Study: More Gen Z consumers in HK participate in credit marketplace since post-pandemic era

There has been a growth in credit led by younger consumers in Hong Kong as they increasingly engage and participate in the credit marketplace since the post-pandemic economic reopening. 

According to a TransUnion survey, which aims to provide lenders insights into trends in the local credit market that help them position for growth, originations among Gen Z consumers in above-prime risk tiers grew by 27% YoY in Q4 2022, with originations among millennial above-prime consumers growing by 17%. These two generations accounted for the largest portion of growth among prime and below consumers as well, with 23% growth among millennials and 22% growth among Gen Z consumers.

This is also backed by TransUnion’s previous study into the credit behaviour of younger consumers which showed that Gen Z consumers have the greatest appetite for credit as they mature into adulthood. The study also found that Gen Z consumers were more like to hold credit from non-bank lenders, including money lenders and virtual banks, than millennials were at the same age in 2016. 

On the other hand, the personal loan landscape has changed significantly since the inception of virtual banks, with their FinTech solutions drawing market share from money lenders. In 2020, virtual banks accounted for 1% of personal loan originations, with their market share of originations growing to 7% in 2022.

Virtual banks are quite successful at acquiring younger consumers, with Gen Z borrowers responsible for 22% of virtual bank personal loan originations in 2022, up from 16% in 2021. Gen Z were responsible for 9% of traditional bank originations during 2022, and for 13% of originations with money lenders that year. Virtual banks appear to be targeting younger consumers for unsecured revolving lines too, as 30% of originations of this product by virtual banks during 2022 were to Gen Z consumers. 

This comes along with the fact that the credit activity in Hong Kong has grown significantly since the post-pandemic economic reopening, with originations across major products recording the first positive growth in the past six quarters.

The most significant growth was among credit card originations, which increased by 28% YoY, said the latest report. The total credit limit at origination increased by 45% YoY, while outstanding balances grew by 18% compared to 7.3% in the previous quarter.

The most significant growth in card originations was among super prime consumers, who account for 66% of Hong Kong’s credit-active population; card originations to super prime consumers were 30% higher compared to same quarter of 2021. Prime plus and prime consumers, who account for 24% of Hong Kong consumers, made up 34% of the overall originations and grew by 24% YoY in Q4 2022, reflecting the growth in demand and supply of new cards among lower-risk borrowers.Private consumption expenditure also surged by 13% YoY in real terms in the first quarter, and overall investment expenditure reverted to 5.8% growth.

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To compete in this changing environment, Transunion said traditional lenders need to accelerate digitisation to provide a friction-right customer lending experience, while preventing fraud.

“Virtual banking aligns with Hong Kong’s quick and slick culture, with virtual banks innovating the landscape with technological advancements to provide a new and simplified banking experience. Their technology-enabled credit risk profiling means that they can make quick credit decisions, extending credit and other financial services to consumers, all via a device in the palm of their hand, wherever they may be and at any time,” said Kevin Chen, principal, financial services research and consulting at TransUnion Asia Pacific.

”Strong growth in the card market in particular suggests that there are opportunities for lenders to meet consumers’ rising demand, with re-engaged consumers in the target risk segments indicating potential profitable growth, driven by the products and benefits that they value,” Chen added.

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