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Understanding Changing Credit Consumer Profiles Through the Power of Data

  • Demand for credit products in the Philippines continues to grow
  • Personal loans are gaining ground on credit cards in terms of demand
  • 55% of all new credit application inquiries came from outside the National Capital Region
  • New-to-Credit consumers seen as viable avenue for lenders to drive growth and acquisition, accounting for 26% of all new credit application inquiries

Manila, Philippines, September 26, 2023 – Lenders that understand evolving consumer credit needs can confidently grow according to TransUnion Philippines research presented during its recent Big Data Summit. Findings presented show that consumer demand for credit is increasing, with an additional 89% from the total number of inquiries received in Q2 2022. Of those inquiries, 66% were for credit cards, 23% were for personal loans, while the remaining 11% were for housing and auto loans. While credit cards still comprise a majority share of demand, inquiries for personal loans are gaining ground on credit cards. This is driven by digital banks and FinTechs who have entered the market.

Demand for credit is growing outside the NCR

A geographical breakdown of the figures shows that 55% of the total new credit application inquiries received in Q2 2023 came from regions outside of the National Capital Region (NCR). This indicates a reversing trend over the last two years as inquiries emanating from the NCR held the majority share of inquiries received at the onset of the pandemic. This trend can be attributed to expansion policies, with banks, digital banks, and FinTechs establishing footholds in non-NCR regions.

Casting a wider net for New-to-Credit (NTC) consumers

New-to-Credit (NTC) consumers are those with no prior credit history who opened their first ever traditional credit product such as a credit card or auto loan. Analysis showed that of all the new credit application inquiries received in Q2 2023, 26% were from the NTC segment. Primarily driven by unsecured lending, these findings show an increase of five percentage points of the total number of NTC applications tallied in Q2 2022.

With the observed increase in demand over time, lenders are seeing the potential of the NTC consumer segment as an avenue for growth where they can increase their approval rates. However, to maximize growth, lenders need information to make sound decisions in a rapidly evolving acquisition environment.

While credit scoring can identify good borrowers, establishing trust based on a prospective borrower’s identity attributes and address verification can help identify trustworthy borrowers among NTC consumers. By meeting those types of set parameters, such borrowers could enjoy benefits such as Straight-Through Processing (STP), avoiding the need for extensive field investigations.

Harnessing data to better understand consumer behavior

“Understanding consumers more deeply is imperative, now more than ever,” said Pia Arellano, president and CEO, TransUnion Philippines. “Knowledge and data should be the drivers that will empower us to adapt and act accordingly.”

The emergence of alternative data-based credit scoring is another reason lenders have increased confidence in the NTC consumer segment. The World Bank defines alternative data as information gathered from non-traditional data sources[1]. The availability of alternative data such as telco data provides a valuable tool for assessing the creditworthiness of NTC consumers and enables lenders to find and approve more good customers.

Lenders can also use this data to prudently provide larger credit limits or loans with better terms to NTC consumers. By better understanding the needs of this segment, NTC consumers enjoy better experiences which can go a long way in generating long term loyalty. Already, Filipino consumers’ telco data, including reloads, repayments, mobile data usage and device data, can be included in the calculation of their credit score.

What we can do to maximize growth and further increase financial inclusion

While utilizing the power of data can unlock greater economic opportunities for more people, local challenges to financial inclusion persist. One of the biggest insights from TransUnion Philippines’ recently published Credit Perception Index Study was that many Filipinos have a negative perception of credit. To them, credit is associated with bad debt, overspending, and financial irresponsibility. Alongside a preference for traditional financial products, these reasons could be influencing factors for why the penetration rate for credit cards in the country stands at only 25%, compared to countries like the United States and Hong Kong where the percentages of adults who own credit cards stand at 70% and 69%, respectively.

While demand for credit cards may be growing, there remains a need for the formal financial sector to work together to educate Filipinos on the benefits of credit products, and address misconceptions surrounding credit to improve financial inclusion in the country.

“Clearly, there’s significant work to be done to change perceptions. Just as it takes a village to raise a child, it will take sustained collaboration to build the road to financial literacy and inclusion in the Philippines,” said Arellano.