There’s an intriguing behavioral borrowing trend brewing in the Philippines, marked by a blend of improving consumer expectations and escalating disposable incomes.
Latest data from the Bangko Sentral ng Pilipinas’ Consumer Expectation Survey reveals that 1 out of 8 adults (12.5%) are eyeing new loans in 2023. BSP observed that loans with the purpose to buy consumer goods and durables constitute the largest segment of consumer lending, comprising 52% of all loans. The intention to secure such loans surged in sync with consumer expectation improvements in low and middle-income groups in provincial areas.
2020-2022 spotlighted the demand for loans among residents outside of the National Capital Region (NCR). Conversely, the NCR maintains a stable share of households with loans, emphasizing a balanced alignment between the hope of every household and their respective financial capabilities. The intention to take out loans notably increases among provincial residents, which suggests a greater inclination towards borrowing in regions.
The borrowing trend varied among income brackets: low-income applicants increased (11%), and middle (16%) and high-income (27%) groups saw declines. It’s a reflection of how rising economic hopes prompted low-income individuals to seek loans for a more promising future, while higher-income people focused on their financial stability amid brighter economic prospects.
UnaCash interprets these numbers as evidence for demand for point-of-sale (POS) loans, especially from regional consumers in the income bracket of ₱10,000 to ₱30,000. UnaCash’s internal data indicates that low and middle-income consumers account for 83% of all loans issued. This is, in fact, an indicator that post-pandemic loan demand is steadily rising as consumers grow more confident in their financial stability and ability to meet repayment processes.
The surging demand and accessibility of POS loans, especially among low-income groups, are set to drive the market in the coming year. As expectations soar, consumers are increasingly seeking services that offer lifestyle upgrades, hassle-free repayment processes, and seamless transactions which positions an omni-channel approach as the solid platform for the Asia-Pacific retail industry’s development.
Consumer-wise, however, what are we supposed to be on the lookout for?
The new generation of shoppers
Demand-wise, the Philippines experienced rapid population growth which reached 115 million in 2022, and is expected to grow up to 130 million by 2030. Approximately 30% of the populace comprises individuals aged 0-14, an estimated 30 million young adults projected to enter the financial system soon. The notable generation would be Gen Zs, this age group known to be digitally savvy individuals who face challenges in accessing traditional banking products but presents an opportunity for innovative fintech players due to their online presence via smartphone usage.
The Gen Z demographic’s digital immersion impacts their spending habits, as they favor mobile wallets (44%) over conventional banking products. Purchasing decisions are heavily influenced by social media, 62% purchases based on social media influence alone. Despite their high digital literacy, the pandemic’s economic impact has affected Gen Z’s savings, leading them to explore POS lending options driven by digital platforms.
Analyzing the average income bracket pertinent to Gen Zs alone, particularly those poised to enter the business landscape as students, entry-level workers, or young professionals in the future is crucial to acknowledge the diversity within this demographic. This generation will fit precisely within the specified income bracket, with variations. Nonetheless, it’s noteworthy that this segment is expected to seek POS loans to cater their consumption needs, which demonstrates accessing financial solutions despite the constraints of their income levels.
Gen Zs are the generation with the least savings. Given lower access to credit, faced income gaps due to pandemic-induced job losses in the Philippines which prompted them to seek alternative finance methods. The inclination to online shopping led them to POS financing driven by digital platforms.
According to UnaCash, 43% of their POS loan recipients are young people under the age of 30. Gen Zs are likely to continue being their key clients due to high demand for shopping, high level of digital literacy, propensity to use mobile phones for shopping and pay with e-wallets.
The popularity of POS services among young people is due to several factors.
● POS services serve GenZ individuals, like students who lock credit history or income to qualify for credit cards, which enables them to access expensive goods without formal credit needed.
● POS services are usually available through mobile applications, accessible through online and offline points of sale. The high penetration rate through smartphones and the internet attracts the digital solutions tendency of the younger generation.
● Many applications have built-in e-wallets, providing the ability to check the status of their account and pay debts directly in the application without the need for a bank account. The availability of convenient payment methods and the ability to manage their account directly in the POS service application give young people the opportunity to become full-fledged participants in the banking system and gain greater control over their expenses.
In conclusion, Generation Z is becoming an increasingly important driver of the Philippine digital economy. With 30 million youth expected to enter the Philippine economy by 2030, their choices, decisions and purchasing power will determine the success of the POS lending market in the coming decade. It is forecasted1 that the contribution of borrowers under 30 years of age to the Philippine POS-lending market could reach PHP 719 billion. Thus, the ability to offer digital lending products and adapt according to their preferences will be a decisive competitive advantage for POS-loan providers in the coming years.