A new study carried out by TransUnion found that 28% of credit-active consumers in South Africa hold a credit card. Even though this study concentrated on the credit activity of “Gen Z” consumers –those born in and after 1995–, it also shed a light on the consumer credit market as a whole.
Credit Activity
The TransUnion study looked at the credit activity of “Gen Z” consumers in emerging credit markets, among which South Africa was included. The study aimed to understand the credit behaviours of this this age group by country — specifically observing credit activity, factors that can account for those behaviours, and the most commonly held products.
The percentage of the South African population that was categorized as Gen Z was 46% as of Q2 2019, representing almost 27.5 million people. The percentage of the population that was Gen Z and over 18 — and thus eligible to apply for credit — was 10%, which is almost 6 million people. The study revealed that just over a quarter (28%) of this eligible group was credit-active in Q2 2019, which comprised almost 1.7 million people.
Technological Advancements and Finance
Technological advancements have proven to play an important role in the way that Gen Z run their finances, as this generation was born in a time when mobile, online and app-based services were widely available.
“Gen Z is the first generation of digital natives and they have come to expect a seamless consumer experience across all walks of life — including how they access, use and manage credit,” says Carmen Williams, director of research and consulting for TransUnion South Africa.
The modern economy pushes these young adults to understand the importance of building and maintaining healthy credit at an early age. Possibly more aware that previous generations, they welcome credit opportunities to build their financial resumes, opportunities that are made available to them through the aid of new technologies.
The desire of this generation for credit requires that lenders keep up to the needs of Gen Z consumers. Technological advancements in the credit market has helped lenders service this demand. Tech-driven interventions in payments, savings, credit, some online loan applications and lending have all been central to the increased accessibility of credit among young adults, widening and deepening financial inclusion in South Africa.
Most Commonly Held Products
According to the study, the most commonly held products among credit active South African Gen Z consumers are clothing loans, which amount to the 66%. Gen Zs are eight times more likely to have this product than non-bank personal loans, the following most popular consumer credit product (8%).
The study also shows that, for credit-active consumers in South Africa across all generations, bank personal loans are the most commonly held product (30%). However, credit active Gen Z seem to go against the flow, as only 7% have bank personal loans.
Although the most popular credit product is clothing loans, the largest total balances were in the auto loans category. The reasons are logical: these loans are usually taken out for a larger amount and longer-term than personal loans and retail accounts. Moreover, they are also tied to the purchase of a specific big-budget item (i.e. a car or van).
Bank Credit Cards
In South Africa, credit card penetration is comparatively lower to the other markets studied because credit card issuers tend to have more conservative underwriting practices that concentrate on low-risk borrowers with longer credit histories.
That is why, when looking at bank credit cards, 28% of credit-active consumers in South Africa hold this product, but only 5% of credit-active Gen Z consumers do. For those Gen Z consumers who hold a credit card, their limit utilisation is higher and at an average of 68%, compared to the entire credit active population, where it is 58%.
The unpopularity of credit cards among the youngest credit-active population may be the result, according to the study, of the lower limit amounts on credit cards that Gen Z consumers are given. Card issuers typically assign lower limits to consumers with lower credit scores and limited borrowing history, and many Gen Z borrowers have higher risk profiles.
As regards the credit card use across all age groups, almost 30% of South Africans use their credit cards primarily to buy food and groceries, the latest Old Mutual Savings and Investment Monitor shows.
When asked what their credit cards are “mainly” used for, 29% of respondents in the survey said their cards are used primarily to buy food and groceries, while 28% said they use their credit cards mainly for emergencies. Sixteen percent reportedly use their credit cards mainly for big purchases, while 10% use theirs mainly to pay for travel. Only 8% use their credit cards mainly for online purchases.
The new study explores not only the credit behaviour of generation Z Consumers, but also the credit market as a whole in South Africa. When actively seeking credit, the youngest credit-active generation starts shaping the South African credit market.