TransUnion Live – Understanding New-to-Credit Consumers

Watch our on-demand TransUnion Live on LinkedIn discussion in which we shared insights about how the tens of millions of consumers worldwide who become new to credit (NTC) each year are advantageous to businesses and consumers. Based on our recent Empowering Credit Inclusion Study, we explored NTC consumer profiles globally, and how businesses can tap into these findings to profitably expand credit access to new, creditworthy and deserving consumers — and achieve their growth goals.

Full Transcript Below

Andrew Goss/Host:

I'm Andrew Goss and I'm excited to be joined by my esteemed colleague, Nidhi Verma, to discuss findings from our recent global research study around new to credit consumers. Now, before we get started, I have a quick housekeeping item to get to. You'll notice there's a common area. If you have any questions related to today's conversation, feel free to put those comments in there and we'll do our best to get to them, uh, during today's conversation. If we don't get to them today, we'll do our best to circle around to you. So, um, let's get started. Nidhi, thanks so much for joining us.

Nidhi Verma/VP, Research & Consulting:

Thank you, Andrew. I'm extremely honored to be here today and be sharing with you our global research on new to credit consumer segment.

Andrew Goss/Host:

Great. Thanks so much Nidhi. So like, I think it's best to get started, so we're all singing from the same song. Let's get to that common definition of what we consider new to credit consumers. Um, and also let's get to how many new to credit consumers enter the marketplace every year.

Nidhi Verma/VP, Research & Consulting:

Yeah, let's set the foundation of who we're gonna be discussing today as consumer segment. And if you really think about it, within every credit economy, there are credit visible consumers and then there are credit invisible consumers purely defined by the presence of consumer credit information on those, uh, populations. And amongst the credit visible consumer population, there are three very unique consumer segments, Andrew Credit established, or in other words, those who are credit served, we call them new to credit consumers. And then credit underserved, which are essentially the counterparts of credit serve consumers. And all three of these credit visible consumer segments really wary by the credit history usage of how they use credit and how they're participating in the marketplace, uh, as part of their financial lives. And an equally important consumer segment when we think about broadening financial inclusion is the new to credit consumers.

These are consumers who are opening their first ever traditional credit product in whichever economy they are. So to give you some real life examples, um, I'll start with myself as an example. I moved to the United States in 2001, um, as um, a student in America pursuing my master's degree. Uh, I came from India and started my credit history in America from scratch. So whatever I held as credit products back there, being an immigrant really pursuing higher education opened my first credit card. That was the point of my entry as a new to credit consumer in the marketplace. Um, another example is, uh, you know, a young adult who graduates from college, it opens their first credit card or a young adult opening a personal loan to be able to pay those insanely high rental payments that we're experiencing as part of this inflationary inter interest rate environment.

These are consumers who are new to credit consumers entering the marketplace, starting their journey for the first time. And as you can imagine, these consumers don't really have sufficient history available for us as an ecosystem to make informed decisions. So really understanding what their needs are at the beginning of the journey, but also as they graduate in their journey, super critical for the financial ecosystem simply to set a strong foundation for these consumers to have a lifetime productive responsible credit behaviors. Um, and I think you also asked me not only who these are, but how many of these consumers have you seen? So our study that covers both developed as well as developing credit economies really goes all the way back to 2017 so we can truly understand what the pre pandemic volumes and then now the post pandemic volumes look like. And as you can imagine, intuitively, we all know that with the onset of the pandemic, we saw a dramatic fall in the numbers, especially in 2020 as well, in 2021.

But the year 2022 really showed us a significant rebound, especially as we saw resilient consumers continued strong demand for credit, especially from this N T C segment. Um, as we recovered and, and if you think about across the markets we serve, uh, US, Canada, Hong Kong being very developed, credit economies, and then Columbia, India, South Africa being more developing as well as emerging credit economies, there are tens of millions of consumers across this marketplace. Let's start with the US as an example. In 2022, we had 6 million new to credit consumers who opened their first ever credit product for the first time, which marks the entry for them into the financial ecosystem. When you look at a market like India where we know the population numbers are higher, it was just under 40 million consumers who started their credit journey. So when you look across all of these markets emerging as well as develop, we're talking about tens of millions of consumers.

And I think what's really important in our dialogue today is what are we seeing from a year over year growth? Because we're coming off a pretty low period from 20 20 20 21 into 2022, and now especially into 2023. When you think about an economy like Canada where there is a target to get more new to Canada consumers, we're looking at growth rates that are astounding growth rates starting with Canada just on a 30% growth rate in 2022 versus 2021 in the volumes of new to credit consumers in the US that was about 5% in markets like India, which is growing at a double digit rate that was about 21% growth rate in new to credit volumes from a year over year perspective. And we're expecting these numbers to grow even at a faster pace as we together work to empower financial inclusion for these consumers.

Andrew Goss/Host:

Wow, that's, that's uh, some eye-opening statistics. Um, and and speaking of eyeopening, I think when we got into the profiles of these new to credit consumers and attributes, um, one area that really stood out and I was really curious about because I, I had some preconceived notions there was age. So could you get into what are the profile of the age of a new to credit consumers and um, and get to some of the surprising findings, which I think I found?

Nidhi Verma/VP, Research & Consulting:

Yeah, absolutely. I think there's a lot of hypotheses around who these consumers are, especially from an age perspective. And I think the general perception is, if I had to guess what your guess was, Andrew, is that these are younger than the overall credit active population because they're at the beginning of the journey and you know, based on the expectation that a lot of the consumers see credit for the first time soon after they become an adult, they leave school, enter the workforce and what have you. And that essentially becomes a beginning of the journey. But based on our study, I would say yes, the hypothesis is true, but that's not the full pie or the full universe of who n to C consumers are. So on an average, when you think about the Gen Z population, which essentially we define as those who are born in 1995 or later, and then the millennials who are 1980 to 1994 birth, uh, which certainly don't belong to any of those generation groups, but that these two generations made up, um, about 80%, which is the two youngest generations that are essentially eligible for credit.

Right? So Gen Alpha is not quite yet participating in the labor market. They're not quite at the age where they would be eligible for credit, but Gen Z alone made on an average across the globe about 51% of the population. And when I think about that, you know, think about the US as an example. 59% of those 6 million consumers that I talked about were essentially Gen Z consumers. And then 21% were millennials. So certainly a lot of these consumers are younger, absolutely right on from an intuition perspective. But with that said, the fact that's 59 and 21, but then you still have a good chunk of consumers. If I think about the average cross globe, just about 41% of thee consumers were 30 and older. When you think about a market in India that's still emerging, where consumers are still entering the credit marketplace at a later age in time, that number for 30 and older was about 60%, and on an average about 14% 50 and older.

So what that tells us that these consumers are certainly younger consumers, uh, but not all of them. And what's important takeaway from an age perspective is making sure that we as providers, whether it's telecommunications, whether it's uh, a, a, um, credit union, whether it's a traditional bank, is we're thinking about what their needs are because they are diverse in age because they are entering the market at different age groups. Especially when you think about new to country consumers, I think we have to keep in mind that we're tailoring our offerings to meet the universe, uh, the the diverse needs of the N T C consumers and not really catering to them all with the same offerings to advanced financial inclusion.

Andrew Goss/Host:

Got it. Well, that's a lot of data, so I think it's good. Now let's get into, um, attitudinal, right? What are new to credit consumers attitudes toward, toward um, credit access?

Nidhi Verma/VP, Research & Consulting:

Yeah, so you know, our data is certainly, um, obviously very powerful when it comes at answering the questions on what the behaviors of these consumers are, who they are. But when you think about the why that comes from the voice of consumer Andrew. And so in addition to studying credit data as a result, we also analyzed, as you said, attitudes their behaviors in terms of understanding the voice of the N T C consumers and their needs and perceptions. TransUnion conducted an online survey of up just under 9,000 consumers from a range of developed and developing credit markets, uh, such as Brazil, Canada, uh, Columbia, um, Dominican Republic, Philippines, India, South Africa, and of course the us. And there's a number of themes that we found that emerged from that voice of consumer. Um, some that I'd like to call out simply because we have a role to play, um, when it comes to solving for things that we heard from these consumers loud and clear and what interest, few of the interesting observations were that a majority of these consumers are getting access to the car, the products, um, that they've applied for, but sometimes they have to go through multiple lenders to get access to it and taking about a month or so from the time that they want it to open a product to the time that they actually opened their first product.

I think the other one was why are they actually entering? Right? I think that's really important because making sure that their intent matches the action. So a lot of these consumers are entering the markets, especially in markets like us, Canada, Hong Kong, because they have, um, a, they find that this is a convenient way of spending, that's their top motivator, right? It kind of aligns very much to the fact that a lot of these consumers are opening credit card, which certainly can be transactional. Certainly enables consumers to finance their daily lives through that matter of convenience versus when I think about emerging markets like Columbia, South Africa, India, it was mostly to fulfill a new expense that they had that they had to fulfill. So I think that's important to understand is, you know, what is their intent and are we being able to match their action to support financial inclusion?

Um, what's really driving their need and their desire to work with a specific lender. It's convenience, convenience, convenience. And that's what we heard loud and clear. That's what's driving their selection of who they wanna work with as the primary lender, uh, that's entering the market. Um, we also heard from them that they believe their needs are gonna grow. So this is not a one and done, um, you know, open the door with the first product in hand and here you go, you are off to a journey. You know, over 60% of the consumers told us that their need for credit is gonna expand in the next three to five years, which in markets like India was almost 80% of the consumers said that, which essentially means how do we make sure that we're serving their needs after opening the door and what that journey looks like from there on.

And the one that I'll point out specifically being a key hurdle in coming into the market is the high interest rate environment. I think it's not a surprise to anyone that we're experiencing high inflationary, high interest rate environment hikes that, you know, certainly don't quite yet meet some of the historical trends, but one that is, um, definitely a shock to many wallets of consumers. And a lot of these consumers also, uh, loud and clear told us in the survey that high interest rates are one of the top reasons they're rejecting the offers, uh, for credit and is becoming, uh, definitely a big hurdle for them to enter the market.

Andrew Goss/Host:

Got it. I'll pause. Yeah, yeah, we got into a lot of motivation there, but I think also it's good to look at, um, the types of products that are motivating these new to credit consumers. So when it comes to that first credit product that these new to credit consumers, um, choose and then the subsequent credit products, what are we seeing?

Nidhi Verma/VP, Research & Consulting:

Yeah. Um, you know, also, not to mention since the study goes all the way back to 2017, some of these product preferences may or may not have changed. And that's something we certainly dig deeper into to analyze what was that first product? If you think about the pure definition of new to credit consumers is defined by that time where you enter the credit market and when key observation that was very consistent across developed markets was that it was a credit card story. So 86% of consumers in Canada start their journey with a credit card. 61% of consumers in US start their journey with credit card. I shared my example early on, would probably no different, uh, for you and others who are listening to us today, that was 88% of consumers in Hong Kong. So if you think about the developed markets, and as I just mentioned from a voice of consumer, it's the convenience of being able to spend and live their daily lives is what's driving that first traditional credit product choice.

It continues to be a card story and essentially very much also aligns with the adoption of what we've seen in digital transactions and e-commerce in some of these developed markets. What's interesting is it's considerably variable, uh, Andrew in the developing markets, and it is because of several reasons. So I'll point out that in India, for example, you know, high ticket financing, in other words called consumer durable loans, uh, which are used to purchase any of the larger ticket size basket, that was a product that consumers entered the market. When you think about a market like South Africa, the leading product is a clothing account, which essentially is a facility for consumers to be able to transact in the retail environment and is mostly funded by retailers. Um, in Columbia, as I mentioned earlier, when you think about the, what we're seeing in Latin America countries is before the pandemic, it used to be more to the sense of microcredit loans, but now is a credit card simply because we've seen more and more digital advancements happen and transformation happens.

I never say this, but I'll say it today, thanks to the pandemic that happened. Uh, but you have to also think about they're different by different markets only because of the availability of products available to these consumers that varying credit history and how they're assessing bar risk also has a huge role to play in which are these products gonna be. So what I'll say is, you know, while we see these consistency, I think the other really aha moment in the research for us was, um, what are the opening next? Again, as I said earlier, it's not just about opening the door but also understanding how their needs grow. And what I really wanted to see in our research is when we look at a two year window from the time they entered the market over the next two years, are they opening subsequent products? And I think you asked that question.

Um, and I'll say the good news is yes, a majority of these consumers are coming back and opening subsequent products because that's really the type of usage and participation that we wanna be able to see. Majority of them are doing that. Uh, we definitely saw a big drop in that activity due to the pandemic. But in the US as an example is if you are a consumer, and as I said earlier right, about 60% of consumers in the US start their journey with a bank card, um, which is a general purpose credit card. What we saw is that 40% of those consumers were opening another card, 21% were opening a private label card. Interestingly enough, if you actually started your journey with an unsecured personal loan, the next product was also a personal loan. I think what the observation here, I'll summarize with that, is that the picture of sub Sigmund products that these consumers are opening more or less mirrored of what their first product in wallet was.

And that was a very global observation and it really makes sense if you think about it from a consumer's psyche point of view, right? If I'm opening the first product to be a credit card, and we also found in our research that the line assignments are lower, generally the pricing is a little bit higher, and that's really essentially a tool for lenders to minimize and optimize the exposure for consumers who basically have not enough credit history, that's the way to manage risk, but they're opening the next product also to be credit card 'cause they're potentially getting higher limits, better pricing, better rewards, and hence providing a little bit better value in their day-to-day usage for these products.

Andrew Goss/Host:

Got it. Well it'll really interesting stuff and, and you know, kind of switching a little bit here from right, the typical profile to, um, risk, um, you know, many, many folks might consider these new to credit consumers being riskier just by byproduct, right? You don't have the history on them. Um, what did we find?

Nidhi Verma/VP, Research & Consulting:

Yeah, I mean, how could we not talk about the risk story when we talk about, especially consumers who don't have enough credit history to be able to make the decision? So definitely a very important part of our research focused on understanding that the N t c consumers that are opening subsequent products, um, when we compare them on likewise risk, likewise age, uh, groups to those who are credit served, how do they actually perform six months later on these new products? And when I look at some of the delinquency rates, I think it was very clear, especially in the near prime and prime scores, uh, segments, which is generally the scores most of these consumers are in the early part of their credit journey that the delinquency rates were either comparable or even better. I throw some, you know, numbers out there that I think are really important to consider.

Uh, when I look at ever 90 days past you at six months on book in the us new to credit consumers had about a 3% delinquency rate versus those who are credit service 2%. So that's very manageable. That's about a hundred basis points difference for likewise risk, likewise age, but certainly these are the consumers that are providing a lifetime of opportunity for growth as we go on. When I look at a market like Canada, in fact, media credit consumer perform a lot better, 2% growth, uh, delinquency versus 4%. So in essence, I think again, debunking a hypothesis that these consumers tend to be riskier, generally speaking, when you compare likewise, risk, likewise age, and we have the right control groups, in fact, these consumers perform quite well, um, as compared to, in fact, one thing I'd also highlight is even though a lot of these consumers are getting lower line assignments for their first product, they're utilizing them at a much lower rate, which essentially for me particularly demonstrate the fact that they are demonstrating very productive and responsible behaviors in making sure that they're not over utilizing their first access to credit and making those payment obligations in a judicial way.

Andrew Goss/Host:

Got it. Well, we, we've touched on this, um, from, you know, kind of a high level view, but, um, you know, let's talk a little bit about the benefits to businesses beyond just lenders as well, right? Like telecom insurance and rental screening com mm-hmm. <affirmative> companies, um, from helping emerging consumers early in their credit journeys.

Nidhi Verma/VP, Research & Consulting:

Yeah, so first of all, I think just reiterating for those who are joining us a little bit later is the fact that there are hundreds of millions of these consumers across the markets that we serve. Um, the sheer volume makes them very, very important. Um, and I think when we think about the important goal of empowering financial inclusion, it not only just matters to, uh, credit providers, issuers, lenders, uh, fintechs, but really both public and private organizations in every market are essentially working together to make sure that there is a healthy flow of consumers entering the marketplace for the first time. Because at the end of the day, as we raise the standard of some of these consumers by providing them the access that's gonna be important to meet their financial goals, we're at the end goal working towards holistic economic growth. Uh, now certainly we wanna make sure that, uh, whether it's a telco company providing the first mobile plan to a consumer who's just entering and making their payments accordingly, you know, consumers have several payment obligations as if you look through their wallet.

It's not just all, um, uh, on, on the credit side of the house. I think understanding those relationships early on and managing them over time really enables consumers to have that upward mobility. Um, I can't help but also talk about the fact that there's an important part of the research that focuses on understanding, you know, what is in it for me as a lender, if I am the first one giving you access to the first product in your wallet, what is in it for me? Personal example. Um, as you, as you heard me talk earlier, Andrew, my journey started with that first credit card that I got access to. I am still using not that particular card because of course that company, let's call the bank A, B, C for now, the bank A, B, C, has done a tremendously good job of graduating my card over time and moving it to one that offers me the best rewards, offers me the rewards that I actually need to be able to go on with my life, um, and be able to make payments.

I'm, I'm still with that same card, like how many of us who are listening right now, actually remember the one that gave you the second or the third card, and how many of us actually remember the first card that we ever had in our wallet? Right? It is super important whether you are a telco company, whether you're any other provider that's catering to these consumers, entering the ecosystem, uh, of the entire marketplace, the commercial marketplace, to really understand what is in it for me in terms of developing those future lifetime relationships. Um, I'll call it a number that's important in the US as an example, what we found is that about 24%, which is pretty decent, number one in four consumers, are actually opening their subsequent products. Remember I said, if you start a journey with card, the next one's gonna be card, they're going to that same lender, right?

One in four of those consumers are going to the same lender again to open their next product, whether it be a car, whether it be a personal loan, which I think is super critical because that allows you to not only open the door for the first time, but also manage that relationship as these consumers needs grow over time. Especially when you think about the Gen Z population that is just entering the credit market and just getting their jobs and opening their first card or personal loan. They have a lot to offer when their needs grow over time as well. And, um, just fast forwarding, and let's say we're sitting in 2025 and you're thinking, what's in it for me over a three year period? In the US alone, we believe that there's about $9 billion. Uh, 'cause you asked me the question, why is it important?

There's about $9 billion worth of asset growth that's gonna come from just new to credit consumers, which we believe are gonna be just under 20 million of those, um, far greater numbers when I think about some of the bigger markets like India, where just for consumer durable market alone, um, is about two 52 billion i r so varies by market, but when you think about the fast forward and what these consumers can offer from an asset growth perspective, especially as we look to an environment that's gonna be challenging for profitable growth, knowing that these consumers actually perform quite well and have a lifetime of relationships ahead to, uh, capitalize on, that's really why this is an important conversation.

Andrew Goss/Host:

Got it. Yeah, I mean, obviously, uh, it, it, the, the sheer numbers show you the importance of reaching these consumers. Um, and then, right, obviously we're armed with all of this information around consumer profiles when it comes to new to credit that we already talked about, um, kind of tying it together, right? How do, how do businesses use all this information to set their strategies?

Nidhi Verma/VP, Research & Consulting:

Yeah, we wanna make sure these insights are actionable. We wanna make sure these insights can actually inform the strategies that you are thinking about as you think about your next three year plan, five year plan. And I think, you know, the, the data is important, but how do you go about it is also really important. So first of all, just if you think about setting a new to credit strategy, uh, there's a lot of lenders out there that focus primarily on that consumer segment. I think the first most important one, tying it back to the voice of consumer that we heard, as well as what we found in the types of first product and subsequent product, is making sure that your solution, your product offering, the channel that you're getting these consumers in, what that onboarding experience look like, it meets the needs of these consumers.

That first two year journey is super critical to set productive responsible behaviors for new to credit consumers. So making sure you have those, um, experiences, uh, separately designed and strategically designed to serve the new to credit needs. Because what works for somebody who's an established credit consumer and has been in the market for five plus years is gonna be very different than the need of a new credit consumer, especially when it comes to line as assignments, it comes to appropriate pricing. Those are all very important considerations. Um, I think the second thing I'll say is, um, it's not a one and done thing, meaning making sure that you have an account management journey that starts not just from the point of onboarding and acquisition, but also looks at that consumer needs over time. You know, our research shows, if you dive deeper into our report, is that a lot of these consumers are getting much smaller access, much lower access, rather compared to likewise risk, likewise age credit served consumers.

And what that essentially means is we wanna make sure that whatever they're getting access to is meaningful for the purpose of financial inclusion. So really making sure we're conducting reviews and seeing how they progress on their scores, what their score migration looks like. Any cross sell upsell opportunities are gonna be important to making sure you have a lifetime of top of wallet loyal behavior within these new to credit consumers. And the last I'll say is we as a bureau as well as anybody here who serves the financial ecosystem, we focus a lot on data and insights. And I think what's important along with that, it's not just a story about scores. It's not just a story about risk assessment, it's also a story of credit education. I cannot emphasize enough that making sure that these consumers right at the onset because of the relative inexperience they have in using credit and maybe potentially their limited understanding of what credit is and how do I manage it better, making sure that we have education tools, financial literacy that is easy, uh, easily available, easily consumable as well to help them achieve their financial goals. Because at the end of the day, the goal is to helping them get a better life, helping them achieve upward mobility. That credit education piece, I cannot emphasize how important that is in advancing the journey for these consumers.

Andrew Goss/Host:

Mm-hmm. <affirmative>. Now, you know, as you've been talking all along, uh, you know, all these inputs are super interesting and important. Um, but I, I kept on having in the back of my head, you know, right? You've got these new to credit consumers that have no credit history. So when they come in for that first credit product, how are you making a financial decision about them when, when they have no credit history, right?

Nidhi Verma/VP, Research & Consulting:

Yeah. Yeah. And, and that's exactly why the research on these consumers is super important because many of these consumers, you know, mentioned that in the voice of consumer that I, uh, shared with you as well as we know that they struggle with access to credit because of the limited history they have in using traditional credit products. So that's kind of where I would say any data that we have outside of the traditional credit data is super important. Um, obviously as long as it meets the regulatory compliance needs, which, uh, which definitely vary by market, but it could be data around rental payments, right? Consumers who don't quite own their own homes but are renting, um, renting, uh, their housing, any payment history available on those is gonna be super critical. Telecommunication payments, you know, everybody has mobile and how are they making payments on that, um, income and deposit data.

So that data, and I'll give UK as an example, um, TransUnion in UK has access to understanding the income and the deposit account data, which again, is super important in assessing the capacity, the affordability for these consumers. They may not have, um, uh, any credit products quite yet on their wallet, but we certainly know more about them in terms of their affordability for those traditional credit products. And one that I'll mention is certainly becoming a relevant one recently in many markets is buy now, pay later. So buy now, pay later, still not really considered a traditional financing product, unlike your card, personal loan, auto loan, mortgage. Um, and what I'll say is these types of products also are important to consider, uh, because they, we've proven through other research, Andrew, that we've done around B N P L, that B N P L is certainly a gateway into financial inclusion is certainly a gateway into these consumers gaining access to other traditional credit products.

And that data can be super helpful in assessing the true picture of these new to credit consumers who certainly don't have enough data. And we know that from lenders that work with day in day out. We also know this from the research we've done that, um, the, um, identifying these low, the lower risk borrowers and really helping them with better pricing in terms is one of the top reasons is these consumers tell us is I'm not participating in the market because of cost of that. And it can become extremely expensive for lenders to go acquire these consumers because it can actually rise your cost of acquisition as well. So having access to these types of data sets in making sure that you can do a holistic risk assessment is super important at the stage of where they are in their credit journey.

Andrew Goss/Host:

Wow. All very interesting information. I appreciate all of your time, Nidhi. I, I, I hope, uh, you'll join us, uh, sometime again soon on, on TransUnion live. Um, and, and thanks so much for all of our viewers for joining us. I just have to recognize right, that we did have some technical difficulties getting on LinkedIn, so I appreciate you switching on over to Vimeo for everyone. Um, uh, and, and if you wanna ask any questions after the fact, feel free to put them into the our LinkedIn live page event page and, and, and we'll do our best to get back to you. Um, and to download, uh, our global research study empowering credit inclusion, a deeper perspective on new to credit consumers, um, visit transunion.com/new-to-credit.