Ease-of-Access, Rewards and Agile Loan Applications Reshape Hong Kong Consumer Wallets

• Hong Kong consumers are expanding their wallets with new payment solutions, driving growth in revolving lines
• Consumers are increasingly capitalising on incentives and rewards
• Stricter underwriting practices have led to a decrease in personal loan originations

With a broader range of banking and other financial tools at their fingertips, Hong Kong consumers now have an even wider choice of payment solutions, empowering them to expand their wallets with digital offerings. According to the findings of the latest TransUnion (NYSE: TRU) Hong Kong’s Industry Insights Report for Q3 2024, consumers are also being further incentivised by rewards and discount vouchers, while digital platforms’ ease of use, broad acceptance for payments and quick responses to requests for credit are encouraging adoption.

This shift is most notably reflected in the 154% year-over-year (YoY) increase in enquiries for revolving lines compared to Q2 2024, and a 107.3% YoY increase in revolving line originations[1] for the same time period. Lenders that have integrated their offerings through digital wallets focused more on smaller ticket size opportunities optimised for convenience; this observation is supported by the insight that, despite the significant increase in originations, average new account credit lines decreased by 42.8% YoY during Q2 2024.

“Providers that offer digital wallet pay-later solutions are capturing an increasing share of wallet, with Hong Kong now past more than half a million consumers holding active revolving line products,” said Weihan Sun, principal of research and consulting for Asia Pacific at TransUnion. “Lenders who are digitally agile and connected with digital native audiences are continuing to see growth. Consumers are prioritising convenience, which is an important differentiator in a very mature market.”

A recent Mastercard study found that affluent consumers make carefully considered payment decisions for every transaction, so that they can earn points, rewards and discounts, with 79% of Hong Kong affluent consumers keeping credit cards at the top of their payment wallets. The study also found that Hong Kong’s affluent consumers expect to increasingly use alternative payment methods, including digital wallets stored online, biometric payments and scanning a QR code or barcode.

Lenders offering greater rewards to capture a greater share of spend

Hong Kong’s credit card market saw a 12.3% YoY growth in enquiries (a measure of demand) and a 12.7% growth in originations (accounts opened) during Q2 2024, although the average limit on new cards was lower by 8.7% YoY. Along with low and stable delinquency rates at account and consumer levels, this suggests that card issuers have a healthy appetite to offer additional credit to consumers who demonstrate consistent repayment behaviours, highlighting opportunities to expand access responsibly within a stable risk environment.

According to TransUnion’s Q3 2024 Consumer Pulse Survey[2], 45% of Hong Kong consumers plan to apply for a new credit card in the next 12 months, with other products on their horizon including new personal loans (34%) and new pay-later loans (27%).

“The double-digit increase in demand for credit cards during the second quarter was likely also driven by lenders expanding their rewards offerings to build and retain loyalty and top-of-wallet status,” said Sun. “Hong Kong consumers are very strategic in how they leverage their payment options to capture the greatest returns, and they seek reassurance that their financial services providers understand their needs and support their ambitions. These could be for discounts on sought-after items, or rewards that will help them realise their dreamed-of experiences.”

With more convenient digital solutions and expanded rewards offerings enticing more consumers to originate credit products, TransUnion data also shows a 75% YoY growth in New-to-Credit (NTC) consumer originations (consumers who originated their first-ever credit product), with a 240% YoY growth in revolving lines and an 85% YoY growth in credit card originations among this consumer segment. This is comprised of organic growth from both Gen Z consumers[3] entering the credit market, as well as from older NTC expatriates who have moved to Hong Kong, demonstrating that there are still meaningful opportunities for growth in Hong Kong’s mature market when lenders adapt to consumers’ expectations and behaviours. 

Lenders maintained strict underwriting as personal loan demand outpaced supply

Lenders upheld stricter personal loan underwriting standards in Q2 2024 in response to previous quarters’ deteriorations in delinquency; enquiries increased 3.8% YoY during the quarter, while originations decreased by 4.6%.

This conservative approach has contributed to a reduced share of subprime[4] originations, with loans offered to this risk tier falling from 29.6% of all personal loans granted in Q2 2023 to 27.8% in Q2 2024. Due to tighter underwriting standards, account-level delinquencies (60 days past due) improved by five basis points YoY during Q3 2024, to 0.82%.

While the average number of personal loans per consumer (for those who hold one or more personal loans) has remained fairly stable between 1.4 and 1.5 per consumer since Q2 2019, the number of personal loans per subprime consumer (those with higher risk) had increased to 2.4 per subprime consumer since Q4 2022. In 2024, the number of personal loans per subprime consumer slightly decreased to 2.2 per consumer. At a time when loans per consumer reached the high of 2.4, 60 days past due account-level delinquencies peaked at 0.83% in Q3 2023. That trend of delinquencies has remained mostly stable since then, revealing insight into lenders’ caution in granting new loans to riskier consumers.

This risk tightening led to a decline in subprime borrowers’ share of personal loan originations across lender types. 45% of money lenders’ loans were issued to borrowers in the subprime risk tier in Q2 2024, down slightly YoY by one percentage point, and for digital banks, the share of subprime originations was down three percentage points from 14% in Q2 2023 to 11% in Q2 2024.

“Unsecured personal loans are the only product that has a sizeable subprime borrower base in Hong Kong, with this product designed and targeted for higher-risk consumers by money lenders who generally have a more expansive risk appetite,” said Sun. “Due to the risk profile of the majority of these borrowers, lenders have tightened their underwriting practices for this product in response to profitability pressures and to protect their overall portfolios from deteriorating. The key to sustainable lending growth in this sector remains in identifying early signs of risk, predicting which consumers are more likely to perform well, and enabling consumer credit education to fuel economic growth.”

Table 1: 2024 Q3 Metrics for Major Consumer Credit Products in Hong Kong

i. Originations are viewed one quarter in arrears to account for reporting lag. 

ii. Serious-delinquency rates are 90 or more days past due for credit cards and 60 or more days past due for all other credit products. 

iii. Delinquency data are reported at an account-level.

¹ Originations and enquiries are viewed one quarter in arrears to account for reporting lag 

² TransUnion’s Consumer Pulse Survey Hong Kong of adults aged 18 and older was conducted 15-31 July 2024 by TransUnion in partnership with third-party research provider, Dynata

³ Generations are defined as follows: Gen Z, born 1995–2004; Millennials, born 1980–1994; Gen X, born 1965–1979; and Baby Boomers, born 1944–1964 

⁴ TransUnion CreditVision® risk score: Subprime = JJ to II; Near prime = HH to DD; Prime = CC; Prime plus = BB; Super prime = AA