Maintaining Top-of-Wallet Status Helps Lenders Avoid Silent Balance Sheet Erosion and Drive Growth
- On average, 77% of consumer card balances are held with their preferred lender
- Preferred lenders benefit from as much as four times higher average balances compared to other issuers
- However, one in five multi-card Hong Kong consumers switched loyalty to another lender within a year
Hong Kong’s revival of seasonal consumption patterns and improved macroeconomic conditions have fuelled an uptick in the growth of asset value across the credit card market. These in turn have reinvigorated the highly competitive local credit market, making it essential for lenders intent on preserving their balance sheet to take strategic steps to maintain top-of-wallet status in an environment where three in four consumers hold more than three cards in wallet.
TransUnion (NYSE: TRU), the global information and insights company and Hong Kong’s leading credit reference agency, recently conducted a research study of the region’s consumer credit card base to gain insights into the behaviour and preferences of consumers with multiple credit cards. The study set out to provide valuable information to lenders, enabling them to protect and increase their share of wallet, and more importantly, to drive growth.
It focused on consumers in good standing with at least two open credit cards in their wallet that displayed a sufficient history of credit behaviour over 24 months or more. The analysis was limited to super prime and prime plus* consumers, with a top-of-wallet card accounting for 50% or more of the borrowers’ average balances across all cards in their wallet. Switches in lender loyalty were analysed by evaluating whether the balance share shifted to a new preferred lender over a 12-month period, indicating a change in top-of-wallet status.
Consumers tend to spend three times as much with top-of-wallet card
Maintaining the top-of-wallet status as the preferred card brings significant advantages to lenders. When comparing consumers’ average monthly balances, the study found that 79% of super prime consumers’ spend was through their preferred lender, with the same being true for 75% of prime plus consumers (77% on average for both segments). The difference in average monthly card spends between the preferred card and all other cards could be as high as three times as much for super prime consumers, and more than twice as much for prime plus consumers.
“Loyalty is complicated and often difficult to maintain and predict. In a credit market where credit cards dominate and are the most widely held product, understanding the dynamics of consumer preferences and usage habits is key. Lenders that fail to use advanced data and trended analytics to better serve customer needs and maintain loyalty will fall behind in the race to establish long-term sustainable growth,” said Weihan Sun, Principal of Research and Consulting for Asia Pacific at TransUnion.
Among super-prime borrowers with two cards, the preferred lender held 89% of their balances, and while the proportion decreased as the number of cards in wallet increased, even super prime consumers with six or more cards in wallet held 66% of their balances with their preferred lender. The same was observed for prime plus borrowers, where the preferred lender accounted for 87% of consumers’ balances in wallets with two cards, and 62% of the balances held by consumers with six or more cards in wallet.
Other key differentiators for top-of-wallet cards include that the preferred cards carry four times the balances than those of other lenders, and that an average top-of-wallet credit line is HK$147,000, compared to an average HK$92,000 for other lenders’ cards. Top-of-wallet cards also saw a higher utilisation rate at 8%, compared to a 2% utilisation rate for other lenders’ cards.
Traditional banks still dominate top-of-wallet card status but multiple product holdings with same lender are low
Hong Kong consumers overwhelmingly choose traditional banks for their top-of-wallet card, with these lenders holding 97% of this premium position. This is true even among younger consumers, where credit cards offered by traditional banks are the first choice of 93% of people aged 20-30 years.
Another key highlight revealed in the study is that consumers tend not to hold multiple products with their preferred card lender – 96% choose a different lender for additional credit products such as mortgages, revolving loans and personal loans. However, of those that do take out additional credit products with their top-of-wallet credit card provider, 75% choose that same provider should they take out a loan on card. Just 12% have historically turned to the same lender for a mortgage, 5% for a revolving loan and 2% for a personal loan.
“The Hong Kong credit market remains highly competitive, and lenders would do well to implement strategies to maintain top-of-wallet status and to increase multiple credit product holdings,” said Sun. “Top-of-wallet status gives lenders advantages of increased card utilisation, higher average balances and robust average spending, all of which are vital for generating sustainable interest income and interchange revenue. With a resurgence in economic activity following the ease of pandemic-related restrictions since the beginning of last year, lenders are encouraged to leverage these opportunities to drive further growth and expansion.”
Predicting loyalty shifts is key to retention
Given the significant advantages of the top-of-wallet status, it is important for lenders to better identify and predict consumers’ shifts in top-of-wallet loyalty. TransUnion’s study found that one in five (20%) multi-card Hong Kong consumers switched loyalty to another lender within a year. On average, these consumers switched about half of their balances (51%) from the previous top-of-wallet card to another to a new preferred top-of-wallet lender, indicating a significant loss for the previous preferred lender.
Leading indicators that can help predict a switch in loyalty were also analysed in the study. Insights showed that consumers of all generations who revolve a higher ratio of card balances are less likely to switch their card loyalty, suggesting a potential opportunity for targeted retention strategies. Moreover, the higher a consumer’s average card balance and line utilisation, the less the likelihood that they will switch loyalty. All these suggest a potential opportunity for targeted retention strategies for lenders, through regular and comprehensive proactive portfolio management to understand their consumer base.
“In a highly competitive environment where different lenders proactively target consumers, fostering strong loyalty through effective credit limit assignment strategies, monitoring revolving trade frequency and constantly assessing consumers’ leveraging behaviour are crucial. Monitoring consumers’ changing characteristics helps card issuers to identify and understand what prompts consumers to switch between cards, enabling them to develop effective retention strategies. Losing top-of-wallet status can result in a silent balance sheet erosion of up to 51%, underscoring the significance of proactive portfolio management through data-driven insights,” concluded Sun.
