1 00:00:03,930 --> 00:00:07,020 Sean Aylmer: Welcome to the Fear and Greed Business Interview. I'm Sean Aylmer. 2 00:00:07,290 --> 00:00:11,459 Sean Aylmer: Demand for unsecured credit in Australia is slowing as consumers 3 00:00:11,520 --> 00:00:14,730 Sean Aylmer: spend less grappling with the cost of living crisis. At 4 00:00:14,730 --> 00:00:18,180 Sean Aylmer: the same time, mortgage arrears are climbing according to US-based 5 00:00:18,180 --> 00:00:22,770 Sean Aylmer: global data analytics and technology company Equifax. Their quarterly consumer 6 00:00:22,770 --> 00:00:26,609 Sean Aylmer: credit insights report measures the volume of applications for credit cards, 7 00:00:26,610 --> 00:00:30,209 Sean Aylmer: personal loans, buy now, pay later, mortgages and car loans. 8 00:00:30,420 --> 00:00:33,958 Sean Aylmer: Melanie Cochran is the Australia/New Zealand Chief Executive Officer and 9 00:00:33,960 --> 00:00:37,290 Sean Aylmer: Group Managing Director at Equifax. Mel, welcome to Fear and Greed. 10 00:00:37,860 --> 00:00:39,208 Melanie Cochran: Thank you. Thanks for having me. 11 00:00:39,600 --> 00:00:43,050 Sean Aylmer: Before we get into the data, these sorts of partial 12 00:00:43,050 --> 00:00:46,440 Sean Aylmer: indicators, dare I say, are incredibly important, aren't they? Because 13 00:00:46,440 --> 00:00:49,168 Sean Aylmer: they're actually really giving a great insight into the economy, 14 00:00:49,500 --> 00:00:53,849 Sean Aylmer: well before official statistics or the Reserve Bank necessarily comes 15 00:00:53,850 --> 00:00:55,649 Sean Aylmer: out and gives their data. 16 00:00:56,219 --> 00:00:59,010 Melanie Cochran: Yes. That's right. It's really interesting. Some of these are kind of 17 00:00:59,010 --> 00:01:04,560 Melanie Cochran: leading indicators. So, often the sign for credit application occurs 18 00:01:04,650 --> 00:01:08,489 Melanie Cochran: earlier as people are making plans and decisions. So, we 19 00:01:08,490 --> 00:01:13,170 Melanie Cochran: did see for Q2 that for unsecured lending credit, so 20 00:01:13,170 --> 00:01:17,070 Melanie Cochran: things like credit cards, buy- now- pay- later, personal loans, 21 00:01:17,430 --> 00:01:20,550 Melanie Cochran: we saw that those have slowed down. In fact, credit 22 00:01:20,550 --> 00:01:25,889 Melanie Cochran: card growth was around 20%. Applications around 20% growth last quarter. 23 00:01:25,889 --> 00:01:35,520 Melanie Cochran: They're down to about 6%, and for buy-now-pay-later and personal loans, we actually saw those in decline in terms of demand for credit and so, 24 00:01:35,520 --> 00:01:38,819 Melanie Cochran: buy-now-pay-later would be a good example of an indicator as 25 00:01:38,819 --> 00:01:42,780 Melanie Cochran: we've seen in slower spending. Consumers are starting to spend 26 00:01:42,780 --> 00:01:46,411 Melanie Cochran: less and, therefore, leveraging those kinds of credit products less. 27 00:01:46,411 --> 00:01:50,790 Sean Aylmer: Okay. So, we'll go into buy-now-pay-later then we might talk about 28 00:01:50,790 --> 00:01:52,950 Sean Aylmer: credit cards, because I'm interested that there is still growth 29 00:01:52,950 --> 00:01:56,400 Sean Aylmer: in the credit card sector. So, buy-now-pay-later, we haven't actually 30 00:01:56,400 --> 00:01:59,700 Sean Aylmer: had new legislation across that sector, so I would imagine 31 00:01:59,700 --> 00:02:02,309 Sean Aylmer: a lot of the players in that market are keen 32 00:02:02,309 --> 00:02:06,779 Sean Aylmer: to sign up merchants and sign up customers. But, I mean, 33 00:02:06,779 --> 00:02:09,960 Sean Aylmer: that's like a 25% odd drop during the quarter, wasn't it? 34 00:02:10,860 --> 00:02:13,050 Melanie Cochran: That's right. And, as I said at the moment, you 35 00:02:13,050 --> 00:02:18,240 Melanie Cochran: pointed out the regulation not all buy-now-pay-later providers provide all of that. 36 00:02:18,240 --> 00:02:21,120 Melanie Cochran: And that's certainly from the data that we've seen. So, 37 00:02:21,120 --> 00:02:25,350 Melanie Cochran: many companies do check for a credits check before they 38 00:02:25,410 --> 00:02:29,700 Melanie Cochran: initiate a buy-now-pay-later account. That's an indication of new accounts being 39 00:02:29,700 --> 00:02:33,389 Melanie Cochran: set up in buy-now-pay-later, not necessarily directly those that are 40 00:02:33,389 --> 00:02:37,440 Melanie Cochran: already existing and people that might be spending on existing accounts. So, 41 00:02:37,440 --> 00:02:39,329 Melanie Cochran: there's a bit of a pattern there. I think personal 42 00:02:39,330 --> 00:02:44,488 Melanie Cochran: loan is a really interesting one, where it's down about 6%. And, 43 00:02:44,550 --> 00:02:47,460 Melanie Cochran: we are seeing though that the average limit for a 44 00:02:47,460 --> 00:02:50,760 Melanie Cochran: personal loan is increasing. So, that's a sign that people 45 00:02:50,760 --> 00:02:54,630 Melanie Cochran: are using personal loans for more debt consolidation, where they're 46 00:02:54,630 --> 00:02:57,959 Melanie Cochran: actually seeking higher limits. And, we've seen that too in 47 00:02:57,960 --> 00:03:01,229 Melanie Cochran: credit cards, where the average average limit for a new account is 48 00:03:01,230 --> 00:03:02,190 Melanie Cochran: actually increasing. 49 00:03:02,730 --> 00:03:05,580 Sean Aylmer: Okay. So, let's jump into credit cards. Applications were up 50 00:03:05,580 --> 00:03:11,099 Sean Aylmer: 6% June quarter vis-a-vis a year earlier. This is my 51 00:03:11,099 --> 00:03:13,139 Sean Aylmer: ignorance, I haven't actually used a credit card for many, 52 00:03:13,139 --> 00:03:15,929 Sean Aylmer: many years. I used a debit card only, but it's 53 00:03:16,139 --> 00:03:20,250 Sean Aylmer: just struck me that of all the unsecured consumer credit 54 00:03:20,250 --> 00:03:23,580 Sean Aylmer: applications, it's credit cards that are growing most. Why is that? 55 00:03:24,810 --> 00:03:28,200 Melanie Cochran: Well, we saw at the backend and post-COVID return to travel. 56 00:03:28,200 --> 00:03:31,138 Melanie Cochran: So people do like to have credit cards for traveling 57 00:03:31,139 --> 00:03:33,540 Melanie Cochran: and for holidays. So, we saw a big lift in 58 00:03:33,540 --> 00:03:38,100 Melanie Cochran: credit card applications in the backend of last year. And then, also, 59 00:03:38,100 --> 00:03:41,190 Melanie Cochran: as people are turning to credit cards, particularly with cost 60 00:03:41,190 --> 00:03:44,730 Melanie Cochran: of living pressures and having access to other forms of 61 00:03:44,730 --> 00:03:48,900 Melanie Cochran: credit for bigger purchases, then certainly that's where people will 62 00:03:48,900 --> 00:03:52,049 Melanie Cochran: turn to credit card, where they do want to extend terms, 63 00:03:52,049 --> 00:03:53,280 Melanie Cochran: revolve those payments. 64 00:03:53,850 --> 00:03:56,160 Sean Aylmer: Is there a sense of ageism in this as well, 65 00:03:56,160 --> 00:04:00,540 Sean Aylmer: in as much as the buy-now-pay-later product is probably used more 66 00:04:00,540 --> 00:04:05,880 Sean Aylmer: by younger folk and credit cards are used by older folk? Or, 67 00:04:05,880 --> 00:04:06,750 Sean Aylmer: is that just ignorant? 68 00:04:07,590 --> 00:04:10,860 Melanie Cochran: There's probably some trends there, for sure, on buy-now-pay-later, but credit 69 00:04:10,860 --> 00:04:15,270 Melanie Cochran: cards tend to be more broader. But, certainly what we haven't 70 00:04:15,270 --> 00:04:19,020 Melanie Cochran: seen, and a good indication is that, the credit quality hasn't 71 00:04:19,020 --> 00:04:22,589 Melanie Cochran: declined on credit card applications. So, that means that people 72 00:04:22,589 --> 00:04:25,618 Melanie Cochran: who are applying for credit are not just applying for 73 00:04:25,620 --> 00:04:28,349 Melanie Cochran: them as a last resort. They do have good credit 74 00:04:28,350 --> 00:04:31,980 Melanie Cochran: scores today, but they may well be planning for future expenses, 75 00:04:31,980 --> 00:04:34,770 Melanie Cochran: or seeing the pressure of cost of living, that they're 76 00:04:34,770 --> 00:04:37,890 Melanie Cochran: looking for additional forms of credit to pay for some 77 00:04:37,890 --> 00:04:40,710 Melanie Cochran: of those larger purchases, or just to ensure that they 78 00:04:40,710 --> 00:04:43,380 Melanie Cochran: have adequate access, if they need it. 79 00:04:43,799 --> 00:04:45,719 Sean Aylmer: Stay with me, Mel. We'll be back in a minute. 80 00:04:45,719 --> 00:04:55,200 Sean Aylmer: I am speaking to Melanie Cochrane, Australia/ New Zealand CEO and Group 81 00:04:55,200 --> 00:04:59,879 Sean Aylmer: Managing Director at Equifax. So, before we leave credit card, 82 00:04:59,880 --> 00:05:02,399 Sean Aylmer: credit card arrears, the number of accounts in the 30 83 00:05:02,400 --> 00:05:05,159 Sean Aylmer: to 90-day arrears increased quite a bit, but I think 84 00:05:05,160 --> 00:05:08,400 Sean Aylmer: it was 11% or something year-on-year. How does that fit 85 00:05:08,400 --> 00:05:11,790 Sean Aylmer: in with the story? I presume that's bad news? I mean, 86 00:05:11,790 --> 00:05:14,519 Sean Aylmer: it's some sort of early sign at least that there's 87 00:05:14,700 --> 00:05:15,239 Sean Aylmer: pressure on? 88 00:05:15,779 --> 00:05:19,920 Melanie Cochran: Yeah. And, we're seeing arrears increase across the board. Overall, 89 00:05:20,070 --> 00:05:23,068 Melanie Cochran: the total number of accounts in defaults for credit cards 90 00:05:23,070 --> 00:05:26,820 Melanie Cochran: hasn't increased particularly. It's been fairly steady. But, we are 91 00:05:26,820 --> 00:05:29,849 Melanie Cochran: starting to see those early arrears, both in that less 92 00:05:29,850 --> 00:05:33,389 Melanie Cochran: than 30 days and 30 to 90 days increase. But, 93 00:05:33,389 --> 00:05:35,910 Melanie Cochran: in fact, in mortgages and personal loans, we're seeing those 94 00:05:35,910 --> 00:05:40,020 Melanie Cochran: increases a bit higher. So, credit card, we're starting to 95 00:05:40,020 --> 00:05:43,950 Melanie Cochran: see arrears increase, but not necessarily at an alarming rate. And, 96 00:05:43,950 --> 00:05:49,289 Melanie Cochran: certainly not at prepandemic levels yet. So, it's a month-on-month 97 00:05:49,650 --> 00:05:54,210 Melanie Cochran: and quarter-on-quarter increase, but they're still relatively low. And, they're certainly 98 00:05:54,300 --> 00:05:57,300 Melanie Cochran: on an absolute basis, still lower than pre-pandemic. 99 00:05:57,750 --> 00:06:01,410 Sean Aylmer: Okay. We've been talking about unsecured credit applications thus far, 100 00:06:01,410 --> 00:06:05,760 Sean Aylmer: or unsecured credit. What about secured credit, primarily mortgages and 101 00:06:06,120 --> 00:06:08,910 Sean Aylmer: car loans? What's happening in the mortgage area? 102 00:06:09,540 --> 00:06:12,120 Melanie Cochran: Well, we've seen quite a bit of movement here. In terms 103 00:06:12,120 --> 00:06:17,909 Melanie Cochran: of demand, we saw the decline in mortgages cease or reduce. 104 00:06:18,330 --> 00:06:21,719 Melanie Cochran: The decline in first quarter was about 11% year over year, 105 00:06:21,750 --> 00:06:25,680 Melanie Cochran: and it was only down to 2.8%. Now, in Q2 106 00:06:25,680 --> 00:06:29,159 Melanie Cochran: you saw there was a lot of activity around refinancing. 107 00:06:29,219 --> 00:06:32,849 Melanie Cochran: As people are coming off those fixed-rates periods, they're looking 108 00:06:32,849 --> 00:06:36,928 Melanie Cochran: to either restructure their loan or refinance. And so, we 109 00:06:36,930 --> 00:06:40,409 Melanie Cochran: did see less of a decline in Q2 than the 110 00:06:40,410 --> 00:06:44,220 Melanie Cochran: previous few quarters trend, and we started to see a 111 00:06:44,220 --> 00:06:48,599 Melanie Cochran: much bigger increase in refinancing and restructuring. So, a new 112 00:06:48,599 --> 00:06:51,480 Melanie Cochran: mortgage for a new property was actually only making up 113 00:06:51,480 --> 00:06:55,380 Melanie Cochran: about 25% of those inquiries. The rest were either refinancing 114 00:06:55,380 --> 00:06:58,920 Melanie Cochran: or restructuring of loans. So, that's an indication of the 115 00:06:58,920 --> 00:07:02,010 Melanie Cochran: mortgage market is moving, and particularly for coming up to 116 00:07:02,010 --> 00:07:03,990 Melanie Cochran: end of financial year, we saw a lot of activity 117 00:07:03,990 --> 00:07:08,640 Melanie Cochran: and incentives and people probably shopping around for better terms. 118 00:07:10,230 --> 00:07:11,880 Sean Aylmer: Okay. Actually, we should just mention car loans quickly, but then I want to get on 119 00:07:12,450 --> 00:07:16,050 Sean Aylmer: with what all this means, really. And so, car loans, what happened in that sector? 120 00:07:16,500 --> 00:07:20,580 Melanie Cochran: So again, we saw auto loans decline around 5% in 121 00:07:20,580 --> 00:07:24,509 Melanie Cochran: terms of demand. We have seen that the arrears are 122 00:07:24,509 --> 00:07:28,290 Melanie Cochran: increasing in auto and increasing more aggressively, I would say. 123 00:07:28,830 --> 00:07:33,720 Melanie Cochran: So, we're seeing personal loans and auto arrears are on the increase 124 00:07:34,080 --> 00:07:38,220 Melanie Cochran: more rapidly. But, overall, in line with the general trends 125 00:07:38,490 --> 00:07:40,950 Melanie Cochran: of less demand for credit, which is I'm sure a 126 00:07:40,950 --> 00:07:42,840 Melanie Cochran: reflection of the auto sector as well. 127 00:07:43,380 --> 00:07:46,740 Sean Aylmer: Okay. So Mel Cochran, CEO of Equifax putting all this 128 00:07:46,859 --> 00:07:51,000 Sean Aylmer: together, what does it say about the next three, six, 129 00:07:51,150 --> 00:07:52,350 Sean Aylmer: nine, 12 months? 130 00:07:52,980 --> 00:07:55,530 Melanie Cochran: Well, we're seeing, first of all, yes, arrears are on 131 00:07:55,530 --> 00:08:00,509 Melanie Cochran: the increase. And, we're seeing those early arrears roll forward. So, 132 00:08:00,929 --> 00:08:03,360 Melanie Cochran: I mentioned earlier the sort of under 30 days and 133 00:08:03,360 --> 00:08:06,269 Melanie Cochran: then 30 to 90? We're seeing that increase. So, you 134 00:08:06,270 --> 00:08:09,900 Melanie Cochran: would anticipate that we would start to see defaults increase 135 00:08:10,470 --> 00:08:13,920 Melanie Cochran: as they continue to flow forward. But, what we are 136 00:08:13,920 --> 00:08:18,029 Melanie Cochran: seeing is a lot more proactive engagement and intervention I 137 00:08:18,030 --> 00:08:20,969 Melanie Cochran: would say. There's been a lot more education around reaching 138 00:08:20,969 --> 00:08:24,330 Melanie Cochran: out to your lender, or particularly for mortgages, reaching out 139 00:08:24,330 --> 00:08:28,980 Melanie Cochran: to the provider to work out alternative arrangements. So, we're 140 00:08:28,980 --> 00:08:33,208 Melanie Cochran: not seeing hardship, particularly. Financial stress is increasing as you see 141 00:08:33,210 --> 00:08:37,620 Melanie Cochran: that through arrears, but we're not seeing a particularly big uptick, 142 00:08:37,620 --> 00:08:41,399 Melanie Cochran: or movement in those accounts going into hardship. And so, 143 00:08:41,400 --> 00:08:44,400 Melanie Cochran: that's an indication of not as many going into default, 144 00:08:44,400 --> 00:08:48,059 Melanie Cochran: because lenders are being much more proactive in working with 145 00:08:48,059 --> 00:08:52,260 Melanie Cochran: their customers on how to manage through any sort of 146 00:08:52,260 --> 00:08:56,069 Melanie Cochran: financial stress that they may be experiencing. So, for me, 147 00:08:56,070 --> 00:08:57,900 Melanie Cochran: what we're seeing is yes, we're going to see continued 148 00:08:57,900 --> 00:09:02,520 Melanie Cochran: trends on arrears. That will increase defaults over time, but 149 00:09:02,520 --> 00:09:05,400 Melanie Cochran: we're still not back to pre-pandemic levels. And I don't 150 00:09:05,400 --> 00:09:08,160 Melanie Cochran: think we'll reach that for some quarters. 151 00:09:09,090 --> 00:09:12,029 Sean Aylmer: Okay. Equifax compiles data like this from right around the 152 00:09:12,030 --> 00:09:14,489 Sean Aylmer: world. How does Australia compare to other markets, I suppose 153 00:09:14,490 --> 00:09:15,780 Sean Aylmer: the US being the obvious one? 154 00:09:16,379 --> 00:09:20,309 Melanie Cochran: Well, similar trends. So, cost of living, interest-rate rises is 155 00:09:20,309 --> 00:09:22,949 Melanie Cochran: the same across the board. But, there's some quite big 156 00:09:22,950 --> 00:09:27,090 Melanie Cochran: structural changes in the US and they have much longer 157 00:09:27,090 --> 00:09:31,468 Melanie Cochran: fixed-rate periods than we have in Australia. So, people will not 158 00:09:31,530 --> 00:09:35,129 Melanie Cochran: be refinancing until the rates start to come down. So, 159 00:09:35,129 --> 00:09:39,870 Melanie Cochran: there's a lot less activity in the mortgage market overall, 160 00:09:39,990 --> 00:09:42,870 Melanie Cochran: as people are not really looking to refinance, because the 161 00:09:42,960 --> 00:09:45,630 Melanie Cochran: rates have gone up there, then their mortgages would go up. So, 162 00:09:45,630 --> 00:09:49,049 Melanie Cochran: they don't have this mortgage cliff that we're seeing here. 163 00:09:49,559 --> 00:09:53,069 Melanie Cochran: But overall, yes, demand for credit is very similar across 164 00:09:53,070 --> 00:09:56,010 Melanie Cochran: the board. That cost of living and rate rises are impacting. 165 00:09:56,400 --> 00:09:58,949 Melanie Cochran: We are seeing arrears increase across the board in most 166 00:09:58,949 --> 00:10:00,328 Melanie Cochran: of our major markets that we see. 167 00:10:01,140 --> 00:10:02,999 Sean Aylmer: Mel, thank you for talking to Fear and Greed. 168 00:10:03,599 --> 00:10:04,799 Melanie Cochran: You're welcome. Thank you for having me. 169 00:10:05,280 --> 00:10:08,549 Sean Aylmer: That was Melanie Cochrane, Australian/ New Zealand Chief Executive Officer 170 00:10:08,549 --> 00:10:11,910 Sean Aylmer: and Group Managing Director at Equifax. This is the Fair and 171 00:10:11,910 --> 00:10:14,040 Sean Aylmer: Greed Business Interview. Join us every morning for the full 172 00:10:14,040 --> 00:10:17,458 Sean Aylmer: episode of Fair and Greed, Australia's best business podcast. I'm 173 00:10:17,460 --> 00:10:19,020 Sean Aylmer: Sean Aylmer. Enjoy your day.