Hong Kong New-to-Credit Consumer Volumes Yet to Rebound to Pre-pandemic Levels
- The flow of new consumers entering the credit market for the first time remains subdued and is still well below pre-pandemic levels, presenting opportunities for lenders to serve more new customers.
- Credit cards are the first product of choice among Hong Kong’s new-to-credit consumers, followed by personal loans.
- New-to-credit consumers are not all younger generations – a smaller but still significant proportion are Gen X and Baby Boomer consumers, requiring a more customised strategy from lenders.
The number of new-to-credit consumers entering the market in Hong Kong has not yet rebounded to pre-pandemic levels, according to a new global study “Empowering Credit Inclusion: A Deeper Perspective on New-to-Credit Consumers” released by TransUnion (NYSE: TRU), a global information and insights company and Hong Kong’s leading credit reference agency. This presents an opportunity for lenders to ramp up their acquisition strategies among this emerging segment of consumers, particularly following Hong Kong’s wider reopening and revival of economic activities that are expected to drive GDP growth between 3.5% and 5.5% this year.
The TransUnion study included data and insights about millions of consumers in varied global markets, including Hong Kong, Brazil, Canada, Colombia, Dominican Republic, India, Philippines, South Africa, and the United States. TransUnion defined a new-to-credit (NTC) consumer as one with no prior credit history on their credit bureau file who opened their first-ever, traditional credit product such as a credit card, personal loan or another loan unique to individual regions. The study then examined the behaviours and performance of those NTC consumers over the subsequent two years after opening their first credit product.
“A particular focus around the topic of financial inclusion is credit inclusion – the ability of consumers to access traditional lending products, such as credit cards, mortgages and personal loans. These products serve as a means to financial mobility for consumers and can be a gateway to a better quality of life, enabling homeownership, business formation and wealth creation,” said Kevin Chen, principal, Financial Services Research and Consulting at TransUnion Asia Pacific. “The more consumers who have access to credit opportunities in a region, the greater the opportunities for broad economic inclusion. The data from our study demonstrate that new-to-credit consumers are often good risks who are in need of credit and will show loyalty to those financial institutions that offer them their first credit accounts.”
Subdued NTC volumes present lender opportunities
In Hong Kong, the number of NTC consumers each year was largely stable between 2017 and 2019 (prior to COVID-19). The onset of the pandemic resulted in a dramatic drop in the number of NTC consumers in 2020 worldwide, although this drop is not surprising as global lockdowns and significantly reduced consumer spending caused fewer consumers to seek new credit. At the same time, lenders in many markets, including Hong Kong, pulled back on new loan originations, particularly to riskier borrowers.
The number of NTC consumers rebounded sharply in most markets studied in 2021, returning to near-2019 levels. Hong Kong was an exception to this global trend, where volumes grew by just 19% from 2020 levels, along with South Africa which grew by 16%. Additional research showed that this trend continued through Q3 2022 for Hong Kong (latest available data), and through the first nine months of 2022, the number of NTC consumers dipped 2.2% from the already-muted levels seen over the same period in 2021.
Graph 1: New-to-credit consumers in Hong Kong Q1-Q3 2017-2022
NTC consumers are not all from younger generations
NTC consumers are generally younger than the overall credit-served population. On average, across all regions studied, 51% of NTC consumers were Gen Z (born in 1995 or later), and 80% were in the two youngest generations of Gen Z and Millennials (born between 1980 and 1994) combined in 2021. In Hong Kong, 53% of NTC consumers during that same year were Gen Z, with another 25% being Millennials.
In Hong Kong, although the majority of NTC consumers were from younger generations, a smaller but still significant percentage were older, with 21% of NTC consumers being Generation X (born 1965-1979) and Baby Boomers (born 1946-1964) in 2021.
“Clearly, not all NTC consumers are younger, which speaks to the diversity of reasons consumers may become NTC, based on their personal circumstances. Understanding different NTC consumers and their journeys, and tailoring products to meet their diverse needs are essential to attracting their attention and offering relevant products to them,” said Chen.
In the three years before 2020, between 16% and 19% of NTC consumers were non-residents of Hong Kong, and it is likely that many were previously credit served in their prior home country or city. Restrictions on travel during the three years of pandemic led to a decrease in the share of NTC consumers who were people that had recently moved to Hong Kong; this share dropped to 8% in 2020 and 2021, and only somewhat recovered to 12% for the three quarters through September 2022 (latest available data for 2022).
Credit cards and personal loans are the first products chosen by Hong Kong NTC consumers
There is consistency among developed markets when analysing the first products opened by NTC consumers. In all developed markets, the most common first traditional product NTC consumers opened when they entered the credit market in 2021 was a credit card, with 88% of NTC consumers in Hong Kong making this their first choice. This aligns well with the heavy adoption of digital transactions and ecommerce in developed markets like Hong Kong, for which consumers often use credit cards to facilitate payments.
In Hong Kong, personal loans were the second most popular choice as a first NTC product, with 5.1% of consumers opening this product type as their entry into the credit market.
The TransUnion study also examined the subsequent products that NTC consumers opened during their initial two-year journey after entering the credit market. In Hong Kong, 39% of NTC consumers in Hong Kong opened a credit card, 8% took out a personal loan, and 4% took out a loan on card. The fact that credit card is both the most common first product as well as the most frequent subsequent product indicates that many NTC consumers seek to build out their credit wallet with multiple cards early in their credit journey. Credit card issuers can benefit by understanding the needs of NTC consumers and positioning their products to become top-of-wallet early in the consumer’s credit journey, when the opportunity to build long-term loyalty is strong.
“It’s clear that NTC borrowers around the globe and in Hong Kong will play a large role in the growth of many lenders’ books of business,” said Chen. “Even though Hong Kong has a high rate of credit inclusion, even in comparison to other highly developed markets, NTC consumers still present a growth opportunity for lenders, particularly as the NTC sector returns to pre-pandemic levels. Lenders can leverage these insights to boost the growth of NTC in Hong Kong and gain early access to a potentially loyal and profitable portfolio of consumers. Additionally, lenders can leverage enhanced analytics to better serve these consumers and manage their credit lifecycle as they embark on their credit journey.”