Filipinos still reluctant to use credit products

MANY FILIPINOS have an understanding of credit concepts but remain hesitant to tap these products for transactions, TransUnion Philippines said.

TransUnion’s inaugural Credit Perception Index (CPI) Study showed 69% of Filipinos surveyed said they have a “general understanding” of credit concepts but still prefer to use cash and e-wallets over these products.

“However, there remains a low penetration of credit products like credit cards (a widely held product globally) despite their longstanding presence in the country. This may be due to a combination of factors, including a lack of financial literacy, cultural attitudes toward borrowing and difficulties in accessing formal credit,” it said.

The survey had a total of 1,500 respondents, including 1,100 consumers from the general population, and an oversample of 200 unbanked consumers and 200 small business owners. It was conducted between January and February 2023.

“Based on the first survey, the current CPI stands at 65%. This takes into account the overall sentiment towards credit,” Pia L. Arellano, president and chief executive officer of TransUnion Philippines, said at a briefing on Wednesday. “It’s a barometer for optimism when it comes to credit. The higher it is, the more optimistic Filipinos are, ergo the likelihood to avail.”

Among credit products, Filipinos were found to be most familiar with installment payments (83%) and were least knowledgeable about overdraft protection (25%).

“There seems to be a strong correlation with knowledge and trust and favorability. The more they knew (about it), the more they trusted it and the more inclined they are to avail of it,” Ms. Arellano said.

Respondents likewise favored installment loans (81%), followed by personal loans (76%), buy now, pay later products (71%), and credit cards (67%).

Installment payments and personal loans were also “generally perceived to be the most trustworthy credit-based product.”

In terms of financial tools, 85% of Filipinos owned e-wallets, followed by savings accounts (64%) and debit cards (40%). Only 25% of respondents had credit cards.

“E-wallets are popular because they offer a convenient way to make payments and transfer funds with no bank account. They appeal particularly to those traditionally underserved by the banking sector,” TransUnion said.

Ms. Arellano said that the rise in e-wallets was triggered by the pandemic, which pushed consumers towards digital products.

“It’s also a function of access. Anyone can open an e-wallet, it’s much easier (than) credit cards or other loan products. There are more documentary requirements. There’s still a bit of a barrier,” she added.

Meanwhile, Ms. Arellano said the lack of trust towards credit products stems from the stigma about credit.

“There is a demand for credit, but what is apparent is that Filipinos in general have a very negative perception of credit. It’s synonymous with utang or debt,” she said.

The report showed that respondents believe that users of credit products are risk-takers in their finances (65%).

More than half or 58% of respondents see that credit users tend to overspend, while 55% said they do not want to be indebted due to credit. Meanwhile, 54% said that credit will cause them to overspend.

“Whether we are looking at the general population or the unbanked, there’s a strong stigma towards credit being negative. A lot of effort has to go to destroying or eliminating the stigma. Credit is not bad — if used wisely and responsibly, it can be a trigger for economic growth. When you have credit, it drives consumption,” Ms. Arellano added.

House and auto loans were seen to have “too many” application requirements by 43% and 35% of respondents, respectively.

“This suggests the need to streamline loan application processes to be more accessible and appealing to potential borrowers,” TransUnion said.

The report also showed that the unbanked population had limited knowledge of credit products.

Only 58% of unbanked respondents were found to have general knowledge about credit, lower than the general population average (69%).

“Instead of consulting financial experts, they often turned to social media platforms, such as YouTube (45%) and Facebook (51%), as well as advice from family and friends (69%) for financial information. This contrasted with the general population which relied more on financial experts for financial guidance,” the report added.

This reliance on social media and personal networks may be due to a “lack of accessibility and familiarity with traditional financial institutions.”

“By improving financial literacy and providing more accessible information about credit products, financial institutions and policy makers can help bridge this knowledge gap and expand access to financial services,” it said.

“What we’ve noticed is that banks are lending to the same people, people who already have credit. They need to expand this and lend towards the unbanked and underserved,” Ms. Arellano added.

However, she noted that there is growing demand for credit.

“Even if they don’t know too many details, the fact that there is trust and favorability. There really is that demand. They want to avail, but it could be a function of access. Banks aren’t lending to them,” she said.

“Looking at just demand, it’s so promising. The levels we’re at now in the last quarter is much higher than pre-pandemic. That’s a good sign that the market is recovering,” she added.

Meanwhile, small business owners displayed more knowledge about credit products (67%), TransUnion said.

“However, their reliance on personal networks and traditional financial institutions suggests opportunities to improve access to information about alternative financial services like fintech platforms and online lending options,” it said.

“These services may offer more accessible and flexible credit options which can promote the benefits of responsible credit use and expand financial services access,” it added. — Luisa Maria Jacinta C. Jocson