By Roy Urrico
Finopotamus aims to highlight white papers, surveys and reports that provide a glimpse into what is taking place and/or impacting credit unions and other organizations in the financial services industry.
Summarized below are October 2023 payments reports from two organizations, Co-op Solutions and PSCU, that work closely with credit unions.
Co-op Solutions Payments Trends Report
In its latest Payments Trends Report, which covers spending data from Sept. 1-30, Rancho Cucamonga, Calif.-based fintech firm Co-op Solutions found credit card usage and debt are on the rise, as everyday spending continues its shift to online e-commerce sites like Amazon.
Co-op Solutions noted inflation rose just 0.4% in September from the prior month, contributing to a slowing trend that has prices 3.7% higher than a year ago. Core inflation, which removes volatile components like gas and groceries, is up 4.1% over September 2022. The government also announced that Social Security benefits would increase by 3.2% in 2024 to help offset inflationary pressure for seniors on a fixed income.
Overall, Co-op credit union portfolio data shows that September transaction volume rose by 4.2% in credit and 0.6% in debit on a rolling 12-month basis.
Co-op Solutions’ SmartGrowth consultants’ unit, which contributed to the Payments Trends Report, focused on key spending trends:
1. Strong year-over-year results in credit. Credit posted strong year-over-year results in several categories, including Amazon, digital goods, education, financial services and travel. “We are seeing more everyday purchases moving toward e-commerce sites in general, and Amazon specifically,” said Ryan Prentice, director, consulting services at Co-op Solutions. “This includes household essentials like groceries, cleaning supplies and toiletries.”
2. Education spending jumps in September. Per Co-op Solutions credit union portfolio data, spending in the elementary category jumped by 58% in credit and nearly 80% in debit for the month. “Elementary spending really carried the education category in September,” said John Patton, senior payments advisor, Co-op Solutions. “Look for such spending to tail off through the remainder of the year, as back to school expenses and fees normalize.”
3. Pre-recession spending shows uptick.The common element among merchant categories considered leading indicators of a potential recession is that the American consumer is facing stress. Among the big month-over-month risers were categories like government lottery tickets, government/postal services, convenience checks, debt collection, employment agencies and bus lines. The result has been an increase in household borrowing, including more consumers dipping into their credit lines.
4. Credit debt continues to grow. Year-over-year, credit transaction volume showed a 4.2% growth on a rolling 12-month basis compared with .6% for debit. Month-over-month however, overall credit transaction volumes declined by 5.7%, and debit transaction volume fell by 3.3%, reversing a positive trend in both portfolios in August. Despite this short-term decline, per the Co-op portfolio data, credit balances grew by 14.18% from September 2022 to September 2023, including a month-over-month jump of 2.78% from August 2023.
Co-op Solutions also reported the combination of growth in credit balances and high interest rates has JPMorgan Chase & Co., Citigroup, Wells Fargo and Bank of America expected to report total charge offs of $5.3 billion in bad debt, double the charge from a year ago.
“Once consumers reach 35-40% of their credit line usage, their credit spending tends to tail off dramatically,” said Patton. “They will switch to other lines, shift to using debit or may curtail their spending completely.”
“The unprecedented combination of COVID-19 stimulus packages that boosted cash on hand, double-digit inflation and a year of interest rate hikes has created a whiplash effect on many financial institutions, which are now struggling to adjust to large swings in their payment portfolios,” said Prentice.” It is more critical than ever to maintain consistent price and risk management to ensure the health of your program – and support your members’ financial wellness.”
Said Patton, “Credit unions are well positioned to help their members with all of their financial needs.” He added, home equity loans and lines help members buy a car, finance needed home repairs or perhaps fund larger improvements like a new back deck. “Members are also seeking advice on retirement planning, career changes and saving for their children’s college expenses. Credit and debit are means to an end, but now is the time to focus on assisting members with navigating challenging economic waters and achieving their long- and short-term financial wellness goals.”
PSCU Payments Index
In the October edition of the PSCU Payments Index, the St. Petersburg, Fla.-based payments credit union service organization (CUSO) found consumer payment behavior remained positive for both credit and debit despite a drop in consumer sentiment for September, while the 12-month rate of inflation remained unchanged. This month’s “Deep Dive” investigated discretionary spending trends in September results.
PSCU reported the Consumer Confidence Index declined again in September to 103.0 (1985=100), down from a revised 108.7 in August. The index pointed out consumers remain concerned with rising prices in general, notably with groceries and gasoline, along with the current political situation and higher interest rates. In the September survey, the decline in confidence spanned all age groups and was notable with consumers of household incomes of $50,000 or more.
In the Labor Department’s Oct. 12 update, the Consumer Price Index (CPI) increased by .4% for September, with more than half of the increase attributable to shelter. The annual rate of inflation remained flat from the August update at 3.7% through September, while the energy index rose 1.5%.
The Bureau of Labor Statistics (BLS) reported in its September 2023 jobs report that 336,000 jobs were added for the month. There were with increased jobs in leisure and hospitality, government, health care, professional, scientific, and technical services and social assistance.
“Consumers adjust their spending patterns, shifting between discretionary and non-discretionary expenses based on changing priorities,” said James Wester, co-head of payments and director of digital assets and cryptocurrency practice at Javelin Strategy & Research. “The COVID-19 pandemic was a clear example – with a reduction in discretionary spending on items such as travel and entertainment, followed by an increased focus on essential non-discretionary purchases like replacing household items. As we look forward to 2024, it will be interesting to observe how tighter budgets may lead to a decline in discretionary spending.”
A sampling of key takeaways from the October report includes:
· Consumer purchases maintained their consistent and positive trends in September, although were down from the prior-month growth rate. Year-over-year growth in debit purchases was up 5.6%, while credit purchases were up 1.4%. Transaction growth finished with debit up 4.6% and credit up 2.6% for the month.
· For credit and debit purchases in September, the largest contributor to growth was again the Services sector. Goods and utilities were the only categories offsetting credit purchase growth, contributing to a 0.6% and 0.1% reduction, respectively. For debit purchases, all sectors contributed positively to year-over-year growth.
· The Consumer Price Index for All Urban Consumers (CPI-U) increased by 0.4% in September, while the 12-month rate of inflation remained unchanged at 3.7%. Shelter accounted for more than half of the monthly increase in September. Excluding the volatile Energy and Food sectors, the core CPI index increased 0.3% in September.
· Growth in discretionary spending remained strong, with debit purchases up 6.2% and credit purchases up 1.8%. Two-thirds of the growth in debit discretionary purchases came from the entertainment sector – online gambling and events (concerts). For credit discretionary purchases, events (concerts) and cruises were top contributors.
· Growth in buy now, pay later (BNPL)-related payments were strong when looking at the top providers, including Affirm, Afterpay, Klarna, PayPal (Pay in 4) and Sezzle. For September 2023, BNPL debit payments were up 28%.
· The credit card delinquency rate increased in September and finished at 2.23%, above the September 2019 pre-pandemic level by 32 basis points. Total credit card balances were up 11.6% for September compared to a year ago. The average credit card balance for active accounts was $3,001 for September, up 7.3% (or $204) year over year.