Gen Z and millennial borrowing patterns driving high growth in digital loans: Report

The borrowing behaviour of Gen Z and millennials are on the brink of transforming the digital lending landscape, according to a report released by Redseer Strategy Consultants.

The Gen Z cohort, comprising youngsters within the age range of 18 to 25, accounts for 20–25% of loans distributed through digital lending. While millennials, people falling between the ages of 26 and 38, make up about 55 to 60% of the same, the report said.

Although traditional lenders hold their spot at the top among the wealthy, digital lenders are making a mark in the lending space. “Instant personal loan services are becoming popular with younger borrowers as these platforms offer instant loans through easy online processes, making them a hit with tech-savvy Gen Z and millennials,” the report published on July 4 stated.

The survey stated that Gen Z is often overlooked by traditional lenders and categorised as less attractive because they are new to credit and thus lack credit history. Nonetheless, digital lenders have made significant strides with this generation, offering customised financial products and attaining major disbursements.

According to the report, the data highlighted significant growth in digital lending, from 1.8% in FY22 to about 2.5% of the total retail loans in FY24. By FY28, the digital lending space is expected to amount to approximately 5% of the market, growing at a 40% CAGR.

“This rapid growth is driven by a digital push from the players, leading to increased adoption across all age groups. Gen Z, in particular, along with millennials, shows a higher penetration in digital lending compared to older age groups. They favour digital solutions for their financial needs due to the convenience and speed offered by the new-age players,” the study added.

Gen Z and millennials showcased different borrowing patterns. While the former preferred personal loans, which made up 40% of their total borrowings, personal loans only constituted 21% of the total borrowings for millennials. The latter favoured credit card spending, which accounted for approximately 30% of their retail loan disbursals.

“The value and volume penetration of digital loans are significantly higher for Gen Z compared to millennials and other demographics. The substantial volume of digital loans underscores the fact that more Gen Z individuals are embracing this convenient and accessible financial solution,” the report said.

There is room for significant growth potential for India’s credit-active Gen Z segment to adopt financial lending services, as the proportion of credit-active Gen Z in India is 15-20% as compared to countries like South Africa at 35–40%, China at 40–45%, and the US at 75%. This signifies an opportunity to expand and penetrate lending products among India’s Gen Z population.

“As Gen Z continues to mature and millennials advance in their careers, the demand for diverse credit products will likely expand. The younger generation’s familiarity with digital platforms will drive further innovation and competition in the lending market,” the report said.