Tuesday, March 5, 2024

TransUnion says PH consumers still think credit is bad

Not wanting to go into more debt and lose control of their finances remain as the top reasons why Filipinos are still hesitant on taking advantage of credit products and services, consumer credit reporting agency TransUnion said on Tuesday, June 14.

Pia Arellano
TransUnion Philippines regional president and chief executive officer Pia Arellano

Based on TransUnion’s latest report entitled “Empowering Credit Inclusion: A Deeper Perspective on Credit Underserved and Unserved Consumers,” the key factor that affects why credit disadvantaged consumers are unable to access financial products and services is the lack of credit history.

“This study served to better understand how many people are truly under or unserved from a credit perspective, while also determining paths for them to gain more credit opportunities,” said TransUnion Philippines regional president and CEO Pia Arellano.

Globally, despite the lack of credit experience, underserved and unserved consumers have a prevailing understanding of the benefits and risks of credit, as well as the desire to maintain control of their finances.

“We see credit differently. Credit, especially if you’ve established good payment behavior and you’ve shown that you are responsible, really opens doors and lenders would want to give you more credit” Ms. Arellano explained.

With more credit products available to them, she says that consumers will be able to improve their lifestyle by having the financial power to acquire what they need (i.e. motor vehicles, properties, businesses) and do what they are unable to ordinarily do, as long as they can prove they are responsible payers.

Ms. Arellano also notes that showing responsible payment behavior does not necessarily mean paying the entire loan all at once, but by paying the minimum required amount on time.

At home, the worries of Filipino consumers in losing control of their finances are rooted in fear of high interest rates, that is why Ms. Arellano says that financial institutions can lower the cost of credit products by using a combination of alternative data and traditional data to optimize the credit history process.

“In other markets, it’s very common. But in the Philippines, it’s actually very new. Usually, the early adopters would be your fintech players, but with regards to the banks, they’re a bit more hesitant because they’ve been so used to the traditional method,” she explained.

Banking institutions in the Philippines each have their own established models with targets and metric to maintain, an example is keeping bad loans below 5%, making them weary of leveraging on the opportunities brought by alternative data.

Ms. Arellano recommends that by combining traditional models with newer alternative data, these institutions will be able to grow and tap into the large space of underserved and unserved credit consumers.

In the Philippines, 32% of underserved consumers would likely expand their use of credit products if institutions lower the weekly or monthly minimum payment amount since high interest rates are behind most rejections on credit offers, a behavior that is shared with countries across the globe except for Canada and the Dominican Republic where consumers simply don’t need credit anymore.

“Lenders can broaden their reach by accurately scoring consumers with little to no formal credit data. By offering young Filipinos access to finance when they need it the most, lenders can build lifetime loyalty and help our economy grow,” she concluded.

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