By Roy Urrico
Finopotamus aims to highlight white papers, surveys and reports that provide a glimpse as to what is taking place and/or impacting credit unions and other organizations in the financial services industry.
Summarized here are two recent payments reports, from Co-op Solutions and PSCU, that revealed a post-holiday boost in card use.
Co-op Solutions
The Consumer Spending Trends findings for January 2023 from Rancho Cucamonga, Calif.-based Co-op Solutions, which provides a financial technology ecosystem for credit unions, highlighted three key trends:
1. Retail, Amazon post-holiday volumes up over prior year. In January 2023, debit cardholders spent at much higher rates as compared with January 2022, increasing their Amazon transactions by over 50%. Amazon transactions declined by 29.3% in credit and 27.5% in debit from December 2022 to January 2023. Co-op noted Amazon’s warning of slower growth ahead in both its e-commerce and web services businesses. In comparison, credit cardholders increased their spend by 25% over the same period. Other retail merchants, including department stores, did not fare as well – posting moderate declines on purchase transactions.
2. Travel ticks up. Travel purchases increased year-over-year by 16% on debit and 32% on credit. The steady growth in both portfolios since January 2022, according to Co-op, suggests a continued positive outlook for the travel segment moving into 2023. “Travel has been one of the strongest categories over the past couple of years, particularly on credit,” said Beth Phillips, director of strategic portfolio growth, Co-op Solutions. “Travel is up by 28% in transaction count since January 2021, and by 8% since January 2022. This trend indicates the travel industry is poised for continued strong growth.”
3. Economic worries spur shift to debit. “Although we have seen higher rates of credit spending – and ballooning credit card balances – as economic uncertainty grows, consumers have indicated they are focused on their own household budgets and may start shifting their spending behavior to debit,” the report revealed. Co-op’s January 2023 data showed an increase in debit transactions of 3% over January 2022, a rate of growth only 2% lower than credit. This represents a significant jump from January 2021, when transaction volumes fell by 8% on debit and 7% on credit.
Co-op Solutions’ report also cited a major area of focus for the credit union industry, credit risk. “According to NCUA’s Q3 2022 data, loss rates were historically low at 1.93%. However, in light of the Fed’s continued interest rate hikes and escalating economic stressors, charge-off rates are once again rising from the historic lows of the past few years – with predicted loss rates on par with those seen before the pandemic.”
Among the other areas of the report’s focus: Economic uncertainty led to declines in January month-over-month credit transaction volume of -10.2%, while debit spending fell over the same period by a comparatively smaller -8.7%. “Higher income households – including those professionals that receive a regular salary – are still faring better than lower-income, paycheck to paycheck households,” said John Patton, senior payments advisor, Co-op Solutions. “But the latest surge in job growth has skewed toward lower-wage jobs in the leisure, hospitality and healthcare sectors, indicating that the professional ranks may begin feeling the pain soon as consumer confidence continues to decline.”
Co-op Solutions also advised credit unions to:
· Use Fed increases to propel respective programs. “As the Fed continues to raise interest rates, consumers who have been enticed by rich rewards programs are now starting to pay attention to their credit card rates. This shift in focus provides credit unions the opportunity to re-assert their value propositions – particularly their comparatively low rate and fee structures.”
· Update pricing strategies for program(s). “If credit card program pricing strategies have not been reviewed or updated in recent years, a repricing effort is critical to regain lost ground. While this effort may seem overwhelming, it is a critical step to ensure future program success.”
· Keep an eye on fraud trends. Economic uncertainty is also a fertile breeding ground for card fraud. Activate a fraud prevention strategy.
PSCU
St. Petersburg, Fla.-based payments credit union service organization (CUSO) PSCU, in its February 2023 Payments Index report, found consumer spending growth on payment cards posted positive results for January, with debit card growth improving more than credit card growth when compared to December growth rates. For January, credit purchases were up 9% and debit purchases were up 7% year over year. Growth in transactions was also strong, with credit up 7% and debit up 6% year over year.
A sampling of other key takeaways from the February report included:
· The Consumer Price Index for All Urban Consumers (CPI-U) decreased on an annual basis to 6.4% in January, down by 0.1 percentage points.
· For January 2023, the mix of discretionary/non-discretionary spending for credit purchases was 22% discretionary and 78% non-discretionary. For debit purchases, the ratio was 11% discretionary and 89% non-discretionary. Consumers continue to show confidence in discretionary spending categories. For January, discretionary spending was up two percentage points for credit purchases and up 1% for debit purchases compared to January 2022.
· The credit card delinquency rate for January returned to 2019 pre-pandemic levels, finishing at 1.97%. Total credit card balances are up 13.7% for January compared to a year ago, while the January average credit card balance per active account was $2,912, up 6.4% (or $176) year over year.
In its monthly Deep Dive (part of the report) PSCU outlined several refinements to the PSCU Payments Index and introduced new measures on discretionary and non-discretionary consumer spending.
“As we begin reporting 2023 payment performance and continue to evolve the PSCU Payments Index, we are excited to introduce several enhancements to bring greater clarity on trends in consumer sentiment and payment preferences,” said Mike Bell, Vice President, Insights at PSCU. “From the reorganization of merchant categories into more relevant groupings to the new reporting of payment trends in discretionary and non-discretionary buckets, we are committed to providing additional insights and value for our financial institutions. As an example, with the growth of P2P payments such as CashApp, Venmo, Zelle and PayPal, we hope that the new Money Services sector will provide a greater understanding of these payment options, which now account for 10% of all debit purchases.”
PSCU also suggested the intended economic outcomes from the Fed’s ongoing interest rate hikes appear to be making an impact. In January 2023, “we find inflation slowing, though job creation remains strong, unemployment is at a 53-year low and consumer purchasing was positive for both credit and debit cards. In the Labor Department’s Feb. 14 update, the Consumer Price Index (CPI) declined by 0.1% for the month of January, bringing the 12-month rate of inflation to 6.4%.”