Q1 2016 Industry Insights Report
U.S. Financial Services
Nidhi Verma
Director, Research and Consulting
TransUnion
In this session, we will review industry trends for major lending
products with respect to:
The consumer
• Credit participation trends
• Shifts in credit wallet distribution
• Credit performance trends
The marketplace
• Lenders serving the market and shifts in market share
• Drivers of balance growth
• Key delinquency trends
© 2016 TransUnion LLC All Rights Reserved | 2
The consumer
Improved access and continued low levels of delinquency
More consumers are gaining access to credit—bankcard being the
primary driver for growth
Number of consumers with access to revolving line of credit
1.6
Number of consumers
HELOC
Private label
Bankcard
190
1.4
180
1.2
170
1.0
160
0.8
150
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2010
2011
2012
2013
2014
2015
2016
Consumers with access
(indexed to Q1 2010)
Number of consumers with access
(in millions)
200
0.6
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 4
A robust auto finance market is creating growth in consumers with
non-revolving loans
Number of consumers with non-revolving loans
Mortgage
Auto
Personal loans
160
1.4
150
1.3
140
1.2
130
1.1
120
1.0
110
0.9
100
0.8
Consumers with a balance
(indexed to Q1 2010)
Number of consumers with
a non-revolving loan
Number of consumers
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2010
2011
2012
2013
2014
2015
2016
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 5
Average debt levels have remained relatively stable since 2010,
except for auto and personal loan balances
Average consumer balance (for those who carry a balance) indexed to Q1 2010
1.4
Average consumer balance
indexed to Q1 2010
Auto
Mortgage
Bankcard
Private label
HELOC
Personal loan
1.3
1.2
1.1
1.0
0.9
0.8
0.7
0.6
Q1 2010
Q1 2011
Q1 2012
Q1 2013
Q1 2014
Q1 2015
Q1 2016
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 6
While consumer-level delinquency rates are low, recently a slight
increase was observed in credit card and auto
Serious consumer-level delinquency rates (60+ DPD for all and 90+ DPD for credit cards)
% of consumers with a serious
delinquency
Auto
Mortgage
Bankcard
Private label
HELOC
Personal loans
8%
7%
6%
5%
4%
3%
2%
1%
0%
Q1
Q2
Q3
2010
Q4
Q1
Q2
Q3
2011
Q4
Q1
Q2
Q3
2012
Q4
Q1
Q2
Q3
2013
Q4
Q1
Q2
Q3
2014
Q4
Q1
Q2
Q3
2015
Q4
Q1
2016
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 7
To summarize the consumer perspective:
Positive dynamics
Potential headwinds
Strong consumer confidence
Energy slump impact on specific regions
Greater access to credit
Slightly rising trends in delinquency for card
and auto market
Steady levels of revolving debt
Well-managed and low levels of delinquencies
Importantly, this is a well-functioning market with no immediate causes for concern.
However, there are dynamics that merit scrutiny.
© 2016 TransUnion LLC All Rights Reserved | 8
Bankcard sector
Strong balance growth led by originations
Bankcard market share is diversifying as competition increases
Number of bankcard issuers (with >10,000
annual account originations)
Market share of top 20 issuers (measured in terms of balances)
Q1 2010
101
issuers
Q1 2016
91%
87%
92%
89%
91%
81%
73
issuers
70%
65%
2010
2015
Top 5 issuers
Top 10 issuers
Top 15 issuers
Top 20 issuers
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 10
Average consumer balance has remained steady since 2013.
However, aggregate balances have grown consistently
Outstanding balances and average balance per consumer
Average consumer balance
$660
$6,000
$640
$5,800
$620
$5,600
$600
$5,400
$580
$5,200
$560
$540
$5,000
$520
$4,800
Q1 2010
Year-over-year
growth in balances
Q1 2011
-8.7%
Q1 2012
Q1 2013
Q1 2014
Q1 2015
Q1 2016
-0.1%
-0.5%
1.3%
4.6%
6.4%
Average consumer balance
Outstanding balances
(in $ billions)
Total balances
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 11
Balance growth has been driven primarily by originations—both from
existing customers and new entrants opening their first bankcard
Year-over-year change in balances ($ in billions)
Outstanding balances
(in $ billions)
$900
$155
($170)
$800
$51
$700
$6
($2)
$645
$600
$605
$500
Total balance as Consumers who
of Q1 2015
opened new
bankcard(s)
127 million
consumers
New entrants
Consumers who Consumers who
built balances
paid down
on existing
existing
cards
balances
Charged-off
Total balance as
of Q1 2016
133 million
consumers
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 12
These originations have shifted toward non-prime risk tiers since
2013
Bankcard originations by risk tier
100%
Origination distribution by risk tier
Super prime
Prime plus
80%
Prime
Near prime
Subprime
60%
40%
38%
30%
27%
20%
35%
30%
0%
2010
2011
2012
2013
VantageScore © 3.0 Risk Ranges
Subprime = 300–600; Near prime = 601–660; Prime = 661–720; Prime plus = 721–780; Super prime = 781-850
2014
2015
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 13
As a result, account-level delinquencies for recent vintages have
been increasing
90+ DPD rate (account-level, cumulative)
10%
2010
Delinquency Rate
9%
8%
2011
7%
2012
6%
2013
5%
2014
4%
3%
Q1 2015
2%
1%
0%
0
4
8
12
16
20
24
28
32
36
40
44
48
Months on book
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 14
Private label card sector
Continued growth in access and average account balance
While the private label card market remains a fairly concentrated
market, top five issuers have lost some share in the past six years
Number of private label card issuers (with
>10,000 annual account originations)
Market share of top 20 issuers (measured in terms of balances)
Q1 2010
39
issuers
31
issuers
Q1 2016
91%
90%
<100% 99%
99%
98%
91%
79%
2010
2015
Top 5 issuers
Top 10 issuers
Top 15 issuers
Top 20 issuers
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 16
Both total private label balances and average account balance
have increased markedly
Outstanding balances and average balance per account
Total balances
Average account balance
$1,800
$100
$80
$60
$1,600
$40
$20
$-
$1,400
Q1 2010
Year-over-year
growth in balances
Average account balance
Outstanding balances
(in $ billions)
$120
Q1 2011
-7.5%
Q1 2012
Q1 2013
Q1 2014
Q1 2015
Q1 2016
2.1%
2.9%
3.9%
6.3%
6.4%
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 17
Balance growth was primarily driven by originations, but
somewhat offset by consumers paying down existing cards
Year-over-year change in balances ($ in billions)
Outstanding balances
(in $ billions)
$140
$18
$120
$100
($15)
$5
($1)
$103
$110
$80
Total balance as of
Q1 2015
64 million
consumers
Existing
consumers
opening new
card(s)
Existing
New consumers
consumers paying
down balances on
existing card(s)
Charged-off
Total balance as of
Q1 2016
66 million
consumers
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 18
Similar to bankcard, these originations have continued to shift
toward non-prime risk tiers
Private label card originations by risk tier
100%
Origination distribution by risk tier
Super prime
Prime plus
80%
Prime
Near prime
Subprime
60%
40%
39%
36%
20%
28%
25%
32%
30%
0%
2010
2011
2012
2013
2014
VantageScore © 3.0 Risk Ranges
Subprime = 300–600; Near prime = 601–660; Prime = 661–720; Prime plus = 721–780; Super prime = 781-850
2015
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 19
The increasing share of non-prime originations is causing higher
account-level delinquencies for recent vintages
90+ DPD rate (account level, cumulative)
8%
2010
7%
2011
Delinquency Rate
6%
2012
5%
2013
4%
2014
3%
Q1
2015
2%
1%
0%
0
4
8
12
16
20
24
28
32
36
40
44
48
Months on book
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 20
Auto sector
Growth fueled by higher consumer participation and
average new loan amounts
More lenders have entered the auto finance market, which remains
highly fragmented
Number of lenders with >10,000
annual loan originations
Banks
Credit unions
Captives
50%
Market share by lender type (measured in balances)
209
lenders
Q1 2010
40%
Q1 2016
40%
34%
45
Independent lenders
30%
29%
28%
114
lenders
33
25%
126
49
19% 18%
20%
10%
13
19
12
26
2010
2015
7%
0%
Banks
Credit unions
Captives
Independent
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 22
76 million consumers now have an auto loan in the U.S., and the
average consumer balance has reached $18,000
Outstanding auto balances and average consumer balance
Average consumer balance
$1,200
$20,000
$1,000
$19,000
$800
$18,000
$600
$17,000
$400
$16,000
$200
$15,000
$-
$14,000
Q1 2010
Number of
consumers with an
auto loan/lease
(millions)
Average consumer
balance $
Outstanding balances
(in $ billions)
Total balances
60
Q1 2011
60
Q1 2012
60
Q1 2013
63
Q1 2014
Q1 2015
Q1 2016
66
71
76
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 23
Q1 2016 balance growth was primarily driven by originations and
higher average new loan amount
Year-over-year change in balances ($ in billions)
$512
Outstanding balances
(in $ billions)
$1,600
$15
($423)
$1,400
$1,200
($3)
$1,000
$800
$1,042
$941
$600
Total balance
as of Q1 2015
New auto
loans/leases
Average new
loan amount
Paydown
Repossession Total balance
as of Q1 2016
28 million new loans/leases were
originated at
3% higher average new loan amount
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 24
Origination growth has come from all risk tiers, but has been led by
the non-prime
Auto loan and lease account originations by risk tier
Origination risk tier distribution
2.4
2.2
2.2
Super prime
Prime plus
2.0
1.9
Prime
Near prime
1.8
1.8
1.7
1.6
Subprime
1.4
1.2
1.0
Q4 2009
Q4 2010
Q4 2011
Q4 2012
Q4 2013
Q4 2014
VantageScore © 3.0 Risk Ranges
Subprime = 300–600; Near prime = 601–660; Prime = 661–720; Prime plus = 721–780; Super prime = 781-850
Q4 2015
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 25
Non-prime supply in the auto finance market varies by lender—
independent lenders are driving majority of non-prime growth
Risk distribution of originations by lender type—2015
Origination risk tier distribution
100%
Super prime
Prime plus
80%
79%
Prime
Near prime
60%
Subprime
40%
31%
32%
28%
20%
0%
Banks
Credit unions
Captives
VantageScore © 3.0 Risk Ranges
Subprime = 300–600; Near prime = 601–660; Prime = 661–720; Prime plus = 721–780; Super prime = 781-850
Independent lenders
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 26
As expected, growth in non-prime risk tiers is causing an increase
in account-level delinquencies for recent vintages
60+ DPD rate (account-level, cumulative)
10%
2010
Delinquency rate
9%
8%
2011
7%
2012
6%
2013
5%
2014
4%
Q1 2015
3%
2%
1%
0%
0
4
8
12
16
20
24
28
32
36
40
44
48
Months on book
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 27
Real estate lending sector
Rising home values supporting growth
The number of consumers with a mortgage has declined in tandem
with a market trend away from homeownership
74
68%
72
67%
70
66%
68
65%
66
64%
64
63%
62
62%
60
61%
Q1
Q2
Q3
2010
Q4
Q1
Q2
Q3
2011
Q4
Q1
Q2
Q3
2012
Q4
Q1
Q2
Q3
2013
Q4
Q1
Q2
Q3
2014
Q4
Q1
Q2
Q3
2015
Q4
Homeownership rate
Consumers with a mortgage
(in millions)
Consumers with a mortgage balance and U.S. homeownership rate
Q1
2016
Source: TransUnion consumer credit database;
Federal Reserve Bank of St. Louis
© 2016 TransUnion LLC All Rights Reserved | 29
Mortgage balances have been trending up since 2013
Outstanding mortgage balances
Outstanding balances
(in $ trillions)
$9.0
$8.5
$8.0
$7.5
$7.0
Q1 2010
Year-over-year
growth in balances
Q1 2011
-4%
Q1 2012
Q1 2013
Q1 2014
Q1 2015
Q1 2016
-3%
-5%
4%
0%
2%
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 30
Balance growth is being driven by average new loan originated,
which is following rising home values
Average new mortgage loan and home values
1.2
1.1
$200,000
1.0
0.9
$175,000
Home value indexed to
Q4 2009
Average new mortgage loan
$225,000
0.8
Q4 2009
Q4 2010
Q4 2011
Q4 2012
Q4 2013
Q4 2014
Q4 2015
New loan data source: TransUnion consumer credit database
Home value data source: Zillow
© 2016 TransUnion LLC All Rights Reserved | 31
We also observed mortgage originations grow share within prime
and below risk tiers—a sign of increasing supply
Mortgage originations by risk tier
Origination distribution by risk tier
100%
Super prime
Prime plus
80%
Prime
Near prime
60%
Subprime
40%
39%
34%
31%
20%
0%
2010
2014
VantageScore © 3.0 Risk Ranges
Subprime = 300–600; Near prime = 601–660; Prime = 661–720; Prime plus = 721–780; Super prime = 781-850
2015
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 32
HELOC balances are continuing to decrease as consumer
participation has declined
Outstanding HELOC balances and consumers with a balance
Total balances
Outstanding balances
(in $ billions)
16
15
15
$600
14
$550
13
$500
11
$450
12
11
$400
10
Q1 2010
Q1 2011
Q1 2012
Q1 2013
Q1 2014
Q1 2015
Number of consumers with
a HELOC balance (in millions)
$650
Consumers with a balance
Q1 2016
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 33
Clearly, HELOC origination growth is being offset by loans hitting
end-of-draw period
Year-over-year change in balances ($ in billions)
Outstanding balances
(in $ billions)
$53
($74)
$500
$450
($0.5)
$461
$440
$400
Total balance as of
Q1 2015
Originations
Paydown
Charged-off
Total balance as of
Q1 2016
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 34
U.S. home equity has risen at a faster rate than the credit lines and
balances in this market
HELOC credit lines, balances and home equity (indexed to Q1 2010)
Credit Lines $
Balances $
Home Equity
1.8
1.8
1.6
1.4
1.2
1
0.8
0.8
0.7
0.6
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2010
2011
2012
2013
2014
2015
2016
Sources: TransUnion Credit Database and Federal
Reserve Flow of Funds series
© 2016 TransUnion LLC All Rights Reserved | 35
Personal loans (unsecured)
Fastest growing loan portfolio, with new entrants and
consumer demand across the spectrum
Growth in consumers participating in the personal loan market has
driven growth in personal loan balances
Outstanding personal loan balances and consumers
Consumers with a balance
$100
15
$90
14
$80
13
$70
12
$60
11
$50
10
$40
9
Q1 2010
Q1 2011
Q1 2012
Q1 2013
Q1 2014
Q1 2015
Number of consumers with
a personal loan (in millions)
Outstanding balances
(in $ billions)
Total balances
Q1 2016
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 37
Q1 2016 balance growth was primarily driven by originations and
higher average new loan amount
Year-over-year change in balances ($ in billions)
$59
Outstanding balances
(in $ billions)
$150
$9
($47)
$125
($1)
$100
$91
$75
$50
$71
$25
$0
Total balance
as of Q1 2015
New loans
Average new
loan amount
Paydown
Charged-off
Total balance
as of Q1 2016
14 million new loans were
originated at
15% higher average new loan
amount
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 38
Higher consumer participation has been well supported by new entrants
in this market. FinTech lenders are now leading market share
Number of lenders originating more than
10,000 annual accounts
Market share of balances originated
Banks
Credit unions
121 lenders
Traditional finance companies
FinTech lenders
24
34%
70 lenders
29%
34
23%
15
17
32%
18%
43
30
31%
30%
20
8
2010
3%
2015
2010
2015
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 39
While lenders may vary in risk strategies, the primary focus of
growth has generally been the near prime and prime risk tiers
Originated balances by risk tier
2015 personal loan originations (balances) by lender type
100%
Super prime
90%
Prime plus
80%
Prime
70%
Near prime
60%
59%
60%
60%
Subprime
50%
40%
30%
45%
20%
10%
0%
Banks
Credit unions
Traditional finance
companies
VantageScore © 3.0 Risk Ranges
Subprime = 300–600; Near prime = 601–660; Prime = 661–720; Prime plus = 721–780; Super prime = 781-850
FinTechs
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 40
However, credit performance varies by lender even within the same
risk tier
Q4 2014 personal loan originations
Account-level 90+ DPD as of 12 months-on-book
Banks
First 12 months 90+DPD
20% 21%
Credit unions
Traditional finance companies
FinTech
13%
10%
0.8% 0.6% 1.2%
Subprime
VantageScore © 3.0 Risk Ranges
Subprime = 300–600; Near prime = 601–660; Prime = 661–720
Near prime
1.5%
0.3% 0.4% 0.8% 0.7%
Prime
Source: TransUnion consumer credit database
© 2016 TransUnion LLC All Rights Reserved | 41
To summarize the marketplace:
• Competition is diversifying market share
• Strong consumer spending trends and greater access enabling card balance growth
• Recent vintages show deterioration in credit performance
• Continued strong growth across all risk tiers
• Higher portion of purchases being financed
• Recent vintages show deterioration in credit performance
• Balance growth
• Greater access within all risk tiers
• Higher new average loan amounts
• Origination momentum not enough to offset balance depletion
• Opportunity exists around future growth, as home values and interest rates rise
• Strong consumer demand being met by new entrants
• As market share shifts, overall delinquencies are likely to rise
© 2016 TransUnion LLC All Rights Reserved | 42
Please join us for our upcoming
webinars:
• Prama – this summer
• Q2 2016 industry forecast: mid-August
Invitations to follow soon
For more information and insights
visit: transunioninsights.com/IIR