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.
Highlighted here are three recent payments reports, from Co-op Solutions, PSCU and the U.S. Payments Forum.
Co-op Solutions
The Payment Trends Report for November 2022 from Rancho Cucamonga, Calif.-based Co-op Solutions, which provides a financial technology ecosystem for credit unions, disclosed that despite a resilient holiday shopping season, overall spending volume dropped so far.
Co-op observed jobs growth stayed robust in November, rising by 263,000 positions, virtually identical to the previous month despite high-profile layoff announcements across the tech sector among high-profile firms like Gannett, Morgan Stanley and PepsiCo.
Overall spending trends within Co-op’s credit union client portfolios showed positive upticks in categories including Amazon/bookstores, furniture and retail. Most other categories showed modest to significant month-over-month declines. Overall, credit spending was down 4.7% for the month, while debit declined by 2.7%.
Some of the key spending trends from Co-op’s SmartGrowth team:
1. Consumers seek out deals amidst strong holiday shopping volume. Despite inflationary pressures, retailers enjoyed strong Black Friday results, with a bigger than expected year-over-year increase of 2.3% in online sales. An analysis of Co-op’s credit union client portfolio data for department stores, discounts stores, retail, specialty retail, wholesale and Amazon merchant categories showed solid increases in November compared with the same month in 2021, with increases in transaction amount and count across both debit and credit in all these categories.
“As in years past, holiday shoppers are still all about the deals,” said Beth Phillips, director, Co-op Solutions. “However, they are shifting away from department stores and other legacy retailers in favor of Amazon, wholesale and discount merchants in search of the best sales. In another blow to traditional stores, those consumers looking for more personalized gifts and holiday shopping ‘experiences’ are now shopping at specialty or local merchants.”
2. Credit use continues long-term climb.Consumers’ growing appetite for discounts and deals is not holding them back from spending on credit. U.S. credit card debt posted a new record in the third quarter, reaching $930 billion for the first time. However, Co-op data showed month-over-month declines in both debit and credit for November, with debit transactions down by 2.7% and credit down for 4.7%.
“Even though we are tracking relatively higher spending on debit in recent months, the long-term trend over the past year has been an increase in credit use,” said John Patton, Co-op senior payments advisor. “Most holiday spending has been on credit, whereas consumers are trying to use debit and cash on hand to manage their weekly budgets.”
3. Discretionary spending volume declines. Several categories showed significant transaction declines in November versus October, with dining and entertainment down by 7.5% in debit and 10% in credit, and travel down 8.5% in debit and 10.5% in credit. Within the travel category, only auto rental debit transactions showed growth for the month. “What we’re beginning to see play out is consumers being more frugal with their spending,” said Phillips. “Conserving resources for necessities like rent, utilities, gas and groceries, while holding back on discretionary spending is very typical recessionary spending behavior.”
Co-op Solutions suggested credit unions activate “spend and get” campaigns to maintain top-of-wallet status. Focus on those key merchant categories where members are most likely to spend over the holidays, including department stores, discount stores, Amazon and digital goods. Credit unions should also make sure they are offering digital card issuance, to ensure members have access to their credit or debit card accounts immediately through a mobile app or online banking system, while waiting for a new or reissued physical card. Credit unions should also promote their cards for use in their members’ favorite digital wallet apps.
Looking ahead to 2023, credit unions should consider including credit line management and change-in-term efforts to ensure their lines and rates align to reward or protect members.
PSCU
St. Petersburg, Fla.-based payments credit union service organization (CUSO) PSCU in its December Payments Index stated, “In November, consumer purchasing growth for debit finished in the low single digits, while deflating credit card growth rates posted the smallest year-over-year growth rates of 2022.” The report added, “Credit card growth rates continue to outpace debit cards for overall spending. Holiday period spending during October and November in the goods sector revealed sluggish growth rates versus last year, and higher growth rates for debit over credit on both purchases and transactions.”
Also covered: the Consumer Confidence Index decreased for the second consecutive month, now at 100.2 for November, down from 102.5 in October. Inflationary pressures, especially impacting food and energy costs, continue to weigh heavily on consumers in the survey. While consumers cite high gas prices in November, the national average price per gallon of gasoline has dropped to $3.23 for the week ending Dec. 12, which represents a 2.3%, or $0.08, decrease year over year. Meanwhile, the Consumer Price Index (CPI-U) decreased on an annual basis to 7.1% in November, influenced by higher prices in housing and a small increase in food, which was offset by a 1.6% decrease in the energy index. The Fed met on Dec. 13-14 and increased interest rates for the fifth straight month with an increase of 50 basis points.
“While consumer spending on payment cards remained positive in November, inflationary pressures continue to impact growth in purchases, which again outpaced growth in transactions. Holiday spending in the goods sector remained softer throughout November, likely attributable to a combination of economic uncertainty and the shift to more experiential gifts,” said Norm Patrick, vice president, Advisors Plus Consulting, PSCU. “As we close out the holiday shopping season, we will continue to monitor if consumers have delayed their holiday spending to later in the season, along with where they choose to spend.”
Some other key takeaways from the PSCU report:
· Consumer spending on payment cards, while still positive, saw slowing growth in November. Credit card results continued to deflate as the year progressed, while debit card growth remained lower than credit cards throughout 2022. For November, credit purchases were up 5% and debit purchases were up 3% year over year. Year to date through November, credit purchases were up 16% and debit purchases were up 5%. Inflationary pressures continue to contribute to growth in purchases, outpacing growth in transactions. For November, growth in overall transactions was up 4% for credit and 1% for debit.
· Holiday spending in the goods sector remained soft throughout November. Year-over-year growth in purchases for the overall goods sector was down 1.6% for credit and up 1.3% for debit in November. For the five-day peak shopping period that includes Black Friday and Cyber Monday, growth in debit purchases (+1.4%) outpaced growth in credit purchases (+1.0%). Also, during this five-day period, growth in purchases for select “experience categories” posted strong results, including cruises (credit +79% and debit +75%), travel agencies/tour operators (credit +67% and debit +39%) and professional sporting events (credit +34% and debit +35%).
· The November average credit card balance per active account was $2,863, up 6.6% (or $177) year over year. Credit card balances surpassed the September 2020 results of $2,787 for the third time since the decline in card balances that began in early 2020. The credit card delinquency rate for November was 1.92%, five basis points lower than pre-pandemic November 2019 levels.
U. S. Payments Forum
Redwood City, Calif.-based The U.S. Payments Forum in its Fourth Quarter 2022 market snapshot found successes in tap-to-pay and tap-to-phone transactions, and up-and-coming payment verticals. The snapshot also provided an update on global chip supply challenges from a payments perspective and explored concerns regarding recent payment regulations, and momentum with regard to alternative payment methods. This industry update is an amalgamation of information gathered during the Forum’s recent all-member meeting in Nashville, Tenn.
As technology rapidly evolves, so do payment preferences. The younger generation of consumers is expanding its horizons beyond legacy payment methods and the industry is working toward embracing the change. “Buy now, pay later, cryptocurrency and peer-to-peer transactions are among the most buzzworthy topics stakeholders are exploring. From a payment network perspective, there is a desire to provide the same secure transaction opportunities to crypto users as core merchants,” noted the U.S. Payments Forum report.
The snapshot also draws a picture of peer-to-peer (P2P) services — such as PayPal, Venmo, Square and Zelle — used for business-to-business (B2B) and business-to-consumer (B2C) commerce more frequently, according to the Chicago-based W. Capra Consulting Group, which provides IT and business focused advisory services. The group observed a notable uptick in small businesses turning to apps on mobile devices to accept payments and instantly receive funds. They are also seeing P2P transactions displacing some level of card-based or even account-based small businesses payments.
Payment stakeholders are also still keeping a close eye on the global chip supply, a problem for multiple industries for nearly three years. Experiences differ from stakeholder to stakeholder. Some report delays in the progress of contactless card implementation because of chip shortages. One issuer processor said that cards can take four to eight months to reach them. One payment processor shared there is an increased demand among merchants seeking Europay, Mastercard and Visa (EMV) Level 3 certification, which validates EMV-compliant payment acceptance terminals with merchant or banking systems for older devices, because of chip supply challenges.