Gen Z population credit-active has reached 10% in Africa [Partnered Content]

Over 28% of credit-active consumers in South Africa have a credit card.

Credit cards have become a reliable means of payment for South Africans. Increasingly, many consumers choose this method to pay for everyday goods and services, taking advantage of the benefits they provide, such as discounts in some department stores or their low-interest rates.

In the last few years, the use of credit cards in South Africa has risen rapidly. It is estimated that there are approximately four-million active credit cards issued by banks such as Absa, Ned Bank, and Standard Bank of South Africa.

One reason for the increase in the use of credit cards is the installation of equipment and online platforms that make it possible to carry out financial transactions or, for example, filling out an online loan application.

Technology, as well as e-commerce, has been a great factor for the increment of the use of credit cards in South Africa since the rapid development in online payment processing and electronic payment technology. This technology allows all merchants to accept credit cards online.

In this way, both the number of people who own a credit card and the online payments increase.There is certainly some resistance against using a credit card from those who do not trust in credit card interests.

However, contrary to what is the common belief, more card payments do not necessarily mean more people incur debt.

The use of credit cards does not always imply the application of a loan with interest, such as the example of payments in three instalments with no interest. It is something that does not indebt credit cardholders. What can turn into debt for those users or companies is the impossibility to pay on time.

Another factor for the increase in the use of credit cards in South Africa is the degree of banking, that is to say, the number of people who enter the banking system and stop making transactions in the informal economy.

Actually, young independent people are becoming more interested in getting their first credit card. They seem to like the idea of obtaining a credit card and start their credit history from an early age.

A generation of credit-active users

Youngsters who were born between 1995 and 2000 and who are called Gen Z are the ones who seem to be contributing to the growth of the credit market by becoming more credit-active.

A study carried out in the second quarter of the previous year reveals that 46% of the South African population represents 27.5-million young people who are called Gen Z.

Ten percent of this total, which represents six-million young people, all over the age of 18, were eligible to apply for credit, study says. 1.7 million people, which is 28% of the group of people eligible to apply for credit, were credit-active.

Consumers who open a loan product such as a credit card, car loan, mortgage, personal loan, or student loan are considered credit-active, according to the study.

The study was conducted to analyze the credit behaviour of this young group and found that Gen Z is amenable to the use of credit. The positive relationship between Gen Z and credit is due to several factors. One of the key contributors to this is that they are digital native meaning that they do not know a world without internet, online services or mobile apps.

Gen Z’s active use of the internet is a clear indication of their financial behaviour as they are willing to operate electronically to manage credit.

According to the study, Gen Z mostly use their credit cards to purchase clothing. The list of products they use the credit card for starts with 66% in clothes, eight percent in non-bank loans, five percent in bank credit card, and ends with four percent in retail instalments.

Regarding the other generations, baby boomers, those born between 1945 and 1965, register the highest number in credit cards per person. Since baby boomers are in their 40s and 50s, the best economic time in life, it makes sense that they have a higher number in the number of credit cards, that is because they are able to pay them more easily than people of another generation.

For all generations of consumers with active credit in South Africa, the most commonly held products are bank personal loans, representing 30%. Gen Z, on the contrary, represents only seven percent of active credit consumers with personal bank loans.

South African Gen Z consumers who own a credit card have a higher than average utilization limit, this limit represents the 68% compared to the entire population of credit cardholders, which is the 58%.

According to the study, while clothing loans were the favorite product by South African Generation Z consumers, the highest total balances were in the auto loan category. This is because the amount is generally larger and longer-term compared to personal loans and retail accounts. It is also related to the purchase of a specific high-value item such as a car or truck.

By virtue of South African Gen Z active credit, these products have grown rapidly. Bank loans grew 209%, mortgage loans 66%, revolving retailer 66%, vehicle 52%, and credit cards 44%.

Emerging credit markets vs established credit markets

To compare Gen Z from South Africa with Gen Z from other countries it is necessary to make a distinction. There is a difference between how Gen Z perceives credit in emerging credit markets against how they see the credit in established credit markets.

The majority of the population of Gen Z is already credit-active in the established markets, while in emerging markets the number of population credit-active is significantly lower.

In Canada, the population of the Gen Z population with credit-active is 63%, in Colombia 19%, in Hong Kong 49%, India six percent, United States 66% and in South Africa 66%.

In South Africa, credit card penetration is among the lowest because traditional credit card issuers tend to take more conservative underwriting measures that target low-risk borrowers with a long and healthy credit history.

Therefore, other products, like retail-issued credit, need to work as a gateway to the world of credit for Gen Z consumers.

This article was sponsored by EL MEJOR TRATO LTD.

Feature image: Supplied

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