Developed and Developing Credit Markets, How Many People Are Actually Underserved or Unserved?

TransUnion recently conducted a global study, “Empowering Credit Inclusion: A Deeper Perspective on Credit Underserved and Unserved Consumers.” Both developed and developing credit markets were observed including the United States, Canada, Colombia, Hong Kong, India, and South Africa. The study further focused on the journey of credit disadvantaged consumers and how they migrate from being underserved to credit served, and the ability to gain access to additional credit opportunities. New-to-credit consumers – individuals who have opened their first product within the past two years – were not considered.

Among the US market, about 45 million consumers have been categorized as unserved or underserved. Approximately 8.1 million are unserved or invisible to the credit bureau while 37 million are underserved, resulting in 14% of the adult population.

In developed countries versus emerging economies there is a large contrast between what percent of the population is still credit unserved. In Canada about 7% of the adult population is unserved while Colombia’s percentage reaches 44% and India is at 63%.

Nidhi Verma, Vice President, International Research and Consulting at TransUnion stated, “…I think a lot of it has to do with, it’s not a saturated market quite yet, in terms of the presence and the availability of credit access, and consumers actually having to rely on credit or understanding the importance of private credit in their daily lives. And that’s generally the essence of a developing credit economy.”

According to the study credit migration decreased post-pandemic amongst all regions. Two cohorts of consumers were analyzed, each over a two-year time period. The first during the pre-pandemic period from March 2018 to March 2020 and the second through June 2019 to June 2021.

Around one in four consumers identified in the underserved population were becoming credit served pre-pandemic. Due to the pandemic there was a drastic halt and a cut back in lending. The migration rate of transitioning from being underserved to served from a credit perspective went down from 24% to about 22% not only in the US but within other global markets as well.

Unserved consumers are faced with a “chicken and egg conundrum” of how to get their first credit card without a credit score or credit history. Although many lenders are hesitant to extend credit to these consumers, alternative data is an option.

“Especially in the current environment, where most lenders, financial services are seeking to grow their portfolio,” said Verma, “there’s certainly a huge opportunity of acquiring these new customers that have no scores or credit history, and leveraging incorporating alternative assets, such as your rental information, such as your deposit account information, incorporating that in the underwriting strategies, so we find fewer consumers to be credit invisible.”

This is applicable for both a growth for lenders and consumers to potentially find an upward mobility with the ability to get better access to credit, financial products, and services.

“Having access to credit, without overextending, can help consumers with a financial situation in daily life and alternative data, which would be just basically one of the gateways to enable that credit score for consumers,” Verma noted.

According to Verma, TransUnion is making efforts to help those who are credit invisible be seen. “We’ve continued to invest and enable alternative data assets, solutions in each of the markets to make sure that those can be incorporated for lenders to make lending decisions in lending criteria.”

Alternative data provides an opportunity for more consumers to become visible with credit history and in the credit market. This will also ensure to underserved consumers that there are more alternative products with lower cost of credit, a key finding that lenders could leverage in their day-to-day pricing and underwriting strategies.