Consumers focus on credit card payments during pandemic
South African’s focused on seeing that their credit cards were in good standing during the Covid-19 crisis by making timely payments rather than resorting to personal loans, as they shopped more online and used their cards to settle other debts, according to a new study by TransUnion.
Previous similar studies by TransUnion had shown that consumers previously resorted to personal loans to tide them over periods of financial hardship.
“In South Africa, there was actually a flip in priorities in 2020 during the pandemic as credit cards were prioritised over personal loans, reversing the pre-pandemic hierarchy in favour of personal loans,” the TransUnion Global Payment Hierarchy study said on Monday.
The Covid-19 pandemic had a pronounced effect on how people paid their debts, when faced with financial stress. In South Africa, the changes were prominent across multiple credit products.
The priority placed on paying credit cards increased during the pandemic and overtook that of personal loans – a trend not seen in other global markets studied..
Consumers shifted to transacting more digitally, making credit cards a critical tender during the Covid-19 restrictions.
A deeper dive into the study found that younger generations had been most instrumental in the flip, with millennials leading this shift well before the onset of the pandemic.
The reversal in priority in favour of credit cards over personal loans first occurred in April 2019 for millennials, and a priority that became more pronounced during the pandemic.
This shift was mostly driven by both the surge of online transactions, which generally require a credit card or similar means of virtual payment, as well as the digital savviness and receptiveness of younger consumer segments to transacting online.
In South Africa, the group analysed holding just one credit card comprised about 68 percent of the study population. This group saw a widening of the delinquency spread in favour of credit cards during the pandemic compared to pre-pandemic levels.
In most other markets analysed by the TransUnion, there was a prioritisation of personal loans observed when consumers possessed multiple credit cards.
“This study is unique in that it highlights how and why payment dynamics changed in South Africa and other countries as a result of the Covid-19 pandemic – a global crisis that has impacted consumers worldwide, said TransUnion South Africa director of research and consulting Carmen Williams.
“These insights will better equip both financial institutions and consumers, fostering more trustworthy interactions between them as the world begins to normalise and recover from the pandemic.”
BUSINESS REPORT ONLINE