#10things retailers need to know about consumer spend

With unemployment still at record levels and consumer price inflation above average household income growth, the pressure on South African finances remains. TransUnion released the findings of its Q3 2021 South Africa Industry Insights Report (IIR) recently, with the latest emergent trends that highlight differences in credit behaviours by consumer generations, as well as divergent performance across product categories.

Lee Naik, CEO of TransUnion Africa, said: “The volatility in the consumer credit market created by COVID-19 persists; and with low vaccine take-up and new variants in the population, this uneven recovery is likely to continue. There are some positive indicators, especially when looking at originations, but the return to a truly growing, efficiently functioning credit market will be difficult to navigate for consumers and lenders alike.” Q3 2021 saw stronger growth in new account openings (originations) recorded across all major categories, with younger generations featuring more heavily in new account openings. Delinquencies showed a deterioration across all major unsecured lending categories as consumers continued to exhibit the strain of the pandemic on household finances. This is coupled with unemployment still at record levels, and consumer price inflation above average household income growth.

The report shows a number of emerging trends at the end of 2021 that highlight differences in credit behaviours by consumer generations, as well as divergent performance across product categories. These are the 10 things retailers need to be aware of:

1. Credit card utility during pandemic

Throughout the pandemic, South African consumers have relied on credit cards for both the utility they provide, particularly in facilitating the growth in online transactions, and to access a flexible source of credit to meet household bills when finances are under pressure. Although credit card originations fell YoY in the latest quarter (-23.5% in Q2 2021), outstanding credit card balances continued to grow, up 14.4% YoY in Q3 2021.

2. Recovery in secured lending

The consumer credit market in South Africa is still below pre-pandemic levels. This is particularly true in the unsecured lending space (credit cards and personal loans), where the origination volumes are between 10-41% lower than their Q2 2019 levels. Recovery has been more pronounced in secured lending (less than 10% below Q2 2019 levels for home and vehicle finance loans), partly due to the risk profile of consumers taking out new credit, as super-prime borrowers have taken advantage of the low interest rates offered by lenders.

3. Younger generation drive growth

A closer look at origination trends reveals the shifting generational dynamics of the market. Younger consumers accounted for much of the growth in several key categories. When looking at non-bank unsecured personal loans, Millennials (born 1980-1994) accounted for 41% of total originations volume, an increase of 100.6% YoY in Q2 2021.

4. More Millennial home loans

A similar trend can be observed in the secured category of home loans, where millennials accounted for more than half (52%) of all originations in Q2 2021. Transunion’s Lee Naik explained: “Although an increase in lending to younger generations should be anticipated over time as their income and credit needs grow, what is so significant about this trend currently is that it starts to reverse what we saw earlier in the pandemic, when younger generations were the first to withdraw from the market. In most categories, lending to younger generations still isn’t back to pre-pandemic levels – but this latest round of figures shows significant momentum in closing the gap.”

5. Volatile delinquency remains

The delinquency picture in the South Africa consumer credit market remains volatile and has been erratic at best through the pandemic. Macroeconomic drivers, as well as social events—such as the civil unrest seen last July—have all had a bearing on consumer incomes and their ability to repay credit. In Q3 2021, the primary unsecured credit categories of non-bank and bank personal loans and credit cards recorded an increase in delinquencies YoY – up 550 basis points (bps), 520 bps and 120 bps, respectively.

6. Battle of the bills

The TransUnion Consumer Pulse Study conducted in Q3 2021 echoed these figures, revealing that almost half (47%) of all South African consumers surveyed said they expected to be unable to pay any of their current bills and loans in full.

7. South Africans are in financial hardship

Many South Africans are continuing to experience financial hardship because of the pandemic and mounting inflationary pressures. As a result, it is proving difficult for lenders to chart a path to recovery. Only by portfolio benchmarking and constant monitoring can they remain agile and respond to the changing dynamics of the market.

8. Unemployment remains at record levels

Statistics South Africa shows unemployment at a record 34.9% in Q3 2021, up from 34.4% in Q2 2021. It also reported consumer price inflation was up 4.81% in Q3 2021 compared to Q3 2020. Average household income was up 3.17% over the same period.

9. Auto market recovery

With the auto market also seeing a recovery, especially for newer used models, vehicle finance also recorded strong originations growth, up 95.8% YoY. Again, because of a comparison to a significantly subdued quarter of activity the year before, non-bank (up 83.3%) and bank personal loans (up 79.6%) also recorded strong growth.

10. Home loan spike

Home loans recorded the largest percentage increase in originations in the latest data, up 149.6% YoY in Q2 2021. This is as much a function of comparison to a weak quarter in 2020 as it is a reflection of increased activity in the market. In recent quarters, there has been a trend of consumers whose income has been unaffected or even increased during pandemic times entering the housing market as affordability has increased. This trend has continued into the current quarter.

Main image credit: Unsplash.com.

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