Canadian Consumers Shifted Credit Payment Behaviours as a Result of COVID-19
TransUnion Global Payment Hierarchy Study observes consumer credit behaviour in five countries
In times of financial hardship, payment prioritization of credit products often provides a clearer view of how consumers are meeting the burdens they face. A new TransUnion (NYSE: TRU) Global Payment Hierarchy study found that the COVID-19 pandemic had a pronounced effect – in a short period – on how people paid their debts, particularly when faced with financial stress. In Canada, the changes were prominent across multiple credit products, with consumers prioritizing their mortgage loan payments over auto loans, credit cards, installment loans, and lines of credit.
“TransUnion has tracked payment hierarchy dynamics in Canada for more than a decade, and in many other countries when they have encountered localized financial challenges,” said Matt Fabian, director of financial services research and consulting at TransUnion. “This study is unique in that it highlights how and why payment dynamics changed in different countries as a result of the COVID-19 pandemic – a global crisis that has impacted consumers worldwide. These insights will better equip both financial institutions and consumers, fostering more trustworthy interactions between them as the world begins to normalize and recover from the pandemic.”
Credit Cards v. Personal Loans – What is the World Prioritizing?
TransUnion analyzed and compared consumer payment hierarchy for wallet profiles that are popular across the countries studied, including Canada, Colombia, India, South Africa, and the United States. The country-specific study observed consumers with one or more credit cards and at least one personal loan with no delinquencies reported at the time of selection into the study sample. To determine which credit product was prioritized over the other, TransUnion observed payment performance of those consumers 12 months later, measuring the rate at which these consumers were 30 or more days delinquent on their credits cards and personal loans. As a result, payment priority and the delinquency spread between the products in wallet was observed.
In Canada, the study uncovered that personal loans were prioritized over credit cards across all risk segments. While Canadian consumers are prioritizing personal loan payments, the spread between personal loans and credit cards for below prime risk segments (consumers with CreditVision™ risk scores between 300 - 719) has narrowed during the pandemic. Similar trends were seen in the United States and India, which suggests that credit cards gained importance during the pandemic and that consumers were more focused on keeping their cards in good standing by making timely payments.
A flip was observed in the payment hierarchy in 2020 during the pandemic in South Africa as credit cards were prioritized over personal loans, reversing the pre-pandemic hierarchy in favour of personal loans. Colombian credit usage showed no clear prioritization of either product until March 2020, when more value was placed on personal loans.
An interesting dynamic occurred in other countries wherein the payment hierarchy flipped during the pandemic for those consumers possessing only one credit card and at least one personal loan. In those cases, credit card payments were prioritized during the pandemic, in contrast to the pre-pandemic preference for personal loan payments. This shift further demonstrates the increased importance of credit cards for consumers during the pandemic and the need to maintain access to this valuable source of credit. Unlike other countries, Canadian consumers did not demonstrate this hierarchy. The payment hierarchy for Canadian consumers remained the same in favor of personal loan payments for those with only one credit card in wallet.
Personal Loans Mostly Prioritized Over Credit Cards…
Credit Product 30+ DPD Rate*
*30 or more day delinquency rate at 12 months for consumers who possess at least one credit card and personal loan.
…But the Dynamic Shifts if Consumers Only Possess One Credit Card (except for Canada)
Credit Product 30+ DPD Rate**
**30 or more day delinquency rate at 12 months for consumers who possess one credit card and personal loan.
“Cash was not king during the early parts of the pandemic. Millions of people opted to use their credit cards to make digital transactions from the safety of their home for groceries, clothes or other everyday items,” said Matt Fabian, director of financial services research and consulting at TransUnion. “While consumers with a single credit card continued to prioritize payment of personal loans, unlike the trend we observed in other countries, we noticed the spread narrowing as consumers look to preserve their credit card to continue spending for digital transactions.”
These findings were further corroborated by a global behavioral survey of 2,667 consumers who possessed credit products in Canada, Brazil, Colombia, Hong Kong, India, South Africa, the United Kingdom and the United States. When we asked consumers across these regions to share their likelihood to make a payment between primary card (defined as the card they use most), secondary card and personal loan payments, it was clear that secondary credit card is the first payment they are likely to miss. Only 26% of Canadian consumers indicated that they are likely to prioritize the secondary card payment versus 37% of these consumers are likely to pay their primary card and another 37% of them would pay personal loans first.
Consumers reported that these preferences are driven by perceived consequences. Canadian consumers recognized that there will be consequences if they miss at least one credit card payment, with nearly three-quarters (72%) of respondents saying they expected negative impacts on their credit score if they missed one payment. The negative implication of a missed payment to a credit score was well understood most by credit card and personal loan holders. Approximately 68% of Canadian consumers with personal loans said a consequence of a missed payment would result in a lower credit score.
Deeper Dive into Canadian Payment Hierarchy Dynamics Shows Mortgage is Priority #1
In Canada, TransUnion’s study also focused on consumers that have five products in their wallet – auto loans, lines of credit, installments, credit cards and mortgages. Mortgages were prioritized over the other credit products, a dynamic that has held since Q1 2017.
For those consumers possessing auto loans, lines of credit, installments, credit cards and mortgages, the 30+ days past due delinquency rate at 12 months following observation was lowest for mortgages at 0.24%. Installment loans and auto loans had the second-lowest delinquency rates at 0.30% and 0.31%, respectively, followed by lines of credit at 0.39% and credit cards at 1.92%. Payment hierarchies in Canada appear stable when compared to the results for other countries where TransUnion operates.
Consumers Prioritizing Mortgages Above All Other Major Credit Products
Credit Product 30+ DPD Rate** - Timeframe
Lines of Credit
**30+ days past due rate at 12 months for those borrowers possessing all five credit products.
In addition to more people working from home and rising home values, mortgage loan performance is likely benefitting from thousands of mortgage borrowers entering accommodation programs soon after the onset of the pandemic, with a peak of more than 13% of consumers with a mortgage taking advantage of a payment deferral. The study points to both subprime and near prime credit risk mortgage borrowers benefitting the most from these programs, as they were able to delay payments and maintain their accounts. Furthermore, the behavioral survey revealed that consumers expect consequences if they miss mortgage payments. 73% of Canadian respondents said they expected to get a call from their lender if they missed a mortgage payment. About 25% of Canadian consumers said they think that money would be withdrawn from their bank accounts if they miss a mortgage payment.
“Mortgage is the clear priority for Canadian borrowers,” said Fabian. “The mantra, ‘you can’t drive your home to work’ doesn’t have the same effect when millions of Canadians are waking up, showering, eating breakfast and taking only a few steps to their home office.”
“The pandemic has changed so much in the world, but understanding why consumers are making important credit decisions only serves to better help the lending ecosystem in the future,” concluded Fabian.
TransUnion’s ongoing research on payment hierarchy has three clear implications for lenders. First, lenders need to identify their own customers’ payment hierarchy to better manage consumer expectations and portfolio trends, leveraging this approach. Second, this study and past studies conducted across credit economies to decode loyalty have proven that consumers who are loyal to their lender tend to pay them first. Lenders can build loyalty amongst their existing customer base, by incorporating advanced off-us data and analytics into their ongoing account management strategies. Managing and defending loyalty is critical, especially amongst those who are top-of-wallet customers and those who carry only one credit card in wallet.
Lastly, as the study showed a narrowing of the spread between card and personal loan payments, and in some cases a flip in hierarchy, it implies a need for acceleration of the digital ecosystem in the credit markets. Lenders can benefit from providing a friction-right experience to consumers while distinguishing between good consumers and fraudsters, and hence building consumer trust to conduct digital transactions in the post-pandemic world.
For more information about TransUnion’s Global Payment Hierarchy Report, please visit https://solutions.transunion.ca/consumer-payment-hierarchy.
About TransUnion (NYSE: TRU)
TransUnion is a global information and insights company that makes trust possible in the modern economy. We do this by providing a comprehensive picture of each person so they can be reliably and safely represented in the marketplace. As a result, businesses and consumers can transact with confidence and achieve great things. We call this Information for Good.®
TransUnion provides solutions that help create economic opportunity, great experiences and personal empowerment for hundreds of millions of people in more than 30 countries. Our customers in Canada comprise some of the nation’s largest banks and card issuers, and TransUnion is a major credit reporting, fraud, and analytics solutions provider across the finance, retail, telecommunications, utilities, government and insurance sectors.
TransUnion’s Global Consumer Pulse Study also found that the 34% of Canadian consumers who said they are being targeted by digital fraud related to COVID-19 in the last three months is higher than approximately one year ago. In April 2020, 28% said they had been targeted by digital fraud related to COVID-19.
Gen Z, comprised of people born between 1995-2002, is currently the most targeted out of any generation at 49% of those surveyed. They are followed by Gen X, born 1965–1979, which have been targeted 34%.
Among consumers in Canada who reported being targeted with digital COVID-19 schemes, the top pandemic-themed scam is phishing with 44% saying they were hit with it.
Examining Fraud Types and Their Impact on Industries
Globally, TransUnion analyzed the below industries for a change in the percent of suspected digital fraud attempts against them, comparing the periods of March 11, 2019-March 10, 2020 and March 11, 2020-March 10, 2021.
Suspected Digital Fraud Attempt Rate Post-Pandemic Declaration
Suspected fraud change coming from Canada
Global suspected fraud change for industry
Top type of fraud globally
Credit Card Fraud
Policy/License Agreement Violations
Communities (online dating, forums, etc.)
Travel & Leisure
Credit Card Fraud
For more details about TransUnion’s recent global digital fraud findings, visit this blog post.
About TransUnion (NYSE: TRU)
TransUnion is a global information and insights company that makes trust possible in the modern economy. We do this by providing a comprehensive picture of each person so they can be reliably and safely represented in the marketplace. As a result, businesses and consumers can transact with confidence and achieve great things. We call this Information for Good.® TransUnion provides solutions that help create economic opportunity, great experiences and personal empowerment for hundreds of millions of people in more than 30 countries. Our customers in Canada comprise some of the nation’s largest banks and card issuers, and TransUnion is a major credit reporting, fraud, and analytics solutions provider across the finance, retail, telecommunications, utilities, government and insurance sectors.
 The percent or rate of suspected fraudulent digital transaction attempts are those that TransUnion’s customers either denied or reviewed due to fraudulent indicators compared to all transactions it assessed for fraud
Press Contact: Fiona Bang