MANY of us have heard the saying “Cash is king.” However, recent developments have led me to think that times are changing.
According to a survey conducted last year by Visa on Filipino payment behaviors, cash usage declined to 87 percent in 2023 from 96 percent in 2022. With more Filipinos transitioning to different payment methods, signs point to credit card usage rising as well.
Recent data from TransUnion also shows the upward trend in credit card usage. Credit card origination growth continued from Q3 2022, which saw Q3 2023 figures near the 1 million cards per quarter milestone, despite a normal seasonal dip that was observed in the following fourth quarter. Total active card volumes increased YoY from 9.3 million in Q4 2022 to 11.2 million in Q4 2023, with penetration reaching over 15 percent of Filipino adults.
According to census data, 45 million Filipinos belong to the Gen Z group and are expected to contribute one-third of the Philippines’ workforce by 2025, creating a sustainable growth engine for the consumer credit market. CONTRIBUTED PHOTO
As more Filipinos embrace going cashless and using credit cards, is the formal financial sector doing enough to ensure every Filipino enjoys the benefits of responsible credit usage?
Younger Filipinos need credit
Looking further into the data, opportunities have emerged to engage younger Filipinos further. Gen Z Filipinos are becoming significant contributors to the increase in credit card originations. The percentage share of overall originations among Gen Z Filipinos has more than doubled over the past five years — up from just under one in 10 (9 percent) in Q3 2019 to more than one in five (22 percent) in Q3 2023.
This share will likely increase as more Gen Z consumers reach adulthood. According to the latest census data, 45 million Filipinos belong to the Gen Z category and are expected to contribute one-third of the Philippines’ workforce by 2025, creating a sustainable growth engine for the consumer credit market.
However, while the recent TransUnion Consumer Pulse Study shows that almost all (98 percent) Gen Z Filipinos agree that credit is an important agent in achieving their financial goals, greater efforts to promote inclusion are needed, as just one-third (33 percent) say they currently have sufficient access to the credit they need.
Bridging long-standing gender gaps
Beyond enabling greater access to credit for younger Filipinos, there also remains a gender gap in credit card usage that must be bridged. Males have consistently owned more than 60 percent of all active credit card accounts since 2019, a ratio higher than the overall population gender mix of 50 percent male and 50 percent female. Lenders should create a more credit-inclusive environment for female borrowers by enabling greater access and closing the gender gap within the credit-active population.
Creating greater opportunities
Beyond age and gender, findings from the summit also show good signs for the evolving financial inclusion landscape in the country, such as the uptick of New-to-Card borrowers.
New-to-Card borrowers accounted for nearly a third (30 percent) of all outstanding credit card balances during the first nine months of 2023, which is a significant jump from pre-pandemic levels when they made up just 19 percent in the full year of 2019. The growth in New-to-Card borrowers could, in part, be ascribed to value-added services such as reward points, installment payment facilities, and discounts associated with these cards.
Alternative data is also a significant factor driving the uptick of New-to-Card borrowers. Leveraging these data sources for credit decisioning allows banks to better assess thin-file consumers and those who do not have any prior credit history. Lenders can continue leveraging alternative data to further ease their entry into the formal financial system.
Addressing roadblocks
I believe that there is further work to be done for the formal financial system to enable greater access to credit products that can help Filipinos improve their lives. Beyond the challenge of accessibility, financial industry players, big and small, must remain committed to credit education and financial literacy initiatives to instill responsible credit use among new and old borrowers.
We must keep breaking the long-standing stigma associating credit with “utang” or bad debt and teaching new borrowers how to use credit responsibly. These efforts can help borrowers fully utilize the power of credit and help the formal financial sector at large make better inroads toward greater financial inclusion.
Weihan Sun is the principal of research and consulting for Asia-Pacific at TransUnion, a global information and insights company serving a range of clients across multiple sectors, including international, national and rural financial services providers, telecommunications, utilities, FinTech, and retail organizations. In the Philippines, TransUnion was the first comprehensive private credit reference agency.
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