Yahoo Finance talks about TransUnion’s recent survey on Gen Z in Canada, and how this segment of consumers born since 1995 is changing the credit card market. We covered TransUnion’s global study here, but the Canadian focus has an exciting spin worth the next few minutes of your time.
Canadian Credit Cards Have Nuances
Most payment cards in Canada run under the Mastercard and Visa franchise model, but several aspects differ from the U.S. market. Debit cards, for instance, often process through a non-branded bank-owned framework called Interac, which clear and settle between banks outside the branded network model.
U.S. issuers experienced low takeup for many issuers including Citi and Chase, though Capital One has a strong franchise in the market. Dominant Canadian card issuers are Bank of Montreal, Canadian Imperial Bank of Commerce, Royal Bank of Canada, and Toronto-Dominion Bank.
Revolving debt now exceeds $100 billion, and household debt recently climbed to 14.9%. Interchange is undergoing revisions, with a creative solution to reduce the payment industry charge. Payment brands will reduce the tariff in an orderly fashion, beginning with a 10 basis point drop in 2020.
The structure of the minimum payment due on a credit card account is also in flux. The province of Quebec recently approved a directive to increase the minimum due payment by 2% to 5% over the next six years to form a more conservative approach to household debt management.
Here Comes Gen Z
TransUnion’s study indicates promise for credit card lenders.
The percentage of the Canadian population that was classed as Gen Z, aged 24 years or younger as of Q2 2019, was 28%, representing more than 10.5 million people.
The percentage of the population that is Gen Z and 18 or older, and thus eligible to apply for credit, was 8%, over 2.8 million people. The TransUnion study revealed that almost two-thirds (63%) of this eligible group were credit active, nearly 1.8 million people.
In Canada, consistent GDP growth accompanied by a relatively low interest rate environment has provided conducive conditions for Gen Z as they seek and gain access to credit. Other factors, such as technological advancements, have also come into play.
Unlike their millennial siblings, Gen Zers cling to credit.
While this can lead to higher utilization rates, Gen Z consumers appear to be building healthy credit habits and are managing their credit cards responsibly. In Canada, almost all (99.8%) of credit-active Gen Z consumers have a credit card with a median balance per consumer of C$515.
In comparison, only 50% of U.S. Gen Z credit-active consumers have a credit card, and their median balance per consumer is US$606 (about C$790).
More than just credit cards: Will point of sale lending find traction in the market?
Just over a quarter of Canadian Gen Z consumers are currently credit eligible (i.e., over 18 years old), and as more come of age, the dynamics of the consumer credit market will continue to evolve.
Although credit cards are the most widely held product among credit active Gen Z consumers, as this segment matures, their credit demand will also expand to other products like personal loans, lines of credit, and potentially mortgages, which will drive larger outstanding balances.
When looking at the growth in product numbers, originations growth (the rate at which new accounts are being opened) is highest among credit active Canadian Gen Z consumers for mortgages (71%), line of credit (48%), auto loans (28%), credit cards (16%), and student loans (11%).
The Canadian credit card market is not merely an extension of the U.S. It works within the global credit card framework, but stands proudly on its own. However, there are similarities in the population, and this age cohort of those born since 1995 is off to firm acceptance of the credit model. This bodes well for the payments industry.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group