Decoding the Consumer Payment Hierarchy in the United States

The world changed drastically in 2020 as we grappled with the economic impacts of the COVID-19 pandemic. Changes in financial situations and stay-at-home orders caused a temporary — and in some cases, longer-term — shift in how consumers prioritize their payment obligations. When consumers can’t meet their financial obligations, they make decisions about which loan product they pay first. We call this the consumer payment hierarchy.

The payment hierarchy is not about understanding trends in delinquency for a single product. Instead, it analyzes how consumers are rank ordering their payments, particularly in times of financial strain. Under the analytic approach used in this study, if consumers with credit cards and other products in their wallet default on credit cards at lower rates relative to other products, they are prioritizing their credit card payments.

In our study, we identified four trends in the payment hierarchy across the globe:

1. The pandemic spurred shifts in the delinquency spread between cards and personal loans
2. Consumers with only one credit card in wallet prefer to pay their card over personal loans
3. Consumers say they don’t prioritize their secondary cards
4. The younger generations’ payment hierarchy differs from older generations

The payment hierarchy before and during the pandemic in the United States

Prior to 2020, consumers in every region prioritized their personal loans over their credit card. This trend was largely driven by the presence of multiple cards in wallets, which allows consumers to go delinquent on one or more of their credit cards, while paying their primary card and preserving its use. As digital transactions became more common and necessary during the pandemic, we observed variability in the spread between card and personal loan delinquency rates in response. In the United States, consumers consistently prioritized their personal loan repayments over credit cards before and after the pandemic. However, the gap between personal loan and card delinquency narrowed following the COVID-19 pandemic and corresponding economic crisis.

When consumers have only certain credit products in their wallet, their payment behaviors can change. While consumers with more than one card prioritize personal loans in the United States, the payment hierarchy reversed for single cardholders. In the United States, consumers with one credit card prioritized their personal loan until Q1 2020, when consumers shifted to prioritize their credit card in the wake of the pandemic. This trend has continued through Q3 2020.

To understand why consumers make the choices we observed from our data, we also commissioned a global behavioral survey to decode consumers’ choices. Across all of the regions, our survey found that consumers ranked their primary card (defined as the card they use most frequently) or personal loan as the most valued product. The likelihood of a consumer choosing to prioritize repayment of their secondary credit card in the United States is only 27%, well below the likelihood that they will prioritize either their primary card or their personal loan.

Finally, we analyzed how the payment hierarchy changed or remained consistent for younger consumers in the Millennial and Gen Z generations. In the United States, younger consumers’ payment hierarchy remained consistent with the older generations.

 As lenders recover from the recent crisis, they need to decode the payment hierarchy to better address consumer needs across the credit lifecycle. To access the full report and our recommendations for lenders, visit Global Payment Hierarchy page.