How is the younger generation changing Hong Kong's consumer credit market?

The volume of unsecured products bought by Generation Z or consumers born 1995 or later ballooned by 63%.

Although they represent a small part of the local economy, Hong Kong’s up and coming younger generations are increasingly introducing a new dynamic into the domestic consumer credit market as they bring their tech-savvy attitudes into the credit landscape with a growing preference for digital lenders. 

Total installment loans inched up 1.9% in Q1, according to consumer credit reporting agency TransUnion, with the younger generations being the largest growth drivers.

The personal loan balances held by the youngest generation, Gen Z or those born 1995 or later, ballooned 78.5% YoY whilst those held by millennials (1980 to 1994) similarly rose 10.7% YoY.

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On the other hand, personal loan balances held by Baby Boomers (born 1946 to 1964) dropped 4.1% YoY in Q1, whilst balances held by Generation X (1965 to 1979) inched up by a measly 1.9%.

“Gen Z represents a very small part of the Hong Kong economy, but the immense growth we’ve observed by the youngest generation in such a short period is likely just the beginning of a transformative shift in the Hong Kong consumer credit market,” said Brendan le Grange, director of research and consulting for TransUnion Hong Kong.

The number of unsecured credit products bought by Generation or Z, or consumers born 1995 or later, ballooned 63% YoY whilst those for millennials grew 7% YoY over the same period. Those for the baby boomers dipped 1% whilst those for the silent generation (born before 1946) declined 3%.

Generation Z consumers also have the potential to disrupt the current lending landscape, TransUnion noted, as manifested in the near prime risk tier which has the largest share of personal loan accounts and balances amongst all risk tiers. This tier is where money lenders that provide unsecured loans via digital means like fintech hold 28% of total balances and have 40% share of Gen Z and 24% share of millennial balances, which indicates a growing preference for business with the digital lender type.

The borrower profile for personal loans is also younger than for credit cards, the largest unsecured account type. Millennial and Gen Z consumers held 36% of all personal loan balances in Q1 2018, compared to 27% of credit card balances.

The long-term growth of unsecured credit products is poised to be dominated by millennials and Gen Z customers, forecasted the consumer credit firm, as older consumers like baby boomers continue to witness shrinking balances.

“As younger consumers with purchasing power enter the market, lenders will need to understand that their borrowing needs may differ from older generations – even from Millennials, who have long been viewed as the catalyst for credit growth in the market. It’s highly likely that digital channels will continue to be a key in reaching Gen Z consumers as we’ve already observed,” said le Grange.