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  • Writer's pictureRoy Urrico

Growing Gambling Market, Tightening Credit, Offer Different Credit Union Opportunities: PSCU/Co-op Solutions Reports

Updated: Mar 27

By Roy Urrico



Separate payment reports from PSCU/Co-op Solutions, billed as the nation’s premier payments CUSO and an integrated financial technology solutions provider, found agreement on steady seasonal spending. They also suggested credit unions review their policies related to gambling, as there are opportunities to take advantage of this fast-growing market; and tighten their credit policies, to serve members’ borrowing needs while protecting the credit union.

 

PSCU Payments Index


While consumer sentiment indexes showed mixed optimism, actual consumer spending remained steady for February 2024, according to the March 2024 edition of the PSCU Payments Index. The report included a “Deep Dive” on gambling following record-breaking betting occurring around Super Bowl LVIII on Feb. 11  – an estimated $23.1 billion a 35% percent increase from 2023 estimates, according to American Gaming Association (AGA) research.

 

The PSCU Index also reported gambling, fueled by further expansion government licensed internet gambling to a total of 38 states, posted strong February results. Debit purchases in this category were up 39%, while credit purchases were up 11%. The top three merchants (FanDuel, DraftKings and BetMGM) represented over a 70% share of purchases in this single category.

Karen Postma, senior vice president, risk solutions, PSCU/Co-op Solutions.

“Overall spending remained steady throughout February, despite a slight dip in consumer sentiment,” said Karen Postma, senior vice president, risk solutions, PSCU/Co-op Solutions.  She added, “In this month’s ‘Deep Dive,’ we revisit online gambling transactions within the entertainment sector. As even more states have legalized online gambling over the past few years, sports betting activity has become more mainstream through merchants such as FanDuel, DraftKings and BetMGM.”

 

Postma continued. “While online gambling was once viewed negatively, it now represents a growth segment opportunity, particularly among younger demographics. This growth presents an opportunity to keep internal staff informed about this evolving transaction trend, as well as provide members with financial wellness education.”

 

Other key takeaways from the March report:


  • Including Feb. 29 (“leap day”), debit purchase growth was 7.1% for February, continuing to outpace growth in credit purchases, which were up 3.6%. For transactions, debit grew 6.8% and credit grew 5.5% year over year.

  • On a normalized basis (omitting leap day) debit purchases were up 2.7% and credit purchases were down 0.4%. Debit transactions were up 2.8% and credit transactions were up 1.6%. “This normalized view provides cleaner insight into consumer behavior, which is generally steady from the previous month,” said the Index.

  • The Consumer Confidence Index dropped in February to 106.7, down from a revised January result of 110.9 as economic uncertainty persists. The University of Michigan Consumer Sentiment Index was flat in February, down two index points and holding the gains of the prior three months. Consumers in this survey appear more confident of the continued favorable trajectory of inflation.

  • The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4% in February, while the 12-month rate of inflation was 3.2%. Shelter and gasoline contributed 60% of the increase. Excluding the volatile energy and food sectors, the core CPI index increased 0.4% from January, putting the 12-month Core CPI index at 3.8%.

 

SmartGrowth Team Payments Trends Report

 

The PSCU/Co-op Solutions SmartGrowth Team Payments Trends Report revealed February spending was flat compared with the prior month, in line with normal seasonal trends. A mixed bag of economic results is causing consumers to take a wait and see attitude toward their household spending.



Inflation bumped up in February to a higher-than-expected 3.2% annualized rate, led by rising prices at the fuel pump, which jumped 3.8%. Airline fares grew by 3.6%, clothing prices increased by 0.6% and used vehicles by 0.5%.

 

Overall, Co-op Solutions credit union portfolio data showed that February transaction volume rose by 6% in credit and 1.9% in debit on a rolling 12-month basis, while month over month volumes were down slightly in credit (-1.0%) and up by just 0.4% in debit.

 

The SmartGrowth Team members are closely watching key spending trends:

 

1. February events support seasonal upticks in spending. February may be the shortest month on the calendar (even with this year’s Leap Day), but it is packed with special occasions that drive seasonal lifts in spending within targeted merchant categories.

 

The report indicated it is hard to determine the full economic effects of this year’s Super Bowl, but it likely fed a 3.6% month-over-month transaction volume lift in the dining and entertainment category in credit, including a 12.1% jump in caterers. In debit, the category grew by 2.8% for February, including a 14.8% rise in caterers.

 

Thanks to Valentine’s Day, florists bloomed by 85.3% in credit and 92.5% in debit month-over-month; and jewelry merchants rang up more modest lifts of 6.3% and 11.0%, respectively. Presidents’ Day weekend promotions helped auto dealers drive increases in February month-over-month transaction volumes in the auto category of 6.2% in credit and 5.9% in debit.

 

2. Inflation continues to dampen grocery spend. Inflation may be gradually easing, but shoppers still face grocery prices that are roughly 19% higher than they were prior to the pandemic. This is causing budget-conscious consumers to modify their checkout habits, including pivots to generic brands, smaller quantities and discount stores.

 

According to Co-op Solutions client portfolio data, transaction volume in the grocery merchant category is up 7.8% in credit and 1.9% versus a year ago on a rolling 12-month period. But month-over month volumes fell in January and February on credit, and dipped by -12.0% in January on debit, before flattening out in February. Prices for some staples like milk, fruit and eggs are now below their peaks, helping to lower overall inflation from its high of over 9%.

John Patton, senior payments advisor, PSCU/Co-op Solutions.

“Consumers are pushing back on high prices, causing both producers and stores to make adjustments,” said John Patton, PSCU/Co-op Solutions senior payments advisor. “As long as inflation continues to hit Americans’ pocketbooks, households will scale back their spending to compensate.”

 

3. Have credit balances peaked? Consumers have been on a credit spending binge for the past few years, but the cumulative impacts of high inflation and stagnating wage growth may have finally given them pause.

 

According to Co-op Solutions credit union client portfolio data, credit balances were 14.15% higher in February 2024 compared with the year prior, continuing a trend of year-over-year balance growth dating back to January 2022. But it was also the first time since February 2023 that aggregate portfolio balances fell month-over-month, dropping -3.22% from January 2024.

 

Thirty-six percent of Americans have more credit card debt than savings, and around half of all credit card holders now carry balance, according to Bankrate.com, In addition, as Americans’ debt burden rises, more financial institutions are turning down borrowers’ loan requests. Another Bankrate survey found that half of U.S. loan applicants were denied in the past two years, as lenders have tightened their credit policies in response to rising interest rates. This is happening as a growing number of U.S. households rely on borrowed funds to cover their daily expenses.


Ryan Prentice, director, SmartGrowth Consulting Services, PSCU/Co-op Solutions.

“Although transaction volume on credit is up by 6% year-over-year on a rolling basis, it has fallen for the past two months,” said Ryan Prentice, director, SmartGrowth Consulting Services at PSCU/Co-op Solutions. “This indicates that credit union members are approaching their borrowing limits, and will likely continue shifting back to debit as we move further into 2024.”

 

The trends report recommended as revolving balances balloon and lenders tighten their credit policies, credit unions should make sure they are doing all they can to serve their members’ borrowing needs while protecting the institution. “Spring is a great time for credit unions to review their credit portfolio to ensure their members’ financial positions remain strong and offer line increases, if warranted. It’s also a great time to remind members of the convenience and safety of using debit for their everyday spending and recurring bill pay needs.”

 

The report also suggested it’s time for credit unions to dust off loyalty programs and offer targeted “spend and get” campaigns on airlines, hotels, car rentals and other travel needs, to ensure members keep their credit union card top of wallet. Credit unions should offer a cash back option in their credit and debit loyalty programs, the report noted as well.


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