10
February
2020
|
05:00
Asia/Hong_Kong

Gen Z Consumers Start to Shape Hong Kong Credit Market as They Become Increasingly Credit Active

infographic

 

  • Well over 200 thousand Hong Kong Gen Z consumers now credit active

  • Credit cards are the most widely held product among credit active Gen Z consumers, followed by revolving loans and personal loans

  • The fastest growing product category among credit active Gen Z consumers is revolving loans, closely followed by personal loans, with credit cards also showing significant growth

  • A majority of credit active Gen Z consumers are in the prime (CC) or above risk segments

Newly-released research by TransUnion (NYSE: TRU) shows that Hong Kong’s Generation Z consumers—those born in or after 1995—are becoming increasingly credit active and are helping fuel growth of the consumer credit market.

The TransUnion study explored credit activity of Generation Z consumers (also known as Gen Z) in established consumer credit markets including Hong Kong, Canada and the United States, as well as emerging credit markets including Colombia, India and South Africa. The study explored the depersonalized credit data as of Q2 2019 of Gen Z consumers globally to understand their credit behaviors by country, specifically observing originations, account preferences and balances.

The percentage of the Hong Kong population that was classed as Gen Z as of Q2 2019, between the ages of 0 to 24, was 22%, more than 1.6 million people. The percentage of the population that was Gen Z and over 18, and thus eligible to apply for credit, was 6%, approximately 450,000 people. The TransUnion study revealed that almost half (49%) of this eligible group were credit active in Q2 2019, well over 200,000 people.

According to the study, this youngest credit-active generation has a strong appetite for credit despite many of these consumers growing up in difficult economic conditions. In markets such as Hong Kong, Canada, and the U.S., Gen Z saw their parents and other family members and friends suffer through bouts of unemployment and challenging economic conditions, especially in and after the 2008 global financial crisis, that had not been seen in generations.

However, in more recent years, economic conditions have been more favorable. In Hong Kong, consistent GDP growth accompanied by a relatively low interest rate environment have provided conducive conditions for Gen Z as they seek and gain access to credit. Other factors such as technological advancements have also come into play.

“Gen Z is the first generation of digital natives, and they have come to expect a seamless consumer experience across all walks of life – including how they access, use and manage credit. As young adults, they are perhaps more aware than previous generations at this age of the importance of building and maintaining healthy credit to help navigate the modern economy. In turn, they are embracing credit opportunities to start building their financial resumes early,” said Francis Lau, director of research and consulting for TransUnion Hong Kong. “Our belief is that the desire for credit among this generation is significant. In order to service this demand, it’s critical for lenders to have the ability to make more informed decisions on prospective customers and earn their trust as well as their business.”

The Credit Card is King Among Hong Kong Gen Z Consumers

Despite suggestions that credit cards are not as popular with the youngest generation, they continue to be a key entry point and one of the most widely held credit products in most markets studied, including Hong Kong. At the same time, Gen Z consumers are relatively new-to-credit and have riskier credit profiles than broader populations in their respective markets. As such, lenders typically issue smaller card credit limits to Gen Z consumers in order to manage risk.

While in some countries studied this can often lead to higher utilization rates, Hong Kong Gen Z consumers appear to be building healthy credit habits and are managing their credit cards responsibly. In Hong Kong, the vast majority (91%) of credit-active Gen Z consumers have a credit card and have a median balance per consumer of HK$4,316. In comparison, 50% of U.S. Gen Z credit-active consumers have a credit card and their median balance per consumer is US$606 (about HK$4,730).

Balance utilization rates for Hong Kong Gen Z credit card users are 19%, much less than the other established markets studied: Canada (31%) and the U.S. (31%).

Although the percentage of credit active Hong Kong Gen Z consumers with a credit card is high (91%), the percentage holding the next most popular products among this generation falls dramatically, with revolving loans at 5% and personal loans at 5%. By comparison, the personal loan penetration rate for Canada was much higher (16%), while the U.S. was comparable at 4%.

Popularity of Traditional Credit Products by Region for Gen Z

(Percentage of Credit-Active Consumers with Each Product Type)

Credit Product

Canada

Colombia

Hong Kong

India

South Africa

United States

Credit Card

99.8%

32%

91%

11%

5%

50%

Student Loan

28%

22%

N/A*

8%

N/A*

39%

Auto

Loan

5%

0.6%

0.1%

4%

2%

25%

Unsecured Personal Loan

16%

16%

5%

6%

8%**

4%

* Reporting of student loans by lenders in these countries is varied.

** Personal loans issued by non-bank lenders.

“Our study revealed that in the developed credit markets, Hong Kong included, credit cards are the most popular consumer credit product among Gen Z consumers. This presents an opportunity for card lenders to include lower risk Gen Z consumers in their marketing campaigns. For personal loan issuers, there is a significant opportunity to capture some of the balances currently being held on cards by offering compelling reasons to use a personal loan,” said Lau.

When looking at the growth in Gen Z new product numbers, a year-on-year originations comparison (a measure for new accounts opened) showed that revolving loans are growing at the fastest rate (73%), followed by personal loans (69%) and credit cards (42%).

Hong Kong Gen Z Risk Distribution

A common myth is that all (or at least the vast majority) of Gen Z consumers are in the subprime (II-JJ) or generally higher risk credit tiers because they don’t have long histories of positive credit repayment. In practice, lenders generally issue smaller limits and loan amounts to consumers with lower credit scores and limited credit histories, which can drive higher credit and utilization and negatively impacting their credit scores.

However, the TransUnion study found that the majority of Gen Z consumers are not subprime in their respective markets and Hong Kong was no exception.

Compared to the overall credit active population in Hong Kong, Gen Z consumers are more likely to be prime (CC) or prime plus (BB), and almost a quarter (24%) have credit scores in the super prime (AA) risk segment.

Risk Tiers: Gen Z vs. Total Credit Active Population

Credit Tier (Hong Kong Conversion)

% of Gen Z Consumers

% Total Credit Active Hong Kong Population

Super prime (AA)

24%

52%

Prime plus (BB)

33%

15%

Prime (CC)

28%

15%

Near prime (DD-HH)

12%

11%

Subprime (II-JJ)

4%

7%

“We have seen that the use of expanded data sets and advanced analytic techniques can help lenders better understand the risk profiles of these younger borrowers and identify ways to engage them in a mutually profitable manner. Lenders that incorporate trended credit and alternative data can gain a better understanding of the specific risk profiles of Gen Z and as a result, are broadly able to provide more consumers with access to traditional credit products,” continued Lau. “Equally, as Gen Z continues to build their credit history, it’s important for them to get into good habits. This will help them build a healthy financial foundation and continue to be able to access the opportunities they deserve.”