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 consumer spending is slowing but still positive.
PSCU
St. Petersburg, Fla.-based payments credit union service organization (CUSO) PSCU in its March edition of its Payments Index reported trends in consumer purchasing are beginning to show early signs of a soft landing.
A sampling of key takeaways from PSCU’s February 2023 data includes:
· Consumer spending growth on payment cards remained positive. Credit purchases and transactions were both up 6% year over year. Debit purchases were up 7% and transaction growth was up 5%.
· The Consumer Price Index for All Urban Consumers (CPI-U) decreased on an annual basis to 6% down by 0.4 percentage points. Shelter accounted for 70% of the all-items increase.
· Transaction growth in both discretionary and non-discretionary spending categories moderated in February. Growth in transactions for essential goods and services grew by 5% for credit and 4% for debit. In the discretionary category, credit transactions grew by 6%; debit grew by 10%.
· Growth in the discretionary spending travel sector remains strong, with credit purchases up 18% and debit purchases up 16%. The strength within this sector comes from both cruise lines and airlines, with strong growth with non-U.S. based airlines. Cruise line purchases grew 118% for credit and 155% for debit year over year. For non-U.S. based airlines, credit purchases were up 48% and debit purchases were up 32%.
· Transportation, which represents a small portion of overall activity, yielded insight into the return to physical work locations. For February, credit transactions and purchases were up 21%. Debit transactions were up 16% and purchases up 15%. Within this sector, top growth categories include mass transit (subways, bus and rail), with credit purchases growing 31% and debit purchases growing 28%.
· The credit card delinquency rate for February finished at 2.01%, above February 2019 pre-pandemic levels. Total credit card balances were up 13.8% for February compared to a year ago, while the average credit card balance for active accounts was $2,918, up 8.4% (or $226) year over year.
“While overall consumer spending growth remains positive, it continues to trend in single-digit growth ranges,” said Yvonne Stelpflug, senior vice president, Advisors Plus consultants unit at PSCU. “As discretionary and non-discretionary spending remains moderate, in this month’s ‘Deep Dive’ we explore the two sectors experiencing the highest year-over-year growth in travel and transportation. After declines amid the pandemic, the travel industry continues its positive recovery with cruise lines and international air travel leading the largest growth. In the non-discretionary transportation sector, growth in mass transportation is seeing the largest increases as a result of more employees returning to the physical workspace.”
Co-op Solutions
The consumer spending trends findings for February 2023 from Rancho Cucamonga, Calif.-based CUSO Co-op Solutions, which provides a financial technology ecosystem for credit unions, highlighted uneasiness about the current economy continuing as most spending categories were off significantly from not only the holiday shopping season, but January’s more modest results as well.
Overall, Co-op spending data reports that February 2023 transaction volume was higher across both the debit and credit portfolios versus February 2022.
Co-op’s “SmartGrowth” consultants unit are closely watching the following key spending trends this month:
1. Back to basics: Co-op’s February month-over-month data shows consumers tightening their wallets and hunting for bargains. While higher-end retail categories like department stores and specialty retail – which includes items like florists, antiques, and jewelry – fell by double digits in February, discount stores and wholesale grocery declined much more modestly (3-4%). “Moreover, home improvement, a high-flier during the pandemic, fell again in February after a precipitous drop in January. This continued downward trend coincides with the period when consumers typically begin to think about investing in home renovations and ‘sprucing up,’ in early spring,” revealed the report.
2. Amazon volume slides: The biggest month-over-month declines in Co-op’s February portfolio data were seen in the Amazon/Bookstores category, which fell by -41.7% in debit and -23.9% in credit, off of similar large declines in January.
“Despite the recent month-over-month softness in transaction volume, year-over-year Amazon is still up over 15%,” said Co-op Solutions Director Beth Phillips. “There is this narrative that consumers are waiting for a recession that has not yet arrived, so they are naturally being more cautious with their spending. As consumers focus more on their immediate needs, they are taking a break from their online shopping habits.”
3. Credit balances slip slightly: Following a year of steadily growing credit portfolio balances, Co-op data showed a modest drop of -0.29% in February 2023, following a -1.53% drop in January. Despite this, credit balances as of February 28, 2023, were still up by 14.42% over February 2022.
Co-op Solutions referred to data from the Federal Reserve Bank of New York in which credit card balances reached $986 billion in the fourth quarter of 2022, a record high. In addition, the percentage of credit card users making payments 30 days late rose to 5.9%, from 5.2% in the prior quarter.
“The fact is, consumers – and particularly younger consumers – are feeling increasingly stressed financially,” said Co-op Senior Payments Advisor John Patton. “Despite a resilient job market, the pressure of high rates, inflation and the depletion of pandemic-era stimulus funds have left families’ cash reserves at their lowest level in years.”
As the remainder of 2023 unfolds, Co-op advises that credit unions must simultaneously navigate an uncertain economic environment, while fending off market disruptions like buy now, pay later (BNPL) programs and digital wallets.
“Credit unions need to focus on the increasing diversification of consumers in terms of lifestyle behaviors, employment and the payment lending tools they have at their disposal,” said Phillips. “To prepare for the continuous disruption to come, you must establish your credit union as your members’ primary choice for their everyday financial needs, which begins with payments. Once you are their go-to resource for daily financial behaviors, they will think of you first when it is time to get an auto loan or mortgage.”
Co-op recommended credit unions need to think differently, such as offering a competitive rewards program, with cash-back being top of the list in a recessionary environment. They should also seek out niche micro markets within their membership – like small business owners or recent college grads – and design customized payment and lending products just for them.
“This needs to be more than a simple card campaign,” said Phillips. “Credit unions must adopt a strategic mindset shift, where your payments program is deployed to capture your members’ everyday spending behaviors, and then drive them toward your lucrative loan generation channels.”