OneConnect Financial Technology Co., Ltd. (NYSE:OCFT) Q2 2022 Earnings Conference Call August 17, 2022 8:00 AM ET
Company Participants
Danielle Gao – Head, IR
Ye Wangchun – Chairman
Shen Chong Feng – CEO
Luo Yongtao – CFO
Luo Yongtao – CTO
Michael Fei – Board Secretary
Conference Call Participants
Yang Liu – Morgan Stanley
Operator
Ladies and gentlemen, welcome to OneConnect’s Earnings Conference Call for the Second Quarter and Interim Results 2022.
At this time, all participants are in a listen-only mode. After the management’s prepared remarks, we will have a Q&A session. [Operator Instructions] In addition, please be noted, that this event is being recorded.
Now, I’d like to hand the conference over to your speaker host today, Ms. Danielle Gao, the company’s Head of Investor Relations.
Danielle Gao
Thank you. Hello, everyone and welcome to our earnings conference call for the second quarter and our interim results 2022. Our financial and operating results for the second quarter and the first half of the year were released earlier today and are currently available on our website, ir.ocft.com or hongkongir.ocft.com.
Today’s participants include our newly appointed Chairman and CEO, Mr. Shen Chong Feng; CFO, Mr. Luo Yongtao; Secretary, Mr. Michael Fei; our CTO, Luo Yongtao, will offer a closer look into our financials and then in Q&A session, all management team will be available to answer your questions.
Before we continue, I would like to refer you to our safe harbor statement in our earnings release press as we will be making forward-looking statements, which will involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that we may present both IFRS and non-IFRS financial measures. A discussion of the limitation of non-IFRS measures and the reconciliation to IFRS measures is included in the earnings press release.
For today’s meeting, we have both Mandarin and English channel. Our management will say in Mandarin channel and the interpretation will be provided in the English channel. If any discrepancy, management will say in the original language will prevail. For today’s meeting, we’ll offer webcast replay of our IR website.
With that, I’m pleased to pass the call to our Chairman and CEO, Mr. Shen Chong Feng.
Shen Chong Feng
Hi everyone. I am Shen Chong Feng. Thank you for taking the time to join OneConnect Q2 and H1 earnings release. I’d first like to announce a personnel change. On today’s board meeting this afternoon, the board deliberated and approved Ye Wangchun’s resignation as the Chairman of the Board. The Board has trusted me to be appointed as the Chairman and CEO.
The board would like to thank Dr Ye for his contribution to the incubation of the company’s innovative business model and product portfolio, expansion of target market and setting up unique business model of technology plus business, which have paved the way for OneConnect Stage two growth strategy and long-term development. Wangchun Ye will remain as our Executive Director in the future.
Growing complexities in the international landscape and relapses of COVID outbreaks, lockdowns in places like Shanghai in the second quarter in particular have reflected negatively on the macro economy. Despite these challenges, everyone at OneConnect do their best to overcome difficulties and achieve steady growth in the second quarter.
We completed our due primary listing in both New York and Hong Kong as we officially listed on the Hong Kong Stock Exchange on July 4. This will cement our position as a [indiscernible] company with outreach to Hong Kong and Southeast Asia and boost our international reputation and competitive advantages.
We have always valued Hong Kong as an important market. OneConnect first established its Hong Kong subsidiary in 2018 to serve local financial institutions and regulators. Senior OneConnect Bank, OneConnect wholly owned subsidiary officially launched in 2020 as the first virtual bank focused on serving small and medium sized enterprises. We see good momentum in based development. The Asian banker included us into its global top 100 digital owning banks ranking this June and awarded us the highest ranking of more virtual banks in Hong Kong. We do hope that with our Hong Kong listing, more Asia Pacific based investors will take note of OneConnect and share with us the achievements of our rapid growth as we capitalize opportunities from digital transformation across the world.
Also an update on the share repurchase plan OneConnect announced on February 24th, as of the end of June, the company has brought back 2.08 million shares of ADRs amounting to $11.17 million or 2.1% of total share capital. The company plans to use these shares as employee incentives. This efforts shows OneConnect and the management’s commitment to long-term and healthy development in the capital market, as well as our confidence in OneConnect’s prospect.
Of course we do recognize the increasing uncertainties in China’s economy caused by on and off COVID outbreaks, but we believe these are temporary — these are temporary influences. Over the long term the FinTech industry still enjoys immense capital potential evidenced by the various policies from regulators in support of the development of digital economy.
As a part of the 15 five-year plan for the development of the digital economy, the state council approved establishing an inter-ministerial joint conference system on the development of the digital economy this June led by NDRC. The system consists of 20 departments, including the CBIRC and DRC, and it will be responsible for implementing strategies to develop digital economy.
As financial institutions become more digitalized CSE estimates that by 2025, IT spending by financial institutions in China will total RMB799.3 billion representing a CAGR of 23.6% since 2020. Looking forward, OneConnect will remain more committed to our vision. Technology creates value through expertise. We will improve third party revenue, recurring revenue and profitability with consistent productization, so as to create value for our customers and generate returns for our investors.
Next, I’ll brief you on OneConnect’s business development in the first half and second quarter of 2022. You can go to our main slide and look at Page 3 and 4 as OneConnect is still in the second stage of customer upgrade, we continue our solid efforts in our [indiscernible] win strategy and achieved steady growth in our results.
Revenue upside 17.2% year-over-year reached RMB1.13 billion in this quarter. Third party revenue increased by nearly 10% to RMB314 million. The number of plus customers grew from 113 customers to 134 customers, or by 18.6%. Adjusted in that loss ratio narrowed significantly to 18.6%, an improvement of 17.3 percentage points. This is no easy achievement as many industries are in the downturn due to impact from COVID outbreak. OneConnect’s performance is a result of effective execution of our Stage 2 strategy and in joint efforts of everyone at OneConnect.
Please go to Page 3 and 4. You can see a map of our Stage 2 strategy. In this quarter, as a part of one body two win strategy, we have made some progress in digital banking, Gamma platform and overseas on which I will give you a more detailed introduction.
Please go to Page 5; in relatively mature division commercial banking, we are more focused on improvement in our product functions and broader engagement with existing customers. In terms of product, we have established three mature solutions, namely Smart Marketing, Smart Retail Platform and Smart Wealth Management.
Smart Marketing is a business development tool for relationship management — for relation managers with 100% coverage of their everyday work, including existing customer operation and customer execution. Smart retail mid platform includes eight centers. For example, smart customer and product centers componentized this configurable and with microservices, the retail mid platform can make technology systems more flexible. Smart wealth management empowers digitalization in wealth management and with this coverage of wealth spending portfolio advisory, realizing etcetera.
On broadening engagement with existing customers, we start with single modules to win customer recognition and continue to expand our corporation, which leads to usage of integrated products. 80% of Premium Plus customers from retail banking H1 are already our customers last year. Of these customers, we targeted at large banks to build reference cases for integrated products. For instance, with the trillion level AUM to become commercial bank in Eastern China and a RMB500 billion AUM rural commercial bank in Southern China.
Our corporation with them started from retail digital transformation planning and smart marketing. Happy with our products, this customers expanded to smart mid platform and smart wealth management, which generated contract value over RMB10 million in the first half of 2022 alone and are highly regarded by our customers.
Now please go to Page 8 or Page 6, Gamma Platform integrated in the past two years has rapidly increased market share with OneConnect’s unique business plus technology advantage. AI customer service combines rich expertise in financial scenarios with leading technology and offers applications in three business scenarios; namely, smart customer service, smart loan collection, and the smart rocketing, as well as the smart robust platform. This product incorporates base knowledge bases over 1600 AI scenarios over 200 QA models and over 2 million AI sales groups in the bottom layer with AI adoption rate over 94%.
AI customer service is well received by the market. The number of customers nearly doubled compared with the first half of last year. At the same time, the product charges based on volume, which means first sustainable revenue. Half year results show that ER has already exceeded 80%.
Now please go to Page 7, which shows our business overseas. We have continued make progress in Hong Kong and Southeast Asia, which are important parts to our one body to win strategy. OneConnect bank is the first virtual bank to focus on SME services in Hong Kong.
We are also the only one to use alternative data for modeling, which means simpler and more precise long approvals for SMEs and want recognition from Hong Kong MA and Hong Kong MC. POB is committed to digital financial inclusion. Account opening can be done online and within one day. Of the customers, we serve 30% are first timer, long applicants. Revenue growth in 2021 ran first among virtual banks in Hong Kong and revenue continue to show strong momentum in the first half of 2022, increasing by over five times to RMB45.7 million.
POB will be also enjoys great brand name in the industry, evidenced by awards from renowned financial media, including Asia, The Agent Banker, Digital Banker. The bank ranked the 45th in the global top 100 digital owning banks ranking top in Hong Kong..
Turning to Southeast Asia. We signed a Strategic Corporation Agreement with PISMO a core system provider in Brazil to export south core systems to small and medium size banks in Southeast Asia and the Middle East. This is a strong compliment to OneConnect’s core system business development overseas. We’re also working with CNNB Philippines to launch a cloud deployed core banking systems and mobile banking, as well as a lending platform with full product coverage.
Now please go to Page 8; technology product is our core competitiveness in the future. We further upgraded our product in H1, improving standardized functions and performance. The company updated over 40 product versions in the first six months. These iterations prioritized two things. Firstly, we aim at improving standard features to provide more comprehensive marketing and risk management, broader operations scenarios, and smarter analysis in products.
The second thing is to make product structures more configurable and flexible through low code development process, engine configuration and other approaches, product development — product deployment and configuration are lighter, faster and easier. Despite pressure from COVID and the micro environment in Q2 H1 with support and joint efforts from all sides, OneConnect has been on track to our Stage 2 growth strategy as we continue efforts in sales and product standardization, achieve steady growth revenue, narrow losses and balance business mix.
Next, I’ll hand it over to Luo to introduce financial results in the second quarter and first half of the year. Luo please.
Luo Yongtao
Thank you, Ms. Shen. Good evening, everyone. Next I will give you an update on our financial results in Q2 and the first half of 2022. Despite impact from COVID outbreak, OneConnect still managed delivery of our solid financial performance. Total revenue in Q2 reached the RMB1.13 billion compared with the RMB970 million. The increase amounted to 7.2%. Third party revenue grew by 9.6% year-over-year to RMB340.
At the end of the Q2, Premium Plus customers or customers with revenue contribution over RMB1 million was up by 18.6% to RMB134 million. Excluding listing fees, net loss adjusted for listing fees reached RMB210 million, adjusted net loss ratio improved significantly by 18% from minus 36.1% in Q2 2021.
Page 11 is about the total revenue of OneConnect. Revenue grew by 17.2% in the second quarter, whereas in the first six months, the top line increased by 20.4% to RMB2.15 billion. Other more colors on revenue growth drivers later.
Now let’s turn to Page 12. Let’s take a look at the revenue mix by customer type. Revenue by customer type remained stable this quarter. Contributions from third party customers increased from RMB314 million in the same period last year to RMB344 million or by 9.6% accounting, four 30.3% of our total revenue. AI customer service in Gamma platform Virtual Bank health business in Hong Kong was our main growth drivers for the third party revenue.
COVID outbreak in Q2 remained a drag for the third party implementation and risk management revenue, which includes auto insurance claims and offline loan business. Growth will be better without these influences. Contribution from [indiscernible] grew by 19.9% year-over-year from our RMB19 million to RMB107 million in Q2 representing 9.5% of total revenue.
Growth mainly comes from cloud services, the platform and operation support business. COVID temporarily affected revenue from loan business and implementation. Revenue from Ping An Group, which RMB618 million being the second quarter, an increase of 20.9% year-over-year from RMB560 million representing 60.2% of total revenue. Other than business origination, which was paid by COVID other types of revenue, all improved steadily.
It’s worth mentioning that in addition to cloud services, the platform, other types of revenue also experienced the steady growth becoming equally important drivers of revenue growth from Ping An Group. We believe that as an important customer for OneConnect Ping An Group will continue to work closely with us in operation support, risk management and cloud services platform.
Turn to Page 13; revenue mix by business type implementation revenue, that’s a 15.1% of total revenue increased by 7.2% year over year from RMB159 million to RMB171 million in Q3. Implementation revenue from Ping An Group and grew steadily while third party in-segmentation revenue slipeed slightly as a result of the delayed delivery due to COVID. Business origination revenue declined by 11.1% year-over-year from RMB180 million in last Q2 to RMB105 million accounting for 9.2% of total revenue. Offline interruption due to COVID was the major reason for the drop.
Risk management revenue was down by 13.4% year over year from RMB106 million to RMB92 million, this Q2. This contribution to total revenue stood at 8.1%. As we mentioned in the last earning call, risk management business is in temporary decline as the result of terminated offline loan business, in auto insurance claim ecosystem.
Operation support revenue improved from RMB274 million in the same period last year to RMB317 million, an increase of 15.5% year-over-year making up 28% of our total revenue. Operation support mailing charges from stock volume or usage, which makes this less susceptible to COVID outbreaks. As a strategic focus, this type of revenue experienced growth from Ping An Group, Lufax, as well as third party customers.
On contribution by product, the usage of the AI customer services and remote services improved because of COVID. Cloud services platform remains the biggest part of total revenue with revenue growing by 41% year-over-year from RMB262 million to RMB369 million in the second quarter, accounting 32.6% of our total revenue. Revenue grows was mainly driven by Ping An Group and Lufax.
As we continue to benefit from the group strategy to deep and digital transformation Lufax, which was not a cloud services customer in the last Q2 also became an important contributor to growth this year. We’ll also draw your attention to the fact that our third party revenue in cloud services maintained the strong momentum being in the first quarter. Despite this modes contribution to total revenue, progress in cloud services demonstrates OneConnect’s capability to export [indiscernible] solution.
As the bottom layer infrastructure, cloud services, the platform is an indispensable part of our solution. Post the implementation and other revenue was up from RMB48 million to RMB18 million and Y-O-Y increase of 66.2% or 7.1% of total revenue, benefiting from revenue growth from virtual bank business in Hong Kong.
The virtual bank is experienced the highest growth rate in 2021 among eight virtual banks in Hong Kong, and also saw revenue increasing by several fold in the first six months this year.
Now let’s turn to revenue mix that product types as a strategic focus for innovation, some platform was the biggest chunk of our revenue this quarter, contributing 55% other than cloud services platform, AI customer services, core banking system, and other innovative business also presented remarkable growth in Q2.
On the other hand, the digital banking made out of 25% of total revenue, digital insurance, and the POB contributed 18% and 2% of total revenue respectively. On page 15, it’s about our premium plus customers. This quarter will continue to implement our stage two strategy where we focus on potential from premium plus customers. Building upon an increase of 15.6% year-over-year grows in Q1.
The number of our premium plus customers continues to grow this quarter by 21, bringing the total number to 134, most of them being our existing customers. This increase also testifies our success in engagement with the existing customers. New premium plus customers name came from Gamma platform and the digital insurance.
Page 15 is about how we’re in gross margin. Despite the blow from COVID, we are happy to know that the gross margin maintains the steady growth in Q2. As far as gross margin improved from 34.1% by 2.1% to 36.2% of the Q2, IFRS gross margin in each one also improve from 34.1% in the same period last year to 35.2% after 1.3%.
The improvement mainly comes from our efforts in sales and product standardization. Sales standardization aims to improve the company’s sales probabilities by guiding customers to purchase the standardized products and the solutions. Product standardization is about improving product functions. As Shen Chong [ph] mentioned, OneConnect released over 40 updated product versions in the first six months, as we continue to improve standardization.
Now IFRS gross margin in Q2 decreased by 2.3% from last year, the 42.3% to 40% as non-IFRS gross margin is not affected by capitalization of R&D expenses. It is a better metric for comparison with our peers at 40%. Our non-IFRS gross margin performs in the industrial average.
Page 17, is our expenses and profit and the loss, but — by mid-term has always been an important target for us. We’re pleased to report that in Q2 where we’re on track to our mid-term target, as we made more progress in loss reduction. R&D expenses remain the key to our core competitiveness. The absolute amount of R&D expenses grew slightly compared with the same period last year from RMB359 million to RMB378 million five point to 2% increase as top like growth. The R&D expenses as a percentage of revenue dropped by 3.8% from last year’s 37.1% to 33.3%. The company will continue to maintain our R&D investment level to keep our competitive advantages in products on S&M expenses.
The company spent RMB109 million on sales marketing through two accounting for 9.7% of revenue and improvement of three point to 3% versus the superior the last year as COVID outbreaks reduced thousand marketing efforts but bending on this aspect, the decreased in terms of absolute amount.
In addition, thanks to economy of sale as revenue growth expenses, as a percentage of revenue are also improving regarding G&A expenses, general and administrative spend amounted to RMB191 million in Q2 accounting for 16.8% of total revenue adjusted for one off listing fees of RMB32 million G&A do that RMB159 million, about 14% of revenue compared with the 21.8% in the same period.
Last year, the ratio improved by 507.8% respectively. Based on these we see that operating loss narrowed significantly from RMB395 million last few to RMB217 8 million this year. Adjusted net loss on their back hand, further narrow to RMB246 million.
Operating margin experience remarkably to 21.7%. And the loss was reduced from RMB245 million. Adjusted operating plus was the RMB115 million adjusted that profit margin error by 17.3% to minus the 18.8%.
Page 18, you can find comparison of course, in the past three years and the last H1, which shows that we continue to work towards the breaking, even by mid-term. Our current priority remains fairly growth in revenue and improvement in gross through sales and product standardization.
Meanwhile, we will maintain strict cost discipline implement higher ROI requirements for R&D spending and the shutdown products falling short for standards. SNM standing is controlled with improvement in self capability and the protective productivity. We also strive to curb the absolute amount in G&A versus based on this. We are very confident about breaking even by midterm.
Page 19, we have three focuses in the second half of 2022. The first is growth in third party revenue. The second is sustainable growth in revenue. We will continue to update our products and services, the charge on stock volume have to generate a stable and a recurring growth in revenue.
The third one is the cost discipline. We will improve for cost discipline and push ahead with the breaking, even in the mid-term. Nevertheless, we see strict pandemic control measures and slower than expected the rebounding the economy, which will put our operations in H2 under pressure. Therefore we will take preemptive measures to cope with these impacts. For instance, more resources, therefore operations, and a volume based business, and a promoter remote delivery in H2, OneConnect will continue to execute stage two strategy.
Well, we will improve sales and product standardization as well as increment strict that cause the discipline to overcome impact from COVID and the macro environment. In the last two pages, we summarized the key financial metrics in Q2 and HY and adjustment in non-FIRS gross margin for reference. Thank you.
Danielle Gao
Thank you. Luo Yongtao. Operator, we are ready for the Q&A session.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question comes from Morgan Stanley, Mr. Yang Liu, please.
Yang Liu
Thank you for this question to ask. Thank you for this opportunity to ask a question. I have two ask questions. Firstly, I would like to ask about the outlook for the general environment in Q2. We see measures of COVID, the COVID — COVID pandemic, and we also see risks from the property industry. So I would like to know what the management, what do the — what does the management think about the prospect of the banking industry? My second question is about financials. We see a good, significant improvement in operating cash flow compared with the, with Q1 and the same period last year. And we see very significantly improvement. So I would like to know the reasons behind this improvement. Thank you.
Danielle Gao
The first question will answer by Shen Chong, the latter will answer by Mr. Luo. I will answer your first question concerning the macro economy and the expenditure effects. In the short-run Feng will be more cautious about the expenditure, especially as they focus more on reducing cost and improve efficiency. In terms of IT, especially two, which will not increase revenue in the short-term, they will become more cautious.
However, in the media to long-term as regulators encourage digital transformation, — will have higher demand for it that can support their long-term business development. The second aspect is that when connect has a unique business plus technology model with a very diversified business, most of the revenue are actually booked in the business budget of financial institutions, such as in marketing risk management and operating budgets.
As a result when time is harsh, it presents an opportunity for OneConnect. You mentioned that the real estate sector is also affected by the macro economy. However, as OneConnect serves SMEs and a personal lending business, which are supported by the national policies; so overall, although banks may be cautious about the, I expenditure in the short-term.
However, when we look at business innovation and the development, they will increase their spending this also perfectly fit with the OneConnect the business plus technology model.
I will answer your second question. You mentioned that in miss your, we have very found cash position. We have two point four, RMB5 billion cash position, including PBS on and subsidiaries under OneConnect.
If we look at each one we use around RMB1 billion and PAOB we used RMB260 million for other entities it’s around RMB760 million. The usage of funds matches with our loss in H1, the loss stood at RMB630 million in Q1 because of a volatility in cash flow.
If we compare cash flow with the P&L, we can witness some volatilities. However, if we extend the time horizon to look at the overall condition in H1, we can see the match with each other. The basis for cash flow is operating profit and loss. This is our foundation. If we are to improve the cash flow, the priority will be reducing loss and breaking even as best possible. This is the core for business operations of OneConnect.
On top of it, cash flow management is also vital for us. In recent years, we have been very strict about cash flow management. For example, we have the higher requirement for recovery of funds. We will split requirement to each BU under OneConnect and ask them to track how many days they take for the funds to arrive. We also have KPIs that correspond to the requirements.
If you look at the recovery of funds, you can find it takes few and fewer days for the funds to arrive on our account. This helps to maintain very healthy cash flow for us. We will also track the ratio of the receivables to revenue and maintain a very healthy proportion. And we see that the general trend of this ratio is dropping. So by reducing loss and actively managing cash flow, we are able to maintain a very healthy cash position of the company. Now we have ample funds to use and there’s no trouble in maintaining the daily operations of OneConnect.
Operator
[Operator instructions] So next question comes from Mr. [indiscernible] from Securities.
Unidentified Analyst
Congratulations to the management and the company for your solid performance in Q2. My first question is about your new products. We noticed that in the past two quarters, you disclosed progress in new products for instance, for core banking system. So I want to know more about its momentum in the market and what are their competitive advantages?
My second question is about your business overseas. We noticed that for [indiscernible] is experience very rapid growth. In the future, what’s POB’s position strategy wise and what’s your outlook for POB business.
Shen Chong Feng
Thank you for question. The first question will be answered by our CTO or Mr. Lee and Mr. Fei will answer your second question.
Luo Yongtao
Good evening, everyone. Let me answer your first question about the AI customer service and for banking system. First AI customer service. If you look at the market potential and a target customers, medium and a large size financial institutions and regulators have a market of tens of billions, although financial institutions have voice robots by scenario based AI customer service.
It is the main — it will be the main growth point of AI customer service in the future, compared with our competitors, Sun Connect both the technology plus the model our plus business model. Our AI customer service covers more than 2,000 banking insurance and investment AI customer service scenarios, including telemarketing loan collection and customer services, as well as the profound experience in fine-tuning AI financial scenarios.
And we have verified business deployment processes. It can be widely replicated among financial institutions without much extra customization. The AI customer service also it’s highly recognized by the market as for the end of H1. The number of platform customers, almost doubled the comparison with the same period last year and the net extension rate of value customers already surpassed the 80% in six months’ time. This is about AI customer service.
The second product is about core systems for banks. We have shifted from single product to core systems, which are very harder to be replaced and will help us to get higher customers thickness. In terms of the competitiveness of the product, I think there are mainly three. First is it is cloud-based through digital banking system solution.
It integrates with the front end system of OneConnect seamlessly. It will better support online business as well as the information technology application and innovation hardware to improve for security level. It has modularized the design with the comprehensive functions. We can configure this services at a single client level.
In terms of infrastructure, we use Cloud Native for microservice design. By leveraging the cloud computing, we can offer scalable core services for banks and provide them with a faster, more reliable and secure platform. We also use the homemade distributed infrastructure. We can make sure that the basic IT infrastructure used by banks are advanced controllable and in line with the regulatory requirements.
In terms of sales strategy, the upselling to existing clients works very well. If you look at our chain customers, most of ours used our other products first, before they use the core customer. In terms of market recognition, although it is relatively newly launched product, core banking solutions is widely recognized in the market. In H1, we have already required around 20 customers and third party contr revenue contribution increased about several fold from RMB22 million in 2021 to RMB78 million in the first half of 2022. The customer thickness is also very high. The next expansion rate is over 100% in H1.
I’d like to respond to POB question, among the eight virtual banks in Hong Kong, PAOB is the only one that serve SMEs. Our goal is to leverage technology, to provide SMEs with fast, convenient and cost effective financial services. There are three features of our business. The first that is a purely online process. POB is the first of its kind to offer truly online solution to SMEs. You only take one day for them to open account with us. POB is also the only one that use alternate data to do credit screening. Customers do not need to provide it with us the financial reports of collaterals to obtain along from us.
And the third feature is that we use the scenario-based customer acquisition and product development. The results are good. In 2021, the revenue growth ranked the first among all virtual banks in Hong Kong. In the first of this year, the momentum was tapped at 5.3 times in the future. We will speak to this development direction, which is serve SMEs. The market is huge. We only reach out to a small number of the business in need. We are very confident that we’ll maintain fast growth in the future.
Unidentified Analyst
Thank you for answering this question. Operator, we’re ready for our next question.
Operator
[Operator instructions] Your next question comes from Goldman Sachs.
Unidentified Analyst
Congratulations to Michael Fei. Financial performance in Q2, I have two questions. Firstly, I would like to know more about revenue growth in H2. Do you think revenue growth from third party will outpace revenue from Lufax and Ping An Group and if we look at it by division, for instance, by digital insurance and digital banking, where do you see the opportunity for growth?
My second question is about standardization. We talked a lot about standardization and we see that it can bring improvements in gross margin. So I would like for the management to help me understand during product standardization, the product standardization will customers — how will customers take it and how do we reach balance between revenue growth and standardization and will it make further contributions to our long-term growth? Thank you.
Danielle Gao
Thank you for question, Mr. Law will answer your first question.
Luo Yongtao
Let me answer your question about third party revenue growth, the expectation. In the previous introduction, I mentioned that in Q2 and in H1, always process impact on the third party revenue growth, otherwise in Q2 and H1 the third party revenue would have grew faster, especially in terms of implementation business origination and the risk management. These business lines were hit by COVID. Third party revenue growth remain a priority for us in 2022.
The three key three words also mentioned third party revenue growth. We have high hopes for third party revenue growth. For example, in the banking business line and in the more and the medium size enterprise long platform, we continue to upgrade our products to meet their demands.
However, because of COVID, some offline businesses were interrupted and we hope in the second half, the COVID will be brought more under control and we will have higher revenue growth of third party. In terms of the Gamma platform, we mentioned a lot about the AI customer service, the growth in the number of customers and its direction in the market.
The core systems and data products are also developing soundly. We hope that this will all contribute to third party revenue growth in the second half of 2022. Insurance product is one of the more sophisticated business line for us. The contribution is high.
For example, the auto insurance ecosystem and we hope that we can maintain the growth momentum. As the currently recovers, we will see better growth. Another part is about our overseas business. POB was mentioned a lot. The business grew by 5.3 times in H1 and we expect to maintain this momentum throughout 2022. POB is not only virtual bank. It is also a benchmark for us in terms of technology and the system. It is embodiment of our advanced technology. I believe this few — these directions will all contribute to our revenue from third parties.
Our medium term target remains unchanged. We hope that third party revenue will count for 50% of our total revenue in the future and we are constantly working towards realizing this goal. The second question concerning standardization, we answered by Ms. Wangchun.
Let me answer this question. This year, the management raised three standardization; marketing, project and delivery. Especially product standardization in the past, the majority of products for banks are customized, which makes it rather difficult to proceed this year because of COVID many banks started to control their IP expenditure and they’re willing to take testified business cases.
So more and more banks have to standardize the products now and we are also building new benchmarks and to reach out actively with customers and make them understand that it is not only a server or IP infrastructure. It will help for their business to iterate and operate faster and bring better customer services, so that they are convinced that using standardized product is even better than customized versions and we’ll continue to guide our customers to accept more standardized products.
How we strike a balance between standardized and customized products. I think in the short term, we still need to use the customized products. However, if we have existing standard products, we will reduce the need for customization and in terms of and when there’s no standard version, we will make the customized version, more replicable and more generic.
In this way, we can include this customized version to our next standardized product. This is the principle for balance between standard and customized product.
Danielle Gao
Thank you. And that concludes our Q&A session and I hand it back to the management.
Shen Chong Feng
Thank you everyone for joining the call today. This is the first earnings release after we got listed in Hong Kong. We appreciate your interest in following OneConnect and look forward to speaking with you again. If you have any questions, please contact our IR team ocft_ir@ocft.com. Thank you.
Operator
And that’s all for today’s meeting. Thank you for your participation and wish you a good day. Bye.
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