India has one of the highest population that is Gen Z and over 18 years of age. However, only a small percentage of them are credit active, according to a research by TransUnion.
The percentage of the Indian population that was classed as Gen Z (those born in and after 1995), ranging from age 0-24 as of 2019, was 44%, representing more than 609 million people.
However, while 11% (147 million) of them were above 18 and thus eligible to apply for credit, only 6% of them were credit active in 2019. This makes India the country with the smallest percentage of credit active Gen Z consumers of all the countries studied by TransUnion.
A credit product here is any form of debt, be it a loan, or a credit card and being credit active means having a loan or a credit card.
As per the study, 80% of Indian Gen Z users have only one open credit product. The most commonly held products are two-wheeler loans (21%), consumer durables loans (13%), and credit cards (11%).
Interestingly, Gen Z is taking more two-wheeler loans than any other generation in India. For example, only 10% of millennials, and only 6% of Gen X (consumers born between 1965 and 1979) have taken a two-wheeler loan.
According to Abhay Kelkar, vice president of research and consulting for TransUnion CIBIL, the popularity of two-wheeler loans among Gen Z consumers in India is a reflection of where this generation is in its career earnings and wider credit journey. “For most, they are unable to afford a car, and having a motorbike or scooter is a convenient and often necessary way to get to work.”
The study observes that while consumer durable loans are usually used to finance large ticket purchases, Gen Z is most likely taking loans to buy a smartphone, personal computer or laptop, or even a television, rather than household appliances like refrigerators or washing machines often preferred by older generations.
Speaking of credit cards, Gen Z uses it a lot less than the rest of the globe. Hong Kong and Canada have rates above 90%.
However, more Gen Z consumers in India are expected to be credit worthy with the rate at which new bank accounts are being opened growing fastest in the consumption lending categories.
“In the personal loans space especially, the prevalence of non-banking financial companies (NBFCs) and the rapid growth of FinTech lenders has accelerated the availability and ease of application for this particular credit product,” the study states.
According to the study, there is a relatively large divide in how Gen Z approaches credit in emerging versus established credit markets. While in most established markets more than half of Gen Z are already credit active, the percentages drop precipitously for emerging markets.
For example, while the United states as 66% of credit active population, Canada at 63% and Hong Kong at 49%, India stands at a mere 6%
“In emerging markets, lenders may be more conservative with extending traditional credit products to Gen Z, as those consumers may not yet have the credit histories and track records those lenders use to assess and manage risk,” said Kelkar.