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 below are September 2023 payments reports from PSCU and Co-op Solutions.
PSCU Payments Index
In the September edition of the PSCU Payments Index, the St. Petersburg, Fla.-based payments credit union service organization (CUSO) revealed consumer behavior remained steady for both credit and debit, even with a larger-than-expected inflationary increase for August. In its monthly Deep Dive section, the PSCU Payments Index also highlighted spending on back-to-school purchases.
“Overall spending behavior held steady in August, despite a slight dip in consumer confidence – proving the economy is remaining stronger than expected,” said Yvonne Stelpflug, senior vice president, Advisors Plus at PSCU. “As we look at back-to-school spending trends in this month’s Deep Dive, the larger retail merchants of Amazon, Walmart and Target experienced stronger growth than smaller clothing store merchants, who experienced notable reductions. Looking ahead, as federal student loan payments are set to resume in October, we expect to see household cutbacks in other areas and will monitor any potential impacts on the upcoming holiday shopping season.”
PSCU noted for 2023, the National Retail Federation (NRF) projected that back-to-school spending would rise 3% compared to 2022, with the expected spending per household at $897. “In our third annual installment measuring the impact of back-to-school purchases, we return to a relevant group of 16 merchant categories/groupings representing typical back-to-school spend areas for our same-store population of credit unions.”
The same store sales method is a metric commonly used to evaluate the performance of already existing outlets. For the same-store population of credit unions over the past rolling 12-month period, the September edition of the Payments Index represented a total of 2.8 billion transactions valued at $142 billion of credit and debit card activity from September 2022 through August 2023.
Aggregate debit purchases in these merchant categories were up for August 2023 compared to August 2022 by 3.6%. Credit purchases in the same categories and time frame were down by 0.6%. Bucking the trend from last fall, growth in both credit and debit purchases was lower in these select back-to-school purchasing-related categories when compared to the overall growth in credit and debit purchases, respectively.
Some other key takeaways from the report include:
· Debit maintained steady year-over-year growth, with purchase volumes up 5.8, while credit purchases were up 1.9%. Transaction growth remained positive, with debit up 5.2% and credit up 3.3% for the month.
· For credit and debit purchases in August, the largest contributor to growth was the services sector. Goods was the only notable category offsetting credit purchase growth, contributing to a 0.5% reduction. For debit purchases, all sectors contributed positively to year-over-year growth.
· The Consumer Price Index for All Urban Consumers (CPI-U) increased by 0.6% in August, its largest monthly gain since June 2022. Energy prices rose 5.6% in August, including a 10.6% increase in gasoline prices, which fueled much of the overall CPI increase.
· The credit card delinquency rate increased again in August and finished at 2.11%, above the August 2019 pre-pandemic level by 35 basis points. Total credit card balances were up 12.2% for August compared to a year ago. The average credit card balance for active accounts exceeded $3,000 for the first time since February 2020.
Co-op Solutions Payments Trends Report
In its latest spending Payments Trends Report, which covers spending data from August 1-31, Rancho Cucamonga, Calif.-based Co-op Solutions found as fall approaches, spending is showing signs of cooling with consumers tightening their grips on their wallets. Overall, August Co-op credit union portfolio data shows that August transaction volume rose by 4.2% in credit and 0.4% in debit on a rolling 12-month basis.
Co-op Solutions’ SmartGrowth consultants unit, which contributed to the Payments Trends Report, focused on some key spending trends:
1. Education spending levels up. The longer-term spending trend within the education merchant category shows growth, as more students return to campus in the K-12, trade school and post-secondary settings. Monthly transaction volume in this category was up 74.5% in credit and 83.8% in debit in August, and grew by more than 15% in both portfolios for the rolling 12-month period.
2. Travel boom may have peaked. On a rolling 12-month basis, Co-op Solutions credit union payment data from August shows the travel category up 18% in credit and 6.9% in debit. However, monthly transaction volume declined slightly in August from July across both portfolios.
3. Rent takes a bigger bite. With the costs of purchasing (and financing) a new home rising over the past year, younger households – particularly prospective first-time homebuyers – are left on the sidelines. This in turn is causing rental demand to increase, driving up costs. According to Co-op’s spending data, transaction volume in the real estate agents and managers – rentals merchant classification grew by 17% across the combined credit and debit portfolios over August 2022, while average transaction amounts increased by 4% over the same period.
Meanwhile, the home improvement category is down -3.6% on credit and -7.3% on debit over prior year. “Homeowners are done with all the big-ticket renovations and remodels, and are now looking just to maintain their current living spaces,” said John Patton, Co-op solutions senior payments advisor.
4. Credit growth remains strong, for now. Year-over-year, credit transaction volume continues to maintain a strong clip, at 4.2% growth on a rolling 12-month basis compared with just .45% for debit. However, month over month debit transaction volume rebounded in August (up 6.6%) compared to credit transaction volume (up just 2.0%), reinforcing the narrative that consumers are now overextended on credit debt. At the same time, credit balance consolidation activity declined significantly in August. Per Co-op credit union portfolio data, credit balances grew by 12.6% year over year. (month of August 2022 vs. month of August 2023).
“While consumers embraced spending on credit over the past year, it appears that the tide may be shifting,” said Beth Phillips, vice president, Co-op Solutions. “They are becoming more cautious with their usage as interest rates continue to rise and their debt load increases.”
5. Electric Vehicles Jolt Upward: Electric vehicle (EV) charging transaction volume has exploded over the past year, up 121% in credit and 139% in debit on a rolling 12-month basis, despite gross volumes still representing a small part of the overall automotive fueling market. The share of electric vehicles as a percentage of total car sales was over 10 million in 2022, representing 14% of the total market.
The Co-op Solutions report also recommended credit unions help members by increasingly focusing on their members’ personal financial picture. “With many consumers saddling high debt loads, now is the time for credit unions to promote their deposit products, including checking, savings and debit cards to help members reach their savings goals and pay off high-interest debt balances. And for those who are truly struggling to make ends meet, credit unions may want to offer debt consolidation services, or a skip-a-pay program to help them get ahead on their monthly obligations.”
For those who are continuing to spend, coupled with the approaching holiday shopping season, Co-op Solutions suggested it is a “good time” for credit unions to activate or enhance their loyalty rewards programs.
