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  • Writer's pictureRoy Urrico

Co-op Solutions and PSCU Payment Reports Reveal Different Takes on March Consumer Spending

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 PSCU and Co-op Solutions, that reveal slightly different points of view on March 2023 consumer spending.

Co-Op Solutions Shows Spending Increased Across All Merchant Categories

Source: Co-op Solutions

The consumer spending trends findings for March 2023 from Rancho Cucamonga, Calif.-based credit union service organization (CUSO) Co-op Solutions, which provides a financial technology ecosystem for credit unions, showed spending increased substantially across all merchant categories despite mixed economic trends.

Overall, Co-op Solutions spending data reports that transaction volume was higher across both the debit and credit portfolios versus March 2022. Co-op Solutions’ “SmartGrowth” consultants unit, which is part of the trends report, is closely watching the following key spending trends:

1. In March, virtually every debit and credit category showed double-digit growth from March 2022. The biggest gainers included campers and camping, entertainment and home improvement. Golf courses led the way with a 42.9% increase in debit and 36.7% rise in credit. Overall, debit transactions were up 13.8% for the month, and credit was up by 14.5%. “Consumers noticeably increased their debit and credit spending in March,” said Co-op Solutions Senior Payments Advisor John Patton. “Whether that means more expenditures on dining and entertainment, booking a trip for later in the season or hitting the links for a round of golf, the improving weather has given people a case of spring fever.”

John Patton, Co-op Solutions.

2. Despite big gains across most categories in March, the longer-term outlook for consumer spending is less rosy, said the report. Retail sales slipped in February by 0.4% compared with January’s levels, and durable goods spending fell even further. “Retail spending is going to continue to feel pressure as we move deeper into 2023,” said Patton. “People will reserve their in-person shopping for more ‘experiential’ visits – such as new releases of goods, shoes and apparel, and the opportunity to have unique, in-store experiences. For everyday items, consumers are tightening their wallets, and will continue to look for deals online, as well as delivery and curbside pickup for convenience.” U.S. credit card debt declined by 17% through the first two years of the pandemic. But in the last quarter of 2022, it reached nearly $1 trillion, a record high, per the Federal Reserve Bank of New York. Just as concerning to the Co-Op Solutions consultants is the percentage of credit card accounts more than 90 days delinquent has begun to rise, reaching over 4%. The first two months of 2023 had the first balance declines since January 2022, Co-Op Solutions noted. March credit portfolio balances increased 1.13% from February’s. In addition, credit balances continued to grow in March 2023 and were up by 14.86 over March 2022.

Co-Op Solutions recommended: “As credit unions face an uncertain economic environment featuring rising rates, layoffs, inflation and a volatile stock market, it’s time to aggressively promote the credit union difference to members and prospective members.”

The report continued, “As leading card issuers like Capital One and Bank of America jack-up their rates as high as 29% in response to the Fed’s recent rate hikes, this limitation constrains credit unions’ ability to earn interest income on their credit portfolio, especially as they are forced to raise deposit rates and must protect against increasing credit risk.”

Beth Phillips, Co-op Solutions.

“This is not the time to be complacent,” said Beth Phillips, director, Co-op Solutions. “Illustrate the significance of your card rates in comparison to industry rates and the anticipated savings your card products offer. Reexamine your current card product pricing strategies, terms and conditions to determine if a change to terms or reprice is necessary to be market competitive. Card products can be one of the most profitable solutions for your institution, but must be optimized to remain competitive and profitable.”

Added Patton, “Analyze your portfolio to identify those accounts that are inactive, and have a conversation with those members. Listen to your members’ needs, and look for opportunities to convert those accounts to active relationships. In some cases, it may not be the best fit for you or your member, and you may need to close less profitable accounts because they are higher risk or less active.”

PSCU Reports Softening Consumer Spending and Lower Average Card Purchases

Source: PSCU.

St. Petersburg, Fla.-based payments CUSO PSCU, in its April edition of its Payments Index, revealed softening consumer spending and lower average purchases for both credit and debit cards.

Throughout the month of March, PSCU noted slowing economic growth was prevalent in multiple key indicators, including consumer purchasing behavior. The year-over-year growth rate in transactions was greater than the growth rate in purchases for both credit and debit cards, resulting in a drop in both average purchase amounts.

“March revealed further signs of softening in consumer purchasing, with spending growth remaining in the low single digits. For the first time since 2020, transaction growth for credit and debit surpassed purchases,” said Jeremiah Lotz, managing vice president, digital and data at PSCU. “In this month’s ‘Deep Dive,’ we provide a new perspective on the primary ways credit and debit cards are used by defining digital payments compared to physical card payments or true ‘card in hand’ uses. As we reach the two-year anniversary of the ‘PSCU Payments Index, we continue to evolve the report’s data view and analysis to provide relevant insights in the changing financial landscape.”

Jeremiah Lotz, PSCU.

A selection of key takeaways from the April report includes:

· Transactions grew at a higher rate than purchases for both credit and debit cards in March compared to a year ago, showing further evidence of temperance in consumer spending in the market. This phenomenon last occurred on credit cards in May 2020, when both transaction growth and purchase growth were negative. This result has not occurred on debit cards in PSCU Payments Index reporting or weekly transaction trends reporting since PSCU began this reporting in early 2020.

· For March, both credit and debit transactions were up 5% year-over-year. Credit purchases were up 3% and debit purchases were up 4% for March. This was the lowest year-over-year growth for credit card purchases since August 2020, when it was -1%.

· The Consumer Price Index for All Urban Consumers (CPI-U) decreased on an annual basis from 6% to 5% in March. Shelter again accounted for the majority of the all-items inflationary increase. The Federal Reserve increased rates by 25 basis points on March22 and will meet again May 2-3.

· Growth in discretionary spending on credit cards (transactions up 4% and purchases up 6%) is slowing at a greater rate than non-discretionary spending. For debit cards, March growth improved for discretionary and non-discretionary transactions, up 8% and 4%, respectively. For debit purchases, discretionary spending was up 8% and non-discretionary spending was up 3% for March.

· Digital payments (defined as all card not present, mobile wallets and tokenized activity) were significant and represented 44% of all credit transactions and 58% of all credit purchases in March 2023. For debit, digital payments made up 37% of all debit transactions and half of all debit purchases.

· Credit card balance transfers generally peak in both the number of transactions and the transferred amount in March of each year. Total balance transferred dollars were up 13% compared to March 2022 and the average balance transfer was $4,414, up 14% year over year.

· The credit card delinquency rate for March finished at 1.82%, above the March 2019 pre-pandemic level by 0.09%. Total credit card balances were up 13.2% for March compared to a year ago, while the average credit card balance for active accounts was $2,917, up 8.3% (or $223) year over year.

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