Chicago,
13
November
2019
|
12:50 PM
America/Chicago

Consumers Poised to Continue Strong Credit Activity this Holiday Season

Q3 2019 TransUnion Industry Insights Report explores latest consumer credit trends

New TransUnion (NYSE: TRU) data from the just-released Q3 2019 Industry Insights Report point to a few factors that could portend good things for retailers this holiday season. These dynamics include a reversal in private label card originations to the positive side – spurred by lower-risk borrowers – and the ability of consumers in recent years to pay down more of their holiday credit card debt. This is all occurring against the backdrop of a consumer credit market that continues to perform within expectations.

TransUnion found that private label card originations increased 2.4% to 12.4 million in Q2 2019 (latest data available), marking the first such year-over-year increase in 11 quarters. Origination growth is being driven by prime and above consumers, with their share of new accounts growing faster than non-prime borrowers. The number of new bank-issued credit cards also rose in Q2 2019, increasing 5.2% to 16.6 million, the fifth straight quarter of yearly growth.

As a result of this growth, the number of consumers with access to revolving credit now stands at a record high 200.5 million consumers as of Q3 2019, up from 198.0 million in Q3 2018. On average, bank-issued credit card balances for individuals have grown to $5,668, while private label average card balances, per individual, grew to $2,022 in this timeframe.

“Overall, the consumer credit market is performing well, with delinquency rates declining in the last year for both mortgages and unsecured personal loans. While serious delinquencies have risen slightly for auto loans and credit cards, they still remain at ‘normal’ levels,” said Matt Komos, vice president of research and consulting at TransUnion. “From a credit card perspective, it’s interesting to see private label card originations grow on a year-over-year basis for the first time in 2 ½ years. This fact, combined with low unemployment, high consumer sentiment and recent strong pay-down activity on credit card balances, indicates that retailers may be beneficiaries this holiday season.”

TransUnion noted that private label balance activity and originations have been consistently higher during recent holiday shopping seasons, designated as the months of November and December. For instance, department stores saw the number of new private label credit cards increase to a monthly average of 1.25 million during the holidays compared to a non-holiday monthly average of 0.76 million, representing a holiday season increase of 65%. When observing private label card origination growth for all categories, including clothing, discount, furniture and jewelry stores, activity increased by 42% during the 2018 holiday season – similar to what was observed in 2016.

The report also found that consumers have been consistently increasing the balances of their private label and general purpose credit cards during the last three holiday seasons, and they’ve been paying them down at higher rates. In the 2018 holiday shopping season, consumers added $31.9 billion in bankcard balances, and they paid down 92% of those balances in the first quarter of 2019. This marks a trend of slightly lower holiday balances for all credit cards, though with increased pay downs the following quarter. For private label cards, pay-down activity in the last two years has improved greatly because the mix of originations and balances have been more weighted to prime and above consumers. Lower risk consumers often do not utilize as much of their available credit.

Charging Up Credit Cards in November and December; Paying Them Down in the New Year

Year

 

Q4 Bankcard Balance Growth

 

Percent of Bankcard Debt Paid Down in the Following Quarter (Q1)

Q4 Private Label Balance Growth

 

Percent of Private Label Debt Paid Down in the Following Quarter (Q1)

2018/2019

$31.9 billion

92%

$6.6 billion

102%

2017/2018

$32.6 billion

84%

$6.3 billion

94%

2016/2017

$33.3 billion

72%

$8.5 billion

30%

“It’s critical to point out that while consumers continue to make holiday purchases with their credit cards, they are paying off most of these balances within the next few months. While some observers may point to lower card balance growth as a sign that consumers may be slowing down, it’s also important to note that some of them may be leveraging newer products such as point-of-sale financing, which has taken off in just the last few years. What’s most important is that consumers are leveraging many credit instruments that often provide them with the best terms, and they are paying off a large portion of these debts while mostly remaining in good standing on these accounts,” concluded Komos.

TransUnion’s Q3 2019 Industry Insights Report features insights on consumer credit trends around personal loans, auto loans, credit cards and mortgage loans. For more information on these trends, please register for this quarter’s webinar.

Retail Revival: Private Label Reverses Declining Trend

Q3 2019 IIR Credit Card Summary

Following 10 straight quarters of negative growth, private label originations in Q2 2019 grew for the first time since Q3 2016 at a rate of 2.4% year-over-year. The resurgence in private label was predominately driven by the prime and above risk tiers as issuers focus on lower risk. The credit card market continues to exhibit significant growth, with originations increasing 5.2% YOY. Card balances have increased YOY consecutively for 26 quarters, reaching a high of $807 billion and an average balance per consumer of $5,668. Meanwhile, the average new account credit line decreased 2.0% year-over-year to $5,284, compared to $5,390 in Q3 2018.

Instant Analysis

“As the credit card market continues to grow, delinquencies remained largely in check and came in under forecast at 1.81% 90+ DPD, compared to the projected 1.86% for bankcards. On the private label side we have also seen a recent expansion across the market. The origination trend reversal combined with balance growth is an indicator of continued consumer confidence in their current and future financial standing heading into the holiday shopping season.”

  • Paul Siegfried, senior vice president and credit card business leader at TransUnion.

Q3 2019 Credit Card Trends

Credit Card Lending Metric

Q3 2019

Q3 2018

Q3 2017

Q3 2016

Number of Credit Cards

439.9 million

425.1 million

414.3 million

398.5 million

Borrower-Level Delinquency Rate (90+ DPD)

1.81%

1.71%

1.68%

1.53%

Average Debt Per Borrower

$5,668

$5,580

$5,483

$5,323

Prior Quarter Originations*

16.6 million

15.8 million

15.5 million

17.6 million

Average New Account Credit Lines*

$5,284

$5,390

$5,307

$5,252

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

Steady Growth Continues for the Consumer Lending Market

Q3 2019 IIR Personal Loan Summary

Total unsecured balances in Q3 2019 increased to a record high of $156 billion. The average balance per consumer also continued to rise, growing 7.9% year-over-year to reach $8,998 in Q3 2019. While balances continue to grow, performance remains solid as delinquencies (60+DPD) declined to 3.28% in Q3 2019 from 3.41% over the same period last year. While growth has remained robust, originations for unsecured personal loans slowed to a YOY growth rate of 8.2% in Q2 2019, compared to 23.0% over the same period last year. The majority of YOY origination growth occurred in the super prime (17.2%) and prime plus (12.0%) risk tiers.

Instant Analysis

“The consumer lending market has maintained healthy growth. Delinquencies continue to decline while balances are growing, which is a great combination. Throughout 2018 the consumer lending market experienced unprecedented double-digit origination growth, but this year we have seen the growth slow to a more sustainable high single digit growth rate. Current growth rates and performance markers are a good indication of the expected market behavior through the rest of the year and into 2020.”

  • Liz Pagel, senior vice president and consumer lending business leader at TransUnion

Q3 2019 Unsecured Personal Loan Trends

Personal Loan Metric

Q3 2019

Q3 2018

Q3 2017

Q3 2016

Total Balances

$156 billion

$132 billion

$112 billion

$100 billion

 Number of Unsecured Personal Loans

22.5 million

20.3 million

17.5 million

16.2 million

Number of Consumers with Unsecured Personal Loans

20.2 million

18.5 million

16.4 million

15.3 million

Borrower-Level Delinquency Rate (60+DPD)

3.28%

3.41%

3.13%

3.53%

Average Debt Per Borrower

$8,998

$8,338

$8,017

$7,755

Prior Quarter Originations*

4.8 million

4.5 million

3.6 million

3.6 million

Average Balance of New Unsecured Personal Loans*

$6,382

$6,253

$6,140

$5,475

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

New Vehicle Sales Slow but Performance Remains Steady

Q3 2019 IIR Auto Loan Summary

The serious auto loan delinquency rate (60+DPD) remained steady at 1.40%, the ninth straight quarter year-over-year with a delinquency variation of less than 10 basis points. Total balance growth, though, slowed to 3.5% YOY in Q3 2019, compared to the 5.2% yearly increase observed in Q3 2018.Total YOY origination growth remained flat in Q2 2019 at approximately 7.3 million, with growth contained to the prime plus (3.0%) and super prime (5.2%) risk tiers. Subprime, near prime and prime all saw YOY declines for the first time since a six-quarter pullback that lasted from Q3 2016 to Q4 2017.

Instant Analysis

“As affordability pressures such as rising new vehicle prices, plateauing terms and looming tariffs weigh on the auto industry, forecasts predict that 2019 new vehicle sales will likely fall below 17 million for the first time since 2014. Additionally, used vehicle sales may also be impacted and fall flat for the first time since 2014. Yet steady delinquencies and flat year-over-year originations in the face of falling vehicle sales still point to the current underlying health of the auto loan market.”

  • Satyan Merchant, senior vice president and automotive business leader at TransUnion

Q3 2019 Auto Loan Trends

Auto Lending Metric

Q3 2019

Q3 2018

Q3 2017

Q3 2016

Number of Auto Loans

83.4 million

81.9 million

78.6 million

74.8 million

 Borrower-Level Delinquency Rate (60+ DPD)

1.40%

1.36%

1.40%

1.33%

Average Debt Per Borrower

$19,145

$18,835

$18,567

$18,361

Prior Quarter Originations*

7.3 million

7.3 million

7.1 million

7.3 million

Average Balance

of New Auto Loans*

$21,953

$20,998

$20,653

$20,436

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

Super Prime Refinancing Spurs Mortgage Origination Growth

Q3 2019 IIR Mortgage Loan Summary

Mortgage performance continues to stay strong as delinquencies remain near record lows. Year-over-year consumer delinquencies (60+DPD) decreased from 1.65% in Q3 2018 to 1.51% in Q3 2019. Q2 2019 originations grew 12% YOY to 2.1M. Average new account balances also grew during this period at 10% YOY

Instant Analysis

“It’s noteworthy that many of the more expensive MSAs experienced significant year-over-year origination growth in Q2. Of the top 20 MSAs, those with an average new account balance greater than $300K experienced origination growth of 20% year-over-year, while those MSAs with an average new account balance less than $300K experienced origination growth of only 13% year-over-year. Looking forward we expect refinance activity to drive origination growth, riding the availability of low interest rates.”

  • Joe Mellman, senior vice president and mortgage business leader at TransUnion

Q3 2019 Mortgage Loan Trends

Mortgage Lending Metric

Q3 2019

Q3 2018

Q3 2017

Q3 2016

Number of Mortgage Loans

53.6 million

53.1 million

52.7 million

52.3 million

 Borrower-Level Delinquency Rate (60+ DPD)

1.51%

1.65%

1.91%

2.29%

Average Debt Per Borrower

$210,457

$205,782

$199,417

$193,489

Prior Quarter Originations*

2.1 million

1.9 million

1.9 million

2.0 million

Prior Quarter Average Balance

of New Mortgage Loans*

$253,150

$230,076

$224,502

$230,120

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

For more information about TransUnion’s Q3 2019 Industry Insights Report, please register for this quarter’s webinar.

About TransUnion (NYSE: TRU)

Information is a powerful thing. At TransUnion, we realize that. We are dedicated to finding innovative ways information can be used to help individuals make better and smarter decisions. We help uncover unique stories, trends and insights behind each data point, using historical information as well as alternative data sources. This allows a variety of markets and businesses to better manage risk and consumers to better manage their credit, personal information and identity. Today, TransUnion has a global presence in more than 30 countries and a leading presence in several international markets across North America, Africa, Europe, Latin America and Asia. Through the power of information, TransUnion is working to build stronger economies and families and safer communities worldwide.

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