In times of financial hardship, payment prioritization of credit
products often provides a clearer view of how consumers are meeting
the burdens they face. A new TransUnion (NYSE: TRU) Global Payment
Hierarchy study found that the COVID-19 pandemic had a pronounced
effect – in a short period – on how people paid their debts,
particularly when faced with financial stress. In Canada, the
changes were prominent across multiple credit products, with
consumers prioritizing their mortgage loan payments over auto
loans, credit cards, installment loans, and lines of credit.
“TransUnion has tracked payment hierarchy dynamics in Canada for
more than a decade, and in many other countries when they have
encountered localized financial challenges,” said Matt Fabian,
director of financial services research and consulting at
TransUnion. “This study is unique in that it highlights how and why
payment dynamics changed in different countries as a result of the
COVID-19 pandemic – a global crisis that has impacted consumers
worldwide. These insights will better equip both financial
institutions and consumers, fostering more trustworthy interactions
between them as the world begins to normalize and recover from the
pandemic.”
Credit Cards v. Personal Loans – What is the World
Prioritizing?
TransUnion analyzed and compared consumer payment hierarchy for
wallet profiles that are popular across the countries studied,
including Canada, Colombia, India, South Africa, and the United
States. The country-specific study observed consumers with one or
more credit cards and at least one personal loan with no
delinquencies reported at the time of selection into the study
sample. To determine which credit product was prioritized over the
other, TransUnion observed payment performance of those consumers
12 months later, measuring the rate at which these consumers were
30 or more days delinquent on their credits cards and personal
loans. As a result, payment priority and the delinquency spread
between the products in wallet was observed.
In Canada, the study uncovered that personal loans were
prioritized over credit cards across all risk segments. While
Canadian consumers are prioritizing personal loan payments, the
spread between personal loans and credit cards for below prime risk
segments (consumers with CreditVision™ risk scores between 300 -
719) has narrowed during the pandemic. Similar trends were seen in
the United States and India, which suggests that credit cards
gained importance during the pandemic and that consumers were more
focused on keeping their cards in good standing by making timely
payments.
A flip was observed in the payment hierarchy in 2020 during the
pandemic in South Africa as credit cards were prioritized over
personal loans, reversing the pre-pandemic hierarchy in favour of
personal loans. Colombian credit usage showed no clear
prioritization of either product until March 2020, when more value
was placed on personal loans.
An interesting dynamic occurred in other countries wherein the
payment hierarchy flipped during the pandemic for those consumers
possessing only one credit card and at least one personal loan. In
those cases, credit card payments were prioritized during the
pandemic, in contrast to the pre-pandemic preference for personal
loan payments. This shift further demonstrates the increased
importance of credit cards for consumers during the pandemic and
the need to maintain access to this valuable source of credit.
Unlike other countries, Canadian consumers did not demonstrate this
hierarchy. The payment hierarchy for Canadian consumers remained
the same in favor of personal loan payments for those with only one
credit card in wallet.
Personal Loans Mostly Prioritized Over
Credit Cards…
Credit Product 30+ DPD Rate* |
Canada |
Colombia |
India |
South Africa |
United States |
Q3 2020 |
Credit Cards |
0.86% |
5.26% |
6.51% |
13.62% |
1.78% |
Personal Loans |
0.51% |
4.62% |
5.46% |
15.30% |
1.11% |
Q3 2019 |
Credit Cards |
1.41% |
3.35% |
5.03% |
14.03% |
2.94% |
Personal Loans |
0.51% |
3.57% |
3.01% |
12.90% |
1.49% |
*30 or more day delinquency rate at 12 months for
consumers who possess at least one credit card and personal
loan.
…But the Dynamic Shifts if Consumers Only
Possess One Credit Card (except for Canada)
Credit Product 30+ DPD Rate** |
Canada |
Colombia |
India |
South Africa |
United States |
Q3 2020 |
Credit Card |
1.11% |
3.30% |
4.68% |
11.81% |
1.48% |
Personal Loans |
0.79% |
5.86% |
5.76% |
16.81% |
1.66% |
Q3 2019 |
Credit Card |
1.89% |
2.63% |
4.19% |
12.18% |
2.62% |
Personal Loans |
0.78% |
5.11% |
3.32% |
14.48% |
2.36% |
**30 or more day delinquency rate at 12 months
for consumers who possess one credit card and personal loan.
“Cash was not king during the early parts of the pandemic.
Millions of people opted to use their credit cards to make digital
transactions from the safety of their home for groceries, clothes
or other everyday items,” said Matt Fabian, director of financial
services research and consulting at TransUnion. “While consumers
with a single credit card continued to prioritize payment of
personal loans, unlike the trend we observed in other countries, we
noticed the spread narrowing as consumers look to preserve their
credit card to continue spending for digital transactions.”
These findings were further corroborated by a global behavioral
survey of 2,667 consumers who possessed credit products in Canada,
Brazil, Colombia, Hong Kong, India, South Africa, the United
Kingdom and the United States. When we asked consumers across these
regions to share their likelihood to make a payment between primary
card (defined as the card they use most), secondary card and
personal loan payments, it was clear that secondary credit card is
the first payment they are likely to miss. Only 26% of Canadian
consumers indicated that they are likely to prioritize the
secondary card payment versus 37% of these consumers are likely to
pay their primary card and another 37% of them would pay personal
loans first.
Consumers reported that these preferences are driven by
perceived consequences. Canadian consumers recognized that there
will be consequences if they miss at least one credit card payment,
with nearly three-quarters (72%) of respondents saying they
expected negative impacts on their credit score if they missed one
payment. The negative implication of a missed payment to a credit
score was well understood most by credit card and personal loan
holders. Approximately 68% of Canadian consumers with personal
loans said a consequence of a missed payment would result in a
lower credit score.
Deeper Dive into Canadian Payment Hierarchy Dynamics
Shows Mortgage is Priority #1
In Canada, TransUnion’s study also focused on consumers that
have five products in their wallet – auto loans, lines of credit,
installments, credit cards and mortgages. Mortgages were
prioritized over the other credit products, a dynamic that has held
since Q1 2017.
For those consumers possessing auto loans, lines of credit,
installments, credit cards and mortgages, the 30+ days past due
delinquency rate at 12 months following observation was lowest for
mortgages at 0.24%. Installment loans and auto loans had the
second-lowest delinquency rates at 0.30% and 0.31%, respectively,
followed by lines of credit at 0.39% and credit cards at 1.92%.
Payment hierarchies in Canada appear stable when compared to the
results for other countries where TransUnion operates.
Consumers Prioritizing Mortgages Above
All Other Major Credit Products
Credit Product 30+ DPD Rate** - Timeframe |
Q3 2020 |
Q3 2019 |
Auto Loans |
0.31% |
0.29% |
Credit Cards |
1.92% |
2.26% |
Installment Loans |
0.30% |
0.27% |
Lines of Credit |
0.39% |
0.39% |
Mortgage Loans |
0.24% |
0.21% |
**30+ days past due rate at 12 months for those
borrowers possessing all five credit products.
In addition to more people working from home and rising home
values, mortgage loan performance is likely benefitting from
thousands of mortgage borrowers entering accommodation programs
soon after the onset of the pandemic, with a peak of more than 13%
of consumers with a mortgage taking advantage of a payment
deferral. The study points to both subprime and near prime credit
risk mortgage borrowers benefitting the most from these programs,
as they were able to delay payments and maintain their accounts.
Furthermore, the behavioral survey revealed that consumers expect
consequences if they miss mortgage payments. 73% of Canadian
respondents said they expected to get a call from their lender if
they missed a mortgage payment. About 25% of Canadian consumers
said they think that money would be withdrawn from their bank
accounts if they miss a mortgage payment.
“Mortgage is the clear priority for Canadian borrowers,” said
Fabian. “The mantra, ‘you can’t drive your home to work’ doesn’t
have the same effect when millions of Canadians are waking up,
showering, eating breakfast and taking only a few steps to their
home office.”
“The pandemic has changed so much in the world, but
understanding why consumers are making important credit decisions
only serves to better help the lending ecosystem in the future,”
concluded Fabian.
TransUnion’s ongoing research on payment hierarchy has three
clear implications for lenders. First, lenders need to identify
their own customers’ payment hierarchy to better manage consumer
expectations and portfolio trends, leveraging this approach.
Second, this study and past studies conducted across credit
economies to decode loyalty have proven that consumers who are
loyal to their lender tend to pay them first. Lenders can build
loyalty amongst their existing customer base, by incorporating
advanced off-us data and analytics into their ongoing account
management strategies. Managing and defending loyalty is critical,
especially amongst those who are top-of-wallet customers and those
who carry only one credit card in wallet.
Lastly, as the study showed a narrowing of the spread between
card and personal loan payments, and in some cases a flip in
hierarchy, it implies a need for acceleration of the digital
ecosystem in the credit markets. Lenders can benefit from providing
a friction-right experience to consumers while distinguishing
between good consumers and fraudsters, and hence building consumer
trust to conduct digital transactions in the post-pandemic
world.
For more information about TransUnion’s Global Payment Hierarchy
Report, please visit
https://solutions.transunion.ca/consumer-payment-hierarchy.
About TransUnion (NYSE: TRU)TransUnion is a
global information and insights company that makes trust possible
in the modern economy. We do this by providing a comprehensive
picture of each person so they can be reliably and safely
represented in the marketplace. As a result, businesses and
consumers can transact with confidence and achieve great things. We
call this Information for Good.®
TransUnion provides solutions that help create economic
opportunity, great experiences and personal empowerment for
hundreds of millions of people in more than 30 countries. Our
customers in Canada comprise some of the nation’s largest banks and
card issuers, and TransUnion is a major credit reporting, fraud,
and analytics solutions provider across the finance, retail,
telecommunications, utilities, government and insurance
sectors.
https://www.transunion.ca/
Contact |
Rod
Masson |
|
TransUnion |
|
|
E-mail |
rod.masson@transunion.com |
|
|
Telephone |
1-905-340-1321 |
TransUnion (NYSE:TRU)
Historical Stock Chart
From Mar 2024 to Apr 2024
TransUnion (NYSE:TRU)
Historical Stock Chart
From Apr 2023 to Apr 2024