According to TransUnion’s (NYSE:TRU) Q3 2024 South Africa Industry Insights Report, consumption credit products (credit cards, personal loans, retail revolving lines) continued to experience growth, with originations growing by 14.4% year-over-year (YoY) in Q3 2024 as consumers find ways to adapt to the persistent high cost of living in South Africa.

Retail revolving credit experienced the highest origination growth among all major products, up 21.9% YoY, and average new credit limits assigned rose by 13.3% year over year.

Additionally, the credit card market experienced steady positive momentum in consumer demand and supply. Cards have benefitted from greater consumer adoption, likely driven by the resilient ecommerce sector that has outperformed the overall retail sector. Furthermore, the increased usage of digital wallets, embedded in smartphones that integrate digital copies of credit cards, has enabled consumers to tap into an amplified purchasing convenience at point of sale. This is especially important for younger consumers, who prioritise convenience and speed above other factors when it comes to payment channels of choice.

TransUnion’s Q3 2024 Consumer Pulse Survey (CPS) showed that 13% of consumers surveyed cut back on savings for retirement, potentially leading to more disposable income. The survey further showed that 25% of consumers (higher by three percentage points compared to Q2 2024) responded that their household income is not keeping up with the rate of inflation. As inflation dropped below the South African Reserve Bank’s target range in October 2024, the market anticipates further interest rate cuts, which may help in alleviating the high cost of living and borrowing.

An improving picture of credit performance observed in Q3 2024 further indicates consumers’ priorities for maintaining access to credit, as well lenders’ strategies for managing risk effectively. As inflation and interest rates ease, consumers may experience an improvement in affordability, which would renew confidence in making larger purchases. In anticipation, lenders need to deploy strategies for identifying consumers with shifting needs and preferences to build and maintain loyalty among their existing bases. While portfolio growth is evident across major consumption-led products, implementing predictive analytics to sustain prudent growth becomes crucial.

Table 1: Key South African Credit Market Metrics (Q3 2023 vs Q3 2024)

*Includes both bank-issued and non-bank-issued personal loans

** Account-level serious delinquency rate, measured as a percentage of accounts three or more months in arrears

Vehicle Loans Recorded First Growth in Originations Since 2022

The vehicle finance market has experienced significant slowdown since Q3 2022, given the high cost of vehicles and cost of borrowing pressures. In this context, consumers have preferred to buy used vehicles over new vehicles to manage affordability pressures. This quarter marks a shift in the vehicle finance industry, with a YoY growth of 1.1% in vehicle loans originated – the first quarter of growth observed in two years.

While vehicle loan originations were up, vehicle sales overall dropped in the same period, down 7.1% YoY. Sales of new vehicles drove this drop, with a decline of 13.9% YoY. As new vehicle prices start to subside with cheaper manufacturers entering the South African market, and with a lower cost of borrowing easing affordability pressures, vehicle finance institutions are optimistic that they will see some recovery in the industry, particularly in new vehicle sales.

With vehicle loan originations increasing by 1.1% during Q3 2024, along with average new account amounts growing by 2.4%, this quarter’s data could indicate the beginning of an upturn in vehicle financing. This trend was supported by the September and November interest rate cuts, lower fuel prices, and the anticipation of further interest rate cuts early in the new year which may add further momentum.

A recent TransUnion study of South African consumers showed that the share of new vehicle loans opened by Gen Z consumers increased from 13.7% during Q3 2023 to 16.6% in Q3 2024, while other generation tiers declined in share. Within the first-time vehicle finance consumer segment, Gen Z^[1] consumers accounted for 30% of these first-time buyer loans in Q3 2024, up from 25% in the same quarter of 2023, and 18% in the same quarter of 2022. More importantly, first-time vehicle loan consumers tend to perform better or the same compared to repeat borrowers in this market, even when controlled for borrower risk scores, based on Transunion’s vintage performance analysis measured for vehicle loans originated from 2019 through 2022.

As the industry anticipates a recovery, it is pertinent for vehicle finance institutions to consider enhanced strategies to enable consumers entering the market to fulfil pent-up demand that was not met in the last few years due to lack of affordability. These strategies include prudently expanding credit access for consumers buying their first-ever vehicle, and empowering younger consumers with effective education tools to influence positive repayment behaviours that will equip them for a healthy financial future.

“As inflation slows and the cost of borrowing declines, there is potential for more consumers who previously only held unsecured credit products to graduate to the next step in their credit journeys by taking out a vehicle loan,” said Lee Naik, CEO of TransUnion Africa. “As levels of financial inclusion improve and more underserved consumers are able to secure vehicle and other loans, lenders have a real opportunity to create greater loyalty as well as improve credit education efforts. Putting consumers’ needs first will ensure better credit management and a healthier economy.”

^[1] TransUnion age distribution: Gen Z (Born 1995 – 2010); Millennials (Born 1980-1994); Gen X (Born 1965-1979); Baby Boomers (Born 1946-1964).

Q3 2024 South Africa Industry Insights Report