and marketing expenses and provision for contingent liabilities.

Sales and marketing expenses. Our sales and marketing expenses increased by 82.2% from RMB656.6 million in 2023 to RMB1,196.4 million (US$164.0 million) in 2024, mainly due to an increase of 121.4% in sales and marketing expenses for the financial services business from RMB498.1 million in 2023 to RMB1,102.7 million (US$151.1 million) in 2024, mainly attributable to our efforts to attract new, higher-quality borrowers and the growth of our financial services business volume. The increase was partially offset by a decrease of 45.1% in sales and marketing expenses for our consumption and lifestyle business and others from RMB145.7 million in 2023 to RMB80.0 million (US$11.0 million) in 2024, mainly due to our strategic scaling back of holistic wealth business. Our sales and marketing expenses as a percentage of our total revenues increased from 13.4% to 20.6% during the same period.

Origination, servicing and other operating costs. Our origination, servicing and other operating costs decreased 9.5% from RMB976.2 million in 2023 to RMB883.0 million (US$121.0 million) in 2024, mainly due to the AI-driven improvement of operational efficiency as well as the decline of our insurance product sales. Our origination, servicing and other operating costs as a percentage of our total revenue decreased from 19.9% to 15.2% during the same period.

Research and development expenses. Our research and development expenses increased from RMB148.8 million in 2023 to RMB411.9 million (US$56.4 million) in 2024, mainly due to our ongoing investment in AI development and the expansion of our technical team. Our research and development expenses as a percentage of our total revenue increased from 3.0% to 7.1% during the same period.

General and administrative expenses. Our general and administrative expenses in 2024 were RMB274.7 million, which remained relatively stable compared to RMB231.1 million in 2023. Our general and administrative expenses as a percentage of our total revenue remained stable at 4.7% in 2023 and 2024.

Provision for contingent liabilities. Our provision for contingent liabilities increased significantly from RMB27.0 million in 2023 to RMB869.3 million (US$119.1 million) in 2024, which was mainly attributed to the growing loan volume facilitated under our risk-taking model with the upfront provision recognized at the loan's inception.

Allowance for contract assets, receivables and others. Our allowance for contract assets, receivables and others increased by 100.5% from RMB261.2 million in 2023 to RMB523.6 million (US$71.7 million) in 2024, which was primarily attributed to a higher allowance for accounts receivable and financing receivables, reflecting our prudent approach to the heightened uncertainties in future market conditions.

Interest income/(expense), net. Our net interest income increased from RMB80.7 million in 2023 to RMB105.5 million (US$14.5 million) in 2024, primarily due to improved diversification of our investments.

Fair value adjustments gain/(loss). We recorded a fair value gain of RMB107.5 million (US$14.7 million), as compared to a fair value loss of RMB50.2 million in 2023, as gains generated from loans issued by trusts increased in 2024, driven by a growing average outstanding loan balance of trusts.

Other income, net. Our net other income decreased by 90.8% from RMB20.0 million in 2023 to RMB1.8 million (US$0.3 million) in 2024, primarily due to reduced preferential tax treatments.

Income tax expenses. Our income tax expenses decreased by 50.6% from RMB565.2 million in 2023 to RMB279.2 million (US$38.2 million) in 2024, primarily due to a decrease in taxable income combined with preferential income tax rate enjoyed by our subsidiaries.

Net income. As a result of the foregoing, our net income decreased from RMB2,080.2 million to RMB1,582.3 million (US$216.8 million) in 2024.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Net revenue. Our net revenue increased from RMB3,434.6 million in 2022 to RMB4,895.6 million in 2023, primarily due to an increase of 28.3% in the revenue from our financial services business from RMB1,959.7 million in 2022 to RMB2,515.1 million in 2023. The increase was driven by the growing demand for our small revolving loan products. The revenue from our insurance brokerage business increased by 31.7% from RMB731.8 million in 2022 to RMB963.8 million in 2023, mainly due to our improved customer acquisition and serving capabilities for our insurance brokerage business. The revenue from our consumption and lifestyle business and others increased by 90.6% from RMB743.1 million in 2022 to RMB1,416.7 million in 2023, mainly due to the continuous growth of paying customers on our comprehensive life service platform.

Operating costs and expenses. Our total operating costs and expenses increased by 17.2% from RMB1,962.8 million in 2022 to RMB2,300.9 million in 2023, primarily attributable to increases in origination, servicing and other operating costs and sales and marketing expenses.

Sales and marketing expenses. Our sales and marketing expenses increased by 14.4% from RMB574.0 million in 2022 to RMB656.6 million in 2023, mainly due to an increase of 29.7% in sales and marketing expenses for the financial services business from RMB384.0 million in 2022 to RMB498.1 million in 2023, mainly as a result of the growth of our financial services business volume. The increase was partially offset by a decrease of 26.0% in our sales and marketing expenses for the insurance brokerage business from RMB17.4 million in 2022 to RMB12.9 million in 2023, and further offset by a decrease of 15.6% in our sales and marketing expenses in the consumption and lifestyle business and others from RMB172.6 million in 2022 to RMB145.7 million in 2023, mainly due to the decrease in general branding costs. Our sales and marketing expenses as a percentage of our total revenues decreased from 16.7% to 13.4% during the same period.

Origination, servicing and other operating costs. Our origination, servicing and other operating costs increased 25.7% from RMB776.8 million in 2022 to RMB976.2 million in 2023, mainly due to the rapid growth of our overall business scale compared to the year of 2022. Our origination, servicing and other operating costs as a percentage of our total revenue decreased from 22.6% to 19.9% during the same period.

Research and development expenses. Our research and development expenses decreased slightly from RMB151.9 million in 2022 to RMB148.8 million in 2023, mainly due to the optimization of personnel. Our research and development expenses as a percentage of our total revenue decreased from 4.4% to 3.0% during the same period.

General and administrative expenses. Our general and administrative expenses decreased by 15% from RMB271.8 million in 2022 to RMB231.1 million in 2023, due to the optimization of our offline business and the overall improvement of our cost efficiency. Our general and administrative expenses as a percentage of our total revenue decreased from 7.9% to 4.7% during the same period.

Provision for contingent liabilities. Our provision for contingent liabilities increased by 25.7% from RMB21.5 million in 2022 to RMB27.0 million in 2023, which was mainly attributed to the growing loan volume facilitated under our risk-taking model.

Allowance for contract assets, receivables and others. Our allowance for contract assets, receivables and others increased by 56.6% from RMB166.7 million in 2022 to RMB261.2 million in 2023, which was primarily attributed to the growing volume of loans facilitated on our platform.

Interest income/(expense), net. We recorded a net interest income of RMB80.7 million in 2023, as compared to a net interest expense of RMB26.3 million in 2022, primarily due to the repayment of secured borrowings and improved diversification of our investments.

Fair value adjustments gain/(loss). Our fair value adjustments decreased from a fair value gain of RMB18.9 million in 2022 to a fair value loss of RMB50.2 million in 2023, primarily due to the expected losses on loans issued by new trusts.

Other income, net. Our net other income decreased by 35.3% from RMB30.9 million in 2022 to RMB20.0 million in 2023, primarily due to reduced preferential tax treatments and governmental incentives.

Income tax expenses. We recorded income tax expenses of RMB565.2 million in 2023 as compared to income tax expenses of RMB300.5 million in 2022, which was mainly due to the increase in taxable income driven by the growing of our business volume.

Net income. As a result of the foregoing, our net income increased from RMB1,194.9 million in 2022 to RMB2,080.2 million.

Discussion of Certain Balance Sheet Items

The following selected consolidated balance sheet as of December 31, 2023 and 2024 has been derived from our audited consolidated financial statements included in this annual report beginning on page F-1. The following selected consolidated balance sheet as of December 31, 2022 has been derived from our audited consolidated financial statements not included in this annual report:

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Cash and Cash Equivalents

Our cash and cash equivalents decreased by 33.7% from RMB5,791.3 million as of December 31, 2023 to RMB3,841.3 million (US$526.3 million) as of December 31, 2024, primarily due to increases in equity investments and deposits for business cooperation.

Our cash and cash equivalents increased by 35.6% from RMB4,271.9 million as of December 31, 2022 to RMB5,791.3 million as of December 31, 2023, primarily due to the strong growth of our consumer loan business post the restructuring and overall improvement of our cost efficiency.

Restricted Cash

Our restricted cash represents cash held by the Consolidated ABFE through segregated bank accounts which is not available to fund our general liquidity needs, guarantee deposits in a restricted bank account, and frozen funds due to lawsuits.

The following table sets forth a breakdown of our restricted cash as of December 31, 2022, 2023 and 2024:

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Our restricted cash decreased by 2.6% from RMB267.3 million as of December 31, 2023 to RMB260.3 million (US$35.7 million) as of December 31, 2024, primarily due to the deployment of restricted cash as loans in the consolidated ABFE, partially offset by an increase in guarantee deposit.

Our restricted cash increased by 201.0% from RMB88.8 million as of December 31, 2022 to RMB267.3 million as of December 31, 2023, primarily due to new investments in trusts in 2023.

Contract Assets, Net

Our contract assets represent our rights to payments for services rendered to customers before the payments become due.

Our contract assets increased by 3.2% from RMB978.1 million, net of allowance of RMB164.1 million as of December 31, 2023 to RMB1,008.9 million (US$138.2 million), net of allowance of RMB117.7 million (US$16.1 million), as of December 31, 2024, primarily due to an increase in loans facilitated under our loan facilitation services.

Our contract assets increased by 56.1% from RMB626.7 million, net of allowance of RMB153.4 million as of December 31, 2022 to RMB978.1 million, net of allowance of RMB164.1 million as of December 31, 2023, primarily due to the growing demand for our small revolving loan products.

Prepaid Expenses and Other Assets

Our prepaid expenses and other assets primarily include funds receivable from external payment networks, funds receivable for disposal of financing receivables and deposits. The following table sets forth a breakdown of our prepaid expenses and other assets as of December 31, 2022, 2023 and 2024:

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Our prepaid expenses and other assets increased by 457.5% from RMB423.6 million as of December 31, 2023 to RMB2,361.6 million (US$323.5 million) as of December 31, 2024, primarily due to an increase in prepayment of investment and deposits for business cooperation.

Our prepaid expenses and other assets increased by 33.1% from RMB318.4 million as of December 31, 2022 to RMB423.6 million as of December 31, 2023, primarily due to an increase in deposits for business cooperation.

Loans at Fair Value

Loans at fair value represented the fair value of loans invested by the Consolidated ABFE.

Loans at fair value decreased by 37.8% from RMB677.8 million as of December 31, 2023 to RMB421.9 million (US$57.8 million) as of December 31, 2024, primarily due to a decrease in the balance of loans invested by the Consolidated ABFE.

Loans at fair value increased by 1,154.1% from RMB54.0 million as of December 31, 2022 to RMB677.8 million as of December 31, 2023, primarily due to an increase in the balance of loans invested by the Consolidated ABFE.

Financing Receivables

Financing receivables mainly represent loans issued by our overseas subsidiary and Yichuang Micro-lending and lease receivables arising from direct financing leases issued by Yichuang Financial Leasing.

Financing receivables decreased by 84.9% from RMB116.2 million, net of allowance of RMB51.9 million as of December 31, 2023 to RMB17.5 million (US$2.4 million), net of allowance of RMB119.2 million (US$16.3 million), as of December 31, 2024, primarily due to an increase in self-funded loans.

Financing receivables decreased by 77.4% from RMB514.4 million, net of allowance of RMB40.7 million as of December 31, 2022 to RMB116.2 million, net of allowance of RMB51.9 million as of December 31, 2023, primarily because the secured loan facilitation was discontinued in 2022.

Other Financial Investments (formerly known as available-for-sale investments)

Other financial investments primarily include debt securities, bank wealth management products and private funds.

Other financial investments decreased by 19.4% from RMB438.1 million as of December 31, 2023 to RMB353.2 million (US$48.4 million) as of December 31, 2024, primarily due to the improved diversification of our investments.

Other financial investments decreased by 55.0% from RMB972.7 million as of December 31, 2022 to RMB438.1 million as of December 31, 2023, primarily due to improved diversification of our investments.

Guarantee liabilities-stand ready

Guarantee liabilities-stand ready represents the transaction fees allocated to guarantee services which will be released to "revenue from guarantee services" over the guarantee term.

Guarantee liabilities-stand ready increased by 6794.9% from RMB8.8 million as of December 31, 2023 to RMB606.9 million (US$83.1 million) as of December 31, 2024, primarily due to the growing loan volume facilitated under our risk-taking model.

Guarantee liabilities-stand ready decreased by 7.2% from RMB9.5 million as of December 31, 2022 to RMB8.8 million as of December 31, 2023, primarily due to the increase in amortization of guarantee revenue.

Guarantee liabilities-contingent

Guarantee liabilities-contingent represents the expected future net-payout for loans facilitated under our risk-taking model upon borrower's default.

Guarantee liabilities-contingent increased by 1941.5% from RMB28.4 million as of December 31, 2023 to RMB578.8 million (US$79.3 million) as of December 31, 2024, primarily due to the growing loan volume facilitated under our risk-taking model.

Guarantee liabilities-contingent decreased by 32.9% from RMB42.3 million as of December 31, 2022 to RMB28.4 million as of December 31, 2023, primarily due to the increase in net-payout of past-due loans under our risk-taking model.

Payable to Investors at Fair Value

Payable to investors at fair value represents the amount payable by the Consolidated ABFE to its investors.

Payable to investors at fair value decreased by 17.4% from RMB445.8 million as of December 31, 2023 to RMB368.0 million (US$50.4 million) as of December 31, 2024, primarily due to an increase in principals paid to investors of the Consolidated ABFE.

Payable to investors at fair value increased from nil as of December 31, 2022 to RMB445.8 million as of December 31, 2023, primarily due to an increase in the external contribution to the Consolidated ABFE.

Accrued Expenses and Other Liabilities

Our accrued expenses and other liabilities include primarily accrued payroll and welfare, tax payable, payable to investors and accrued advertisement expenses.

The following table sets forth a breakdown of our accrued expenses and other liabilities as of December 31, 2022, 2023 and 2024:

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Accrued expenses and other liabilities increased by 10.8% from RMB1,463.4 million as of December 31, 2023 to RMB1,622.1 million (US$222.2 million) as of December 31, 2024, primarily due to an increase in tax payable as a result of the growing difference between accrued taxes with paid taxes.

Accrued expenses and other liabilities increased from RMB1,263.2 million as of December 31, 2022 to RMB1,463.4 million as of December 31, 2023, primarily due to the increase in tax payable as a result of profit growth in 2022.

Off-Balance Sheet Arrangements

We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder's equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.

Recent Accounting Pronouncements

The recent accounting pronouncements that are relevant to us are included in note 2 to our audited consolidated financial statements, which are included in this Annual Report.

Inflation

Since our inception, inflation in China has not materially affected our results of operations. According to the National Bureau of Statistics of China, the year-over-year percent changes in the consumer price index were an increase of 1.8% for December 2022, a decrease of 0.3% for December 2023, and an increase of 0.1% for December 2024. Although we have not been materially affected by inflation in the past, we may be affected if China experiences higher rates of inflation in the future.

Cash Flows and Working Capital

Our principal sources of liquidity have been cash generated from operating activities, proceeds from the issuance and sale of our shares, and proceeds from loans borrowed from third parties. In December 2015, we completed our initial public offering in which we issued and sold an aggregate of 7,500,000 ADSs, representing 15,000,000 ordinary shares, resulting in net proceeds to us of approximately US$64.9 million. Concurrently with our initial public offering, we sold 2,000,000 ordinary shares to Baidu Hong Kong in a private placement, resulting in net proceeds to us of approximately US$9.0 million.

As of December 31, 2024, we had cash and cash equivalents of RMB3,841.3 million (US$526.3 million) as compared to cash and cash equivalents of approximately RMB5,791.3 million as of December 31, 2023. As of December 31, 2024, we had restricted cash of RMB260.3 million (US$35.7 million) as compared to restricted cash of approximately RMB267.3 million as of December 31, 2023. The decrease in restricted cash was mainly due to decreased investments in trusts, partially offset by an increase in deposits for business cooperation. As of December 31, 2024, the restricted cash represents cash held by the Consolidated ABFE through segregated bank accounts which is not available to fund our general liquidity needs, guarantee deposits in a restricted bank account, and frozen funds due to lawsuits. Our material unused sources of liquidity include cash balances, unencumbered assets and our ability to sell encumbered assets to raise cash.

Unlike financial institutions, we are not subject to any capital adequacy requirement that is applicable to financial institutions in China. We believe that our cash on hand and anticipated cash flows from operating activities will be sufficient to meet our anticipated working capital requirements and capital expenditures in the ordinary course of business for the next 12 months. We may, however, need additional cash resources in the future if we experience changes in business conditions or other developments, or if we find and wish to pursue opportunities for investment, acquisition, capital expenditure or similar actions. If we determine that our cash requirements exceed the amount of cash and cash equivalents we have on hand at the time, we may seek to issue equity or debt securities or obtain credit facilities. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. See "Item 3. Key Information-D. Risk Factors-Risks Related to Our Business-We may need additional capital, and financing may not be available on terms acceptable to us, or at all."

Our ability to manage our working capital, including accounts receivable, prepaid expenses and other assets and accrued expenses and other liabilities, may materially affect our financial position and results of operations. See "Item 3. Key Information-D. Risk Factors-Risks Related to Our Business-Failure to manage our liquidity and cash flows may materially and adversely affect our financial position and results of operations."

Our accounts receivable primarily include the commission receivable from insurance brokerage services and service fees receivable from industry partners. As of December 31, 2022, 2023 and 2024, we had accounts receivable of RMB221.0 million, RMB499.0 million and RMB566.5 million (US$77.6 million), respectively. Our accounts receivable increased from 2022 to 2024 was primarily due to the increase in service fees receivable from industry partners driven by the growth in our financial services business volume. As of December 31, 2024, we had RMB474.5 million (US$65.0 million) in service fees receivable from industry partners and RMB47.1 million (US$6.5 million) in commission receivable from insurance brokerage services.

Our prepaid expenses and other assets primarily include funds receivable from external payment networks, funds receivable for disposal of financing receivables and deposits, and our accrued expenses and other liabilities include primarily accrued payroll and welfare, tax payable, payable to investors and accrued advertisement expenses.

Although we consolidated the results of operations of Yiren Financial Information and CreditEase Puhui, the consolidated variable interest entities, we only have access to the cash balances and the future earnings of Yiren Financial Information and CreditEase Puhui through our contractual arrangements with them. See "Item 4. Information on the Company-A. History and Development of Our Company." In addition, although we consolidate the cash flow of the Consolidated ABFE into our cash flow, the cash balance of the Consolidated ABFE is not available to fund our general liquidity needs. For more information about the Consolidated ABFE, please see "Note 2-Summary of Significant Accounting Policies-Basis of Consolidation" appearing in Item 18 of this annual report. For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see "-Holding Company Structure" below.

In utilizing the cash that we hold offshore, we may (i) make additional capital contributions to our PRC subsidiaries, (ii) establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, (iii) make loans to our PRC subsidiaries, or (iv) acquire offshore entities with business operations in China in offshore transactions. However, most of these uses are subject to PRC regulations and approvals. For example:

See "Item 3. Key Information-D. Risk Factors-Risks Related to Doing Business in China-PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of any offering outside China to make loans to or make additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business."

Substantially all of our future revenues are likely to continue to be in the form of RMB. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, our PRC subsidiaries are allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine procedural requirements. However, current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated after-tax profits, if any, determined in accordance with Chinese accounting standards and regulations. Our PRC subsidiaries, when distributing its after-tax profits to shareholders, are required to set aside at least 10% of its after-tax profits after making up previous years' accumulated losses each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered capital. Such reserve is not distributable as cash dividends. Furthermore, capital account transactions, which include foreign direct investment and loans, must be approved by and/or registered with SAFE and its local branches. See "Item 3. Key Information-D. Risk Factors-Risks Relating to Doing Business in China-Governmental control of currency conversion may limit our ability to utilize our net revenue effectively and affect the value of your investment."

The following table sets forth a summary of our cash flows for the periods indicated:

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Operating Activities

Net cash provided by operating activities was RMB1,424.1 million (US$195.1 million) in 2024. The difference between our net income and our net cash provided by operating activities was primarily attributable to certain non-cash items, including provision for contingent liabilities of RMB869.3 million (US$119.1 million), allowance for contract assets, receivables and others of RMB523.6 million (US$71.7 million), partially offset by fair value adjustments loss of RMB107.5 million, and certain working capital items, including an increase in guarantee liabilities of RMB279.3 million (US$38.3 million) and an increase in accrued expenses and other liabilities of RMB159.9 million (US$21.9 million), partially offset by an increase in accounts receivable of RMB175.7 million (US$24.1 million), an increase in contract assets of RMB265.0 million (US$36.3 million), an increase in guarantee receivable of RMB537.0 million (US$73.6 million), and an increase in prepaid expenses and other assets of RMB991.8 million (US$135.9 million).

Net cash provided by operating activities was RMB2,171.0 million in 2023. The difference between our net income and our net cash provided by operating activities was primarily attributable to certain non-cash items, including allowance for contract assets, receivables and others of RMB261.2 million, and certain working capital items, including a decrease in amounts due from related parties of RMB431.6 million and an increase in accrued expenses and other liabilities of RMB200.0 million, partially offset by an increase in accounts receivable of RMB306.5 million, an increase in contract assets of RMB547.7 million and an increase in prepaid expenses and other assets of RMB168.7 million.

Net cash provided by operating activities was RMB1,849.4 million in 2022. The difference between our net income and our net cash provided by operating activities was primarily attributable to certain non-cash items, including allowance for contract assets, receivables and others of RMB166.7 million, and certain working capital items, including a decrease in contract assets of RMB369.1 million and an increase in accrued expenses and other liabilities of RMB123.2 million, partially offset by an increase in deferred tax assets or liabilities of RMB109.6 million.

Investing Activities

Net cash used in investing activities was RMB3,113.1 million (US$426.5 million) in 2024, which was primarily attributable to prepayment of investment of RMB2,399.2 million (US$328.7 million) and loan to related parties of RMB1,100.0 million (US$150.7 million).

Net cash provided by investing activities was RMB100.0 million in 2023, which was primarily attributable to collection of principals of loans at fair value of RMB772.4 million and repayments of financing receivables of RMB359.0 million, partially offset by investment in loans at fair value of RMB1,494.1 million.

Net cash provided by investing activities was RMB52.6 million in 2022, which was primarily attributable to repayments of financing receivables, partially offset by net outflow for other financial investments.

Financing Activities

Net cash provided by financing activities was RMB277.2 million (US$38.0 million) in 2024, which was mainly attributable to dividends paid to shareholders of RMB122.3 million (US$16.8 million).

Net cash used in financing activities was RMB569.3 million in 2023, which was mainly attributable to principal payments of loans from third parties of RMB767.9 million.

Net cash used in financing activities was RMB489.1 million in 2022, which was mainly attributable to principal payments of loans from related parties and third parties of RMB399.7 million.

Capital Expenditures

We made capital expenditures of RMB0.9 million, RMB4.4 million and RMB9.2 million (US$1.3 million) in 2022, 2023 and 2024, respectively. In these periods, our capital expenditures were mainly used for purchases of property, equipment and software. We will continue to make capital expenditures to meet the requirements of our business operations.

Holding Company Structure

Yiren Digital Ltd. is a holding company with no material operations of its own. We conduct our operations primarily through our subsidiaries and the consolidated variable interest entities in China. If our existing PRC subsidiaries or any newly formed ones incur debts on their own behalf in the future, the instruments governing their debts may restrict their ability to pay dividends to us. In addition, each of our wholly foreign-owned subsidiaries in China is permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital and may allocate a portion of its after-tax profits based on PRC accounting standards to a discretionary surplus fund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by SAFE. In 2024, YouRace Hengchuang distributed cash dividends of RMB200.0 million to YouRace HK, and no subsidiaries paid any dividends or made other distributions to our holding company.

Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2024:

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Our operating lease obligations relate to our leases of office premises. We lease our principal office premises under an operating lease with an expiration date in April 2028. Rental expenses under operating leases for 2022, 2023 and 2024 were RMB27.9 million, RMB19.4 million and RMB19.3 million (US$2.6 million), respectively.

Payables to investors related to the Consolidated ABFE have been excluded from the table above. We will make such payments to the investors related to the Consolidated ABFE if and when we receive the related loan payments from borrowers. We do not have any contractual obligations to make such payments out of our own liquidity resources.

Other than those shown above, we did not have any significant capital and other commitments, long-term obligations, or guarantees as of December 31, 2024.

We had a dedicated product development team consisting of 26 full-time employees as of December 31, 2024. This team is responsible for developing and implementing new consumer finance products to introduce on to our marketplace.

Our company and the VIEs constantly evaluate the popularity of our existing product offerings and develop new products and services that can cater to the ever-evolving needs of our clients.

From a financial services perspective, as we continue to optimize our product offerings, we are developing a more diversified range of credit products tailored to meet the specific needs of our target borrowers and institutional funding partners, all at competitive prices in line with updated regulatory guidelines. As our marketplace grows, we have enhanced our ability to offer risk-based loan pricing. For instance, we have introduced lower-priced loan products and regularly adjust our pricing strategy as we shift towards serving a higher-quality customer segment in response to regulatory directives. Moving forward, we will continue to diversify our product offerings and strengthen synergies across our various business lines.

In the insurance brokerage business, we remain committed to driving innovation and customization in our product offerings as we expand our client base and strengthen partnerships with external stakeholders. We closely monitor both domestic and international markets, continually introducing new insurance products that target low-penetration segments with high growth potential. For example, since the second half of 2022, we have been offering overseas engineering liability insurance services to address the growing security needs of engineering projects in Belt and Road countries. Additionally, since 2022, we have introduced "New Citizen" insurance services, designed to meet the protection needs of flexible workforce members and part-time workers who are not covered by traditional social security systems. In 2024, we expanded our reach by launching online channels, including social media platforms, to offer more flexible insurance products, such as healthcare and retirement plans.

In the consumption and lifestyle business, we continue to enhance our product and service offerings to better meet the diverse needs of our customers across various life scenarios. As we refine our customer segmentation and optimize our customer mix, we are strategically scaling back the offering of historical and existing products. This shift allows us to focus on studying and analyzing the profiles and needs of our newly upgraded customer group, enabling us to develop tailored products that more effectively address their requirements.

Other than as disclosed elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2024 that are reasonably likely to have a material and adverse effect on our net revenue, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial condition.

An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time such estimate is made, and if different accounting estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements.

We prepare our financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experiences and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. Some of our accounting policies require a higher degree of judgment than others in their application and require us to make significant accounting estimates.

While our significant accounting policies are described in more detail in "Note 2-Summary of Significant Accounting Policies" to our consolidated financial statements appearing in Item 18 of this annual report, we believe the following critical accounting estimates used in the preparation of our consolidated financial statements require the most difficult, subjective and complex judgments and estimates and have had, or are reasonably likely to have a material impact on our financial condition or results of operations.

Revenue from loan facilitation, post-origination and guarantee services

We provide loan facilitation services, post-origination services and guarantee services under loan facilitation model. Revenues from loan facilitation are recognized at the time a loan is originated. Revenues from post-origination services are recognized on a straight-line basis over the term of the underlying loans as the services are provided. Revenues from guarantee services, if any, are recognized amortized during the guarantee term.

Significant management judgment is applied to the determination and allocation of the transaction price, including: (i) estimation of variable consideration, and (ii) determination of standalone selling price of each performance obligation.

We first allocate the transaction price to the guarantee liabilities, if any, in accordance with ASC 460, Guarantees, which requires the guarantee to be measured initially at fair value based on the stand ready obligation. The remaining considerations are then allocated to the loan facilitation services and post-origination services using their relative standalone selling prices consistent with the guidance in ASC 606. We do not have observable standalone selling price information for the loan facilitation services or post-origination services because it does not provide loan facilitation services or post-origination services on a standalone basis. There is no direct observable standalone selling price for similar services in the market that is reasonably available. As a result, the estimation of standalone selling price involves significant judgments. We use expected cost plus margin approach to estimate the standalone selling prices of loan facilitation services as the basis of revenue allocation. In estimating its standalone selling price for the loan facilitation services, we consider the cost incurred to deliver such services, profit margin for similar arrangements, customer demand, effect of competitors on our services, and other market factors. However, for post-origination services, given the main services are about loan collecting and cash processing, we can refer to other companies performing the same services, therefore a direct observable standalone selling price for similar services in the market is available. We estimate the standalone selling prices of loan facilitation services and post-facilitation services based on historical cost data adjusted by current service patterns such as tenure, which could change with the evolvement of our product mix. There has been no material change to the allocation ratio between the two performance obligations during the year ended December 31, 2024.

The transaction price includes variable consideration in the form of prepayment risk of the borrowers, and we estimate variable consideration for these contracts using the expected value approach on the basis of historical information and current trends of the prepayment percentage of the borrowers. A decrease in the amount of loans to be repaid in advance or an increase in tenure of early repayment would result in a greater amount of total transaction price than initially expected and vice versa. If the estimate of the prepayment rates suffers 0.5 percentage point increase/decrease, it would result in a decrease of RMB16.9 million (US$2.3 million) and an increase of RMB16.9 million (US$2.3 million) for revenue recognized for the year ended December 31, 2024. Revenue recognized for the year ended December 31, 2024 from performance obligations satisfied (or partially satisfied) in prior periods pertaining to adjustments to variable consideration due to the change of estimated prepayment rate and service fee allocation rate was immaterial.

Allowance for guarantee receivable and contract assets

Guarantee receivable and contract assets are stated at the historical carrying amount net of write offs and allowance for uncollectible accounts. Allowance for guarantee receivable and contract assets is based on net cumulative expected loss rates, taking the historical default rate of loans originated in the same vintage, as well as national or local economic conditions that correlate with defaults on loans into consideration. We regularly review the methodology and assumptions used for estimating the net cumulative expected loss rates.

As of December 31, 2024, allowance for guarantee receivable and contract assets is RMB63.7 million (US$8.7 million) and RMB117.7 million (US$16.1 million), respectively. If the estimate of the net cumulative expected loss rates suffers 0.5 percentage point increase/decrease, it would result in an increase of RMB19.2 million (US$2.6 million) and a decrease of RMB19.2 million (US$2.6 million) for allowance for guarantee receivable and contract assets.

Provision for contingent liabilities

We provide guarantee services in connection with some of the loans facilitated, and we recognize a separate contingent guarantee liability with an allowance for credit losses, which is an estimate of future net payouts upon borrowers' default. We estimate expected net payouts according to the product mix, default rates and loan terms, which are revalued at each period end to reflect updated estimation for future net payouts.

As of December 31, 2024, balance for contingent liabilities was RMB578.8 million (US$79.3 million). If the estimate of the net-payout rates suffers 0.5 percentage point increase/decrease, it would result in an increase of RMB59.2 million (US$8.1 million) and a decrease of RMB59.2 million (US$8.1 million) for provision for contingent liabilities.