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 November 2023 payments reports from two organizations, PSCU and Co-op Solutions that not only work closely with credit unions, but earlier this month announced they entered into an agreement to combine services.
Both payments reports mentioned the Conference Board Consumer Confidence Index, which they noted declined for the third straight month in October to 102.6, down from an upwardly revised 104.3 in September. “Consumers remain concerned with rising prices overall, especially groceries and gasoline, along with the current political climate and higher interest rates,” reported PSCU. Co-op Solutions noted, “Consumers continued to be preoccupied with rising prices in general, and for grocery and gasoline prices in particular.” Concerns with political unrest and the wars in the Middle East and Ukraine were also top of mind for U.S. households.
Both payments reports also reflected on the Bureau of Labor Statistics (BLS) jobs report that said 150,000 jobs were added for October, a decline from September. Health care, government and the social assistance sectors saw job growth while manufacturing declined due to strike activity. The October overall unemployment rate increased slightly to 3.9%, or 6.5 million people.
Here is a separate breakdown of each payment analysis:
PSCU: Starting a Deep Dive into Holiday Spending
The St. Petersburg, Fla.-based payments credit union service organization (CUSO) in the November 2023 edition of its PSCU Payments Index revealed modest increases for both credit and debit throughout October.
PSCU also presented the first installment in its annual three-part deep dive series on holiday spending, which it said so far has displayed lackluster results in the goods sector and mixed results for large retailers.
The PSCU report also touched on the Consumer Price Index (CPI) for October, which it said was flat from the prior month, but up 3.2% year over year. Excluding the volatile energy and food sectors, core CPI increased 0.2% since the prior month and 4.1% year over year, marking the smallest annual increase since September 2021.
Key takeaways from the November PSCU Payments Index includes:
· Consumer purchases softened in October and the rate of growth continued to diminish to the lowest point of 2023. Year-over-year growth in debit purchases was up 3.2%, while credit purchases were up 0.4%. Transaction growth finished with debit up 3.2% and credit up 2.1% for the month.
· For credit and debit purchases in October, the largest contributor to growth was the services sector once again. Goods was the largest offset to credit purchase growth, contributing to a 0.8% reduction. For debit purchases, only gasoline negatively contributed to a year-over-year reduction of 0.4%.
· The Consumer Price Index for All Urban Consumers (CPI-U) was flat in October, while the 12-month rate of inflation was up 3.2%. Shelter costs rose .3% in October – half the gain in September – perhaps signaling a changing tide in this sector. Excluding the volatile energy and food sectors, the core CPI index increased 0.2% in October.
· Growth in discretionary spending remained positive but softened in October, with debit purchases up 4.0% and credit purchases up 0.6%. Growth in non-discretionary (or mandatory) spending followed a similar softening trend, with debit purchases up 3.1% and credit purchases up 0.4%.
· The holiday season kicked off with sales at the top retailers in early October. Amazon, Target and Walmart jockeying to lure consumers to early holiday offerings with mixed results. For the month, growth in purchases for the overall goods sector was down for credit by 2.1% and up for debit by 0.8%.
· The credit card delinquency rate increased again in October and finished at 2.33%, above the October 2019 pre-pandemic level by 40 basis points. Total credit card balances were up 9.2% for October compared to a year ago. The average credit card balance for active accounts was $3,033 for October, up 7.3% (or $207) year-over-year.
“As the holiday shopping season kicks off, Consumers Credit Union has partnered with PSCU’s Advisors Plus team to launch a targeted bonus points and cash campaign to our cardholders,” said Tyler Lange, director of Payments at the $3.4 billion Gurnee, Ill.-based Consumers Credit Union, in the November PSCU Payments Index.
“Through a series of emails, including one on Black Friday and another a few days before Christmas, our objective is to encourage our members to choose their credit union card for all their holiday spending. By creating a broad pattern of usage during the holiday shopping season, we look to maintain that top-of-wallet position throughout the year,” he continued. “We recently launched Digital Issuance to provide members instant access to their card credentials – allowing them to easily leverage their card and earn rewards during peak holiday spending.”
Co-op Solutions October Spending Trends: Economy Cools as Rate Hikes Finally Take Hold
The Rancho Cucamonga, Calif.-based Co-op Solutions’ Payments Trends Report covering October 1-31 showed credit spending grew month over month, while debit spending remained mostly flat. Overall, Co-op credit union portfolio data showed that October transaction volume rose by 4.3% in credit and 1.2% in debit on a rolling 12-month basis.
Co-op Solutions’ SmartGrowth consultants unit, which contributed to the Payments Trends Report, focused on several key spending trends:
1. Amazon gets October Prime Day boost. The Amazon/Bookstores merchant category posted gains in October of 22.8% in credit and 47.4% in debit on a year over year rolling month basis. Co-op wrote Amazon recently announced its third quarter revenues grew by 13%, beating expectations.
2. Discount spending signals financial stress. Continuing a recent trend, categories including discount stores, secondhand stores, government lottery tickets, government/gambling, cash advance vehicles, credit union and debt collection services all showed strong month over month growth in October.
The Federal Reserve Bank of New York reported that U.S. consumer credit card debt topped $1 trillion in the third quarter. In addition, delinquencies are growing, especially among millennials and those holding auto and student loans. “Over the past few months, we’ve observed consumers beginning to shift their spending away from luxury goods,” said Ryan Prentice, director, smartgrowth consulting services at Co-op Solutions. “They are trying to gain back control over ballooning household debt by shopping at discount retailers and thrift stores as common-sense options.”
3. Travel, leisure proves recession-resistant. Overall, the dining and entertainment merchant category was up 5.5% in credit for October, and 3.1% in debit. Double-digit gains in credit transaction volume were seen in the amusement parks, arcades, billiards and bowling, movie theaters and theater categories, while tourist attractions jumped nearly 50% over September. Transaction volume in the travel category was up 7.3% in credit and 3.8% in debit month over month in October. Significant volume gains were seen in the auto rental, bus lines, lodging and taxi/limousine categories.
“If there’s one trend we’ve observed throughout this post-pandemic period of uncertainty, it’s the resilience of the American consumer,” says John Patton, Co-op Solutions senior payments advisor. “Unless economic indicators take a sharp turn south, we expect households to keep spending.”
4. Strong start to the holiday season. Retailers are expressing cautious optimism, with the National Retail Federation (NRF) predicting that holiday spending in November and December will rise by 3 to 4% over 2022, reaching “record levels” of between $957 billion and $966.6 billion for the season. Co-op Solutions forecasts that month over month transaction volume within the retail merchant classification will rise by 4.0% in November, before jumping by 23.6% in December. The NRF also predicts that online and non-store sales will rise between 7% and 9% over the holiday shopping period, and retailers will hire between 345,000 and 450,000 seasonal workers, on par with last year’s 391,000 temporary hires.
What credit unions should do now? Co-op Solutions suggested credit unions should support the financial wellness of vulnerable members by offering debt consolidation loans and low-rate balance transfer options. Some members may also benefit from the ability to skip a payment for a few months, especially during the busy (and expensive) holiday shopping season.
In addition, the credit union service organization (CUSO) sees adaptive control systems (ACS) as among the best tools available to help credit unions manage delinquency and charge off risks in their portfolio. These tools use behavioral scoring to understand and predict member behavior and facilitate decisions right down to the individual account level. “As a result, credit unions are able to anticipate which cardholder relationships are headed for trouble, and offer assistance to those members before they go to collection or write-off.”
Lastly, with the holiday shopping season going strong, Co-op Solutions recommended credit union encourage members to make your credit and debit cards their preferred payment methods. “And make sure you’re offering contactless payments through the industry’s leading digital wallets, such as Google Pay, Apple Pay, Samsung Pay and Garmin Pay.”