Hongkongers tend to prioritise the payment of revolving lines before personal loans and credit cards, according to TransUnion.
In the latest findings, customers holding all three products in their wallets over the same period of time were twice as likely to default on personal loans than a revolving line, and more than four times as likely to default on a credit card than a revolving line.
“These findings suggest that there is an opportunity for lenders to continue to provide much needed liquidity to consumers who need to manage the risk effectively. Our analysis suggests revolving lines may be a growth product for lenders, if correctly managed and understood,” said Marie Claire Lim Moore, CEO of TransUnion Hong Kong.
However, not every Hongkonger has all three types of these products. Currently, credit cards are the most widely-adopted consumer credit products in the Hong Kong market, with 96% of credit-active adults holding one or more cards. Hongkongers have four to five credit cards on average. When analysing consumers with multiple credit cards and personal loans, TransUnion said that during times of financial stress, consumers were more than four times as likely to default on a credit card than their personal loans.
Such findings were applicable to different risk segments and generations, although the delinquency spread between the two products tends to vary among different consumer segments. Consumers with higher risk were roughly twice as likely to default on credit cards than a personal loan, while consumers with lower risk were six times as likely. The relative tendency to prioritise personal loan payment over credit cards was similar across generations, although the younger generations tended to have higher levels of delinquency generally.
The research looks to understand any recent impacts on the consumer payment hierarchy due to economic shifts spurred by the pandemic. The findings indicate that the delinquency spread between credit cards and personal loans has widened by 20 basis points, indicating an increasing preference to pay personal loans ahead of credit cards.
When looking at consumers who just had a credit card in their wallet along with a personal loan, they tended to prioritise credit card payment. This was perhaps due to the lack of options available to them and hence they needed to protect the single card for everyday transactions and as a source of ongoing credit.
"Armed with insights across a consumer’s holistic wallet, lenders can better identify and predict top-of-wallet behaviours. By using trended data and advanced analytical techniques, lenders can meet the needs of consumers to stay or become the top-of-wallet card, and monitor shifting consumer behaviours during times of stress," said Moore.
"Understanding consumer preferences and behaviours can help lenders manage and set strategies through these unprecedented times," she added.