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 June payments reports from Co-op Solutions and PSCU.
Co-op Solutions’ Payments Trends Report
In its latest spending Payments Trends Report, which covers May 1-31, 2023, Rancho Cucamonga, Calif.-based Co-op Solutions found that despite an improving economic outlook, U.S. consumers are still holding on tight to their wallets.
Overall, Co-op Solutions spending data revealed May year-over-year transaction volume up modestly across both the debit and credit portfolios. Co-op Solutions’ SmartGrowth consultants unit, which contributed to the Trends Report, is closely watching the following key spending trends:
· Conferences lead travel revival. Travel posted a 69.7% transaction growth in credit and 65.9% in debit year over year, per an analysis of Co-op’s credit union portfolio. The return of live conferences has been a boon to the category. “The travel sector has been one of the best stories of the past year,” said John Patton, Co-op Solutions senior payments advisor. “Leisure travel spending will continue to increase this summer, and when combined with the return of corporate travel and events, we expect the overall category to show strong growth through the remainder of 2023.”
· Discount stores still holding strong. Discount stores are up 2.3% in credit transaction volume and down -2.2% in debit year over year. Specialty retail is down by -8.8% and -10.3% in credit and debit respectively, over the same time period. “Discounters like
Target, which had flat sales in its latest quarter compared with prior year, are holding their own,” said Beth Phillips, director of strategic portfolio growth for Co-op Solutions. “Shoppers are going to continue to look for discounts on the brands they value, as they wait for inflation to finally cool off.”
· Grocery spending increases as inflation eases. Grocery prices ticked down by 0.2% in April. This decline is translating to increased monthly transaction volumes in the grocery category, which rose by 6.4% in credit and 5.5% in debit in May, respectively. This lift is attributed in large part to wholesale grocery retailers, which outperformed grocery stores across both credit and debit.
· Home improvement softening.The category is down slightly year over year, with nearly double-digit declines in the appliances and repair services sub-categories. “The seasonality of home improvement shouldn’t be overlooked,” said Phillips. “Credit unions should keep home improvement promotions in mind leading into summer to earn top interchange in this category.”
· Pets feel the economic pinch.Spending within the pet category has seen both supply shortages and a faster rise in prices than other merchant categories, such as groceries. Co-op’s analysis shows that year over year, transaction volumes within the pet category are down by -0.7% and -3.3% in credit and debit, respectively.
The higher transaction amounts that consumers spend on groceries online is just one indicator of the changing landscape of payments, according to Co-op’s report. “For credit unions, providing a comprehensive suite of digital payment options has quickly moved from luxury offering to table stakes. Credit unions members are migrating payment behaviors to the digital realm, whether it is via mobile wallets like Apple Pay, PayPal and Garmin Pay, or paying friends and family digitally through Zelle Person-to-Person Payments (P2P). Credit unions need to be in the digital game in order to serve their members’ daily transactional needs.”
Co-op suggested the time has come for credit unions to commit to an all-in digital payment strategy. “Plan to offer new solutions on a rolling, annual basis. Such institutions may wish to begin by offering contactless cards, before launching digital card issuance and Zelle P2P payments,” the report noted. “Then, credit unions should look to provide their members with the convenience of digital push to wallet, which will keep a credit union’s credit and debit cards at the top of their members’ preferred digital wallet app – even if their physical card is lost, stolen or reissued.”
PSCU Payments Index
St. Petersburg, Fla.-based PSCU, in its June edition of its Payments Index, found the continued trend of slower year-over-year growth for both credit and debit for May. Year-over-year growth in credit card purchases was negative for the first time since August 2020. While still positive, the credit union service organization (CUSO) found growth in debit card purchases exhibited a similar softening trend.
“As inflation continues to cool, it is trending in the right direction. Yet consumer spending continues to slow, indicating consumers are likely being more financially cautious,” said Denise Stevens, senior vice president, chief product and digital officer at PSCU. “In May, credit card purchases experienced negative year-over-year growth for the first time since August 2020. While debit card purchases experienced positive growth, the softening trend is evident. In this month’s ‘Deep Dive into the Money Services’ sector, we see P2P payments driving the largest growth, with the volume of debit activity notably greater than credit.”
Key takeaways from the June report include:
· For the first time since the summer of the COVID-19 pandemic (August 2020), year-over-year growth in credit purchases was negative, finishing at -0.8% for May. Growth in debit purchases was positive at 1.6% for May and was half the reported growth from April 2023. Growth in transactions in May continued to be stronger than growth in purchases.
· For credit purchases, the largest contributor to growth was the services sector (1.36 percentage points of growth) while offset by reductions in gasoline (1.15 percentage points) and the goods sector (1.03 percentage points). For debit purchases, two sectors generated the highest growth, with services contributing 1.1 percentage points and money services contributing 0.9 percentage points. Debit purchases were offset by a reduction of 1.3 percentage points in gasoline. Credit transactions were up just 0.4% and debit transactions were up 2.1%.
· Growth in non-discretionary spending was negative on credit cards at -2% for May and up 1% for debit cards year over year. Discretionary spending again grew at a greater rate than non-discretionary spending, with credit up 2% and debit up 9%. Transaction growth on credit cards was up 1% for discretionary transactions and flat at 0% for non-discretionary transactions. Transaction growth on debit cards was up 9% for discretionary and up 1% for non-discretionary transactions.
· The credit card delinquency rate for May finished at 1.86%, above the May 2019 pre-pandemic level by 0.16%. Total credit card balances were up 12.7% for May compared to a year ago, while the average credit card balance for active accounts was $2,962, up 8.7% (or $238) year over year.
· Money services represented 10.7% of overall debit purchases in May and includes peer-to-peer (P2P) payments with Cash App, Venmo and PayPal. There is notable growth in this sector when considering that for the pre-pandemic May 2019 timeframe, money services represented 3.8% of overall debit purchases. P2P payments are used at a greater rate by the youngest age demographic (Gen Z), representing 15.4% of their overall debit purchases.
In its monthly “Deep Dive” section, PSCU highlighted the money services sector, which it observed has a more notable share of overall debit activity as compared to credit and includes P2P activity of merchants and payment facilitators such as Cash App, Venmo and PayPal. For the Deep Dive, PSCU focused primarily on debit activity given its notable growth, but included a view of credit activity separately. Year-over-year growth for debit cards within the “Money Services” has been strong, with transaction and purchase growth each at 9%. This sector represents a group of merchant categories, the largest of which is P2P payments with 71% of the debit purchases for this sector. Top merchants in this grouping include Cash App, Venmo, Apple Cash, Metapay, PayPal, Zelle and Western Union.
Recently, the Consumer Financial Protection Bureau (CFPB) issued a consumer advisory that funds held in a payments app are often not protected by National Credit Union Administration (NCUA) or Federal Deposit Insurance Corporation (FDIC) insurance. “Beyond the CFPB advisory, consumers need to be cognizant of the lack of support and customer services associated with these tools,” recommended the PSCU report.