The Experian Data Insights Check-In brings you key insights based on the Q2 2022 Consumer Default Index.
Experian’s New CDIx
In this edition, we launch the CDIx or Consumer Default Index Expanded report which brings you the latest:
- Macroeconomic trends that have a direct bearing on consumers
- Market appetite for credit
- Qualification and take-up of credit (i.e. new credit)
- Performance of credit consumers (i.e. arrears/defaults and vintages)
Our analytics experts have extracted key highlights to give you a good understanding of the current trends we’re seeing in the market.
Short and to the point, these key trends leave you with enough information to start making better business decisions.
Get the Q2 2022 CDI Report for a more detailed view of the latest consumer default trends.
Download Full CDIx Report
Listen to the Podcast
No time to read the article below? Listen to our podcast.
Experian Data Insights Check-In – Q2 2022 CDIx Key Insights
8-minute read
There is much to be understood about consumers. If one was to group some of the data themes that describe consumers, one might categorise these as Demographic, Perceptual and Behavioural themes.
Credit bureaus traditionally hold and maintain data on consumers from a credit perspective – which is fantastic for assessing credit risk based on a specific consumer’s historical credit behaviour. There is, however, more to consumers than historical credit behaviour.
Experian’s Consumer Default Index Expanded – CDIx
This new report provides a view of what is happening in the marketplace – not only from a credit risk or default behavioural perspective but also from a perceptual and demographic perspective.
Although some of the elements in this new publication are the same as what you have come to know since the first launch of the CDI in October 2017, there are behavioural aspects that are pertinent to default behaviour, that were not included in the old CDI. Furthermore, there are perceptual elements around needs that were also not addressed.
There are contextual elements, over which the consumer has absolutely no control and of which they may not even be acutely aware, that often drive the perceptions and behaviours of consumers. These market context considerations form the backdrop of much of what transpires in consumer reality in terms of perceptions, behaviours and even some demographics.
This new CDI – which covers aspects around market context, and consumer demographic, perceptions and behaviours – is called the CDIx.
The expanded nature of the report provides extra insights into consumers, and is split into four main sections:
- Market Context: This provides insights into the macroeconomic environment South African consumers are finding themselves in. These are aspects that are typically key drivers of consumer perceptions and behaviours, and as such need to be considered if we want to understand why we see what we see from a credit perspective
- Appetite: Speaks to the demand for credit in the market. This provides an understanding of consumers’ perceptions around the need for credit.
- Growth: This relates to new business. We provide views and commentary on all the product portfolios reported in the CDI (HL, VL, CC, PL and RET).
- Performance: Here is where you will find the views and commentary that we included in the original CDI, reporting on the rate of first-time default and providing this view over the last 5 years. We have found over the years that many of our clients find the results reported in this section particularly valuable. Over the last year, we have developed a bespoke view on CDI, which provides clients with a benchmark-type view of their business relative to the rest of the market.
The CDIx is a powerful arrow in the quiver of strategic planning, the execution, and the tracking of these strategies
Market Context: Cost of Living
From a macroeconomic perspective, the prolonged increasing trend in fuel prices has been a key driver of the increased inflation rates we have been seeing locally. The increased Consumer price inflation, together with factors like interest rate increases and record levels of unemployment, has put the affordability of consumers, when it comes to credit qualification, under immense pressure.
Looking at the fuel price specifically, the increase has been brought about by increased Global demand, as the world’s economies have been re-opening from COVID lockdowns, thus re-igniting the need for fuel. The Ukrainian conflict has exacerbated the pressures on global oil supplies, in effect contributing to inflationary and cost-of-living pressures on households globally.
Appetite: The Perceived Need for Credit
The South African market appetite since COVID has not only recovered to pre-COVID conditions, but has been exceeding it since 2021 Q4, as can be seen from the black line graph depicted here.
This aligns with what we have seen from a macroeconomic perspective, where consumers are under increasing pressure just to make ends meet.
However, lowering acceptance rates have been at the order of the day even prior to the onset of COVID (with the legislation around the prevention of reckless lending having been in play for a long time now), but we have seen this lowering trend continue after the pandemic as a result of risk-averse approval criteria being applied by many lenders.
The combination of increased demand and tightening of approval criteria resulted in a long-term drop in approval rates.
Market Growth: New business volume
Overall, New Business volumes are still recovering to the levels observed prior to the COVID-19 lockdown. Although volumes now are similar to what was observed in March 2022, recovery to levels last seen in 2019 Q4 has not been seen since. This stems from the fact that unsecured lending has not yet fully recovered (here we are specifically referring to Personal and Retail credit loans). For more detail at a product level, please have a look at the full report.
In so far as new business values are concerned, these have returned to and in fact, exceed pre-COVID levels. This is for the most part due to inflationary pressures and not due to increased volumes.
Performance: CDI by product
This view is probably familiar to most of the audience today. Here we are looking at the CDI, which tracks the rate of first-time defaults: looking at the rate at which accounts get into technical arrears (>90 days) for the very first time.
The latest Composite CDI, although deteriorating from what we saw in March 2022, has shown marginal improvement Y-o-Y. Due to the seasonal nature of the CDI, it makes sense to compare observations Y-o-Y to get a view on longer-term trends in this metric. Two products deteriorated Y-o-Y: Retail and Vehicle Loans, where we saw an increase from 12.17 to 13.63 in the former, and a more modest increase from 4.27 to 4.36 in Vehicle Loans CDI.
Performance: CDI by Financial Affluence Segment
The consumer segment split view highlights two key things:
- More affluent consumers (FAS Groups 1 and 2), as expected, typically have lower CDI than lower affluence consumers do (FAS Groups 4, 5 & 6).
- The tightening of lending approval criteria has really limited the entry of new low-affluence consumers into the market. This (and not improved consumer financial health) is really the reason why we see the drastic improvement of CDI for the low affluence end of the market since the onset of COVID. In more recent times, we have seen these consumers (particularly FAS Groups 5 & 6) showing an increase in CDI, as particularly retailers have shown signs of sustained higher levels of new credit being extended – although not yet fully recovered to pre-COVID levels. Keep in mind that the product where these low affluence consumers have the highest exposure is in fact the Retail Credit market.
Conclusion
In conclusion, the CDIx provides a more holistic view of movements in the market – both from a consumer and a macroeconomic perspective. This new report should provide valuable insights for you in a meaningful way that contributes to and informs your strategic thinking and planning around your business.
Get the Q2 2022 CDI Report for a more detailed view of the latest consumer default trends.
Download Full CDIx Report
Watch the Video
Watch our video in which Ans takes you through the various graphs that bring these data insights to life.
