Study Reveals Increased Acceptance of Financial Technology Firms and Virtual Banks

  • With nearly two-thirds of consumers planning to engage with FinTech firms or virtual banks for credit activities in the coming year, study highlights diversified channel development in the consumer credit market
  • Consumer credit appetite reached its highest level since mid-2022, with Gen Z leading the way
  • Study finds stabilisation of incomes and nearly a third reporting better than planned household finances

Global information and insights company and Hong Kong’s leading credit reference agency, TransUnion (NYSE: TRU), today released insights from its latest quarterly Consumer Pulse Study. It reveals that Hong Kong consumers anticipate increasingly using financial technology (FinTech) firms and virtual banks.

The new Q3 2023 Hong Kong consumer survey conducted in July 2023 found most had better or as planned household finances and incomes increased or stayed the same. Overall, almost a third (29%) of respondents reported better than planned household finances, and 44% reported said their household finances were as planned. Additionally, 55% of respondents reported stable household incomes over the past three months and 28% said it had increased.

Financial technology and virtual banks received noticeable upward trajectory

During the COVID-19 pandemic, the FinTech sector in Hong Kong defied the global trend, establishing itself as a frontrunner in Asia Pacific and ranking ninth worldwide in The Global Fintech Index 2021. With over 800 FinTech companies operating in Hong Kong, the sector has demonstrated remarkable resilience and innovation in the face of adversity1. The survey findings reveal that 56% of consumers reported holding FinTech or virtual bank loans or credit cards, and this figure is expected to rise further as 64% of consumers plan to engage with FinTech firms or virtual banks for credit activities in the coming year.

While traditional banks continue to dominate the credit market with 29% of respondents selecting their existing traditional bank where they have an account and 22% any other traditional bank or financial institution as their preferred option for a digital loan application, consumers are also choosing alternative funding options. In fact, 24% of respondents prefer applying for a new digital loan with a FinTech, or neo, digital or challenger bank. Furthermore, 24% said their preferred option for applying for a new digital loan is any entity which offers them the lowest rate of interest.

The recent Gen Z Study and Q1 Industry Insights Report conducted by TransUnion further validate the rising popularity of virtual banks in Hong Kong. The studies revealed that Gen Z borrowers accounted for 22% of personal loan originations from virtual banks. This younger demographic has become a key target for virtual banks, as evidenced by the fact that 30% of all unsecured revolving lines originated by virtual banks in 2022 were allocated to Gen Z consumers.

"Current consumer behavior, especially Gen Z, has been shaped by the digital age, shifting financial landscapes, and the global pandemic. As technology continues to reshape the way we approach financial services, it is clear that FinTech and virtual banks are playing a vital role in driving financial inclusion and meeting the evolving needs of consumers in Hong Kong," said Wingo Wong, Managing Director of TransUnion Credit Information Services Limited.

Demand for new credit services rebounded with young consumers dominant

In a promising sign of economic recovery, consumers in Hong Kong are increasingly showing interest in applying for new credit services, with young consumers leading the way. The Consumer Pulse Survey found the percentage of respondents planning to apply for new credit or refinance existing credit in the next 12 months has rebounded, reaching its highest level since Q2 2022 at 35%. Across generations, 43% of Gen Z planned to apply for new credit or refinance existing credit in the next year – the highest percentage among age groups.

Among those planning to apply for new credit or refinance existing credit, there has been a notable shift in the types of credit. The demand for new credit cards has increased the most, rising by 15 percentage points from Q2 2023 to 59%. Buy now, pay later payment services are the second most in demand credit type and second fastest growing type behind new credit cards, growing five percentage points in that same time period to 33%.

"The rebound in consumer credit interest, particularly among young consumers, indicates a growing optimism and a desire to access financial resources for various purposes. With the aid of advanced analytics and modeling, financial institutions can gain valuable insights into consumer preferences and effectively cater to their evolving needs," added Wong.

TransUnion’s Consumer Pulse Survey of 973 adult Hong Kong consumers was conducted July 10–19, 2023 in partnership with third-party research provider, Dynata. This quarterly survey examines shifting consumer attitudes and behaviors based on the dynamics of income, debt, and identity theft. Respondents range from Gen Z (born 1995-2005), Millennials (born 1980-1994), Gen X (born 1965-1979), and Baby Boomers (born 1944-1964). For more information, please view the full Q3 2023 Consumer Pulse Study Infographics.

1 Fact Sheet: Hong Kong Fintech Landscape