By Roy Urrico
Despite the PSCU/Co-op Solutions merger effective January 1, 2024 the new entity continues to issue separate payment reports heading into the new year. The reports from PSCU/Co-op Solutions, billed as the nation’s premier payments credit union service organization (CUSO) and an integrated financial technology solutions provider, found growth in debit and credit usage, as well as buy now, pay later (BNPL) purchases.
PSCU Payments Index
The January edition of the PSCU Payments Index, which closed out 2023, reported continued evidence of a soft economic landing, as well as softening consumer spending. The Payment Index edition also presented the third installment of its three-part Deep Dive series on holiday spending, which includes insights into buy now, pay later (BNPL) activity. The Payments Index noted that according to Adobe Analytics, BNPL usage hit an all-time high, up 14% year over year for the November and December timeframe.
Overall, the Consumer Confidence Index surged in December 2023 to 110.7 from a revised November result of 101.0. Reflecting a more positive outlook on business conditions, job availability and incomes, consumer expectations for the next six months also increased. The Index also pointed out in the Labor Department’s Jan. 11 update, the Consumer Price Index (CPI) increased 0.3% in December, bringing the 12-month rate of inflation to 3.4%, with shelter contributing to over half the increase.
In addition, Core CPI, which excludes the food and energy sectors, rose 3.9% year-over-year, up 0.3% from November. December 2023 job growth was higher than expected at 216,000 (as reported by the U.S. Bureau of Labor Statistics). Job gains trended up in government, health care and social assistance, while the overall unemployment rate for December held steady at 3.7%, or 6.3 million people.
“Amid the economic uncertainty that marked 2023, we saw retailers pull out all the stops to lure shoppers in throughout the holiday season, leveraging innovative new techniques – including augmented reality, TikTok purchases, and even a 23-part holiday romantic comedy from Walmart with purchase opportunities broadcast via social media channels,” said Julie Conroy, chief insights officer, Datos Insights.
Conroy added, “Most estimates showed that consumer holiday spending increased year over year, buoyed by holiday sales starting earlier than ever. Concurrently, the migration to e-commerce continued to climb, with JPMorgan Chase estimating that approximately 23.4% of holiday sales took place online in 2023 – up from 22.5% in 2022. Fraudsters also love the ongoing digital shift, forcing merchants and issuers alike to contend with fraud on many fronts, from first-party fraud to scams and account takeovers.”
Key takeaways from the PSCU Payments Index include:
· Debit purchase growth, up 4.9% for December, continued to outpace growth in credit purchases, up 0.7%. For transactions, credit grew 2.6% and debit grew 5% year-over-year.
· Holiday spending growth in the goods sector softened in December when compared to November. Year-over-year growth in purchases for the overall goods sector was down 1.3% for credit and up 2.9% for debit in December. For the cumulative holiday season, purchase growth in the goods sector was down 1.2% for credit and up 2.7% for debit. For the cumulative holiday season, growth in card-not-present (CNP) transactions (+2.2% for credit and +7.0% for debit) outpaced growth in card present (CP) transactions (-0.8% for credit and +0.9% for debit).
· The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3% in December, while the 12-month rate of inflation was up 3.4%. Shelter contributed to more than half of the increase. Excluding the volatile energy and food sectors, the core CPI index increased 0.3% in December, putting the 12-month Core CPI index at 3.9%
· Growth in BNPL payments for the top BNPL merchants increased 24% for the cumulative holiday season (October to December) compared to 2022. These BNPL transactions represented 3.6% of the overall debit transactions in the goods sector for the three-month period. In aggregating the year-over-year growth in BNPL payments for Affirm, Afterpay, Klarna, PayPal, and Sezzle, debit-based payments were up by 24% for the holiday shopping period (October through December) and payment transactions were up by 23%. The average BNPL debit payment with these top providers was $37.93. transactions represent only one of each installment transaction with the BNPL vendor (not the total purchase), and likely recur at periodic intervals.
· The credit card delinquency rate continued to increase in December, reaching 2.53%, an increase of seven basis points from November and the highest point when compared to pre-pandemic 2019 data.
Co-op Solutions Payments Trends Report
Overall, credit union portfolio data shows that December transaction volume rose by 5.2% in credit and 1.9% in debit on a rolling 12-month basis, while month over month volumes were up by 4.8% and 7.2%, respectively.
In addition, the Co-op SmartGrowth Team Consulting Services members continue to closely watch the following key spending trends:
1. BNPL and online sales provide holiday shopping boost. E-commerce and BNPL were primary catalysts of 2023’s holiday shopping season. U.S. shoppers spent $16.6 billion using BNPL in November and December, a 14% increase in volume over 2023. Meanwhile, according to Mastercard, online sales were up 6.3% over the 2022 holiday season, easily outpacing in-store sales, which showed a 2.2% lift year over year. Taken on the whole, Mastercard forecasts 3.1% growth in retail sales year over year, reflecting flat growth after accounting for inflation.
Per analysis of Co-op’s client payment portfolios, December transaction volume within the Amazon/bookstores merchant category was up by 29.5% in both credit and debit. On a rolling 12-month basis, the category was up 17% in credit and 32% in debit. The retail category also showed strong month over month results, posting gains of 12.7% in credit and 17.8% in debit, as to be expected during the busiest shopping period of the year. However, the category has showed flat growth over the past 12 months, with an increase of 2.1% in credit, and slight decline in debit at -0.8%.
“There’s been a major shift in shopping behavior over the past four years,” says Ryan Prentice, director, SmartGrowth Consulting Services, PSCU/Co-op Solutions. “Consumers have grown comfortable purchasing a wide variety of merchandise – from clothing and shoes to gifts and electronics – online. For many, this has become their go-to preference due to the added convenience.”
2. Travel spending levels off. After a big drop in November, spending volume within the travel merchant category leveled off in December, posting a decline of -2.1% month over month in credit, and a modest gain of 1.2% in debit. Despite this recent softening, the category remains elevated over the prior year on a rolling 12-month basis at 14.8% in credit and 7.8% in debit.
“Typically, travel is up in November and December as people prioritize visits with family during the holidays,” said John Patton, senior payments advisor, PSCU/Co-op Solutions. “But this year, with a recent uptick in Covid cases and seasonal ailments, more consumers are choosing to stay close to home out of an abundance of caution.”
3. Movies show resurgence. With crowd-pleasing films like Barbie, Oppenheimer, and The Super Mario Brothers Movie drawing the public back to the theater, Hollywood enjoyed its best box office returns since before the pandemic, as U.S. box office figures hit $9 billion for the first time since 2019.
According to Co-op client portfolio data, the movie theaters merchant category was up by 12.4% in credit and 8.7% in debit on a rolling 12-month basis. in December, the category showed transaction volume lifts of 13.6% in credit and 17.8% in debit over the prior month as consumers sought escape from the holiday hustle and bustle with popular draws like Taylor Swift’s The Eras Tour.
The report said, “Looking back at 2023, economic highlights included the continuation of inflationary pressures that first arose in mid-2021 and the Fed’s ongoing rate hikes, both of which impacted consumers’ ability to purchase big-ticket items like cars, homes and major appliances. These trends, coupled with the depletion of pandemic-era stimulus savings, led to a shift toward higher credit card use.”
Unfortunately, this increased credit usage has led to higher balances (up 14.85% in 2023 compared to 9.96% in 2022). It also contributed to a growing debt burden for consumers, and the delinquencies that have begun to rise as a result.
“Whereas traditionally consumers reserve credit for major purchases, we’re beginning to see households shifting more of their daily transactions toward credit as a way to conserve their cash,” said Prentice. “As we move into 2024, credit unions concerned with rising credit balances and delinquencies should seek to incent more debit usage through spend and get campaigns. It is also a nice companion to deposit growth initiatives.”
For credit union’s, the SmartGrowth Team suggested “holiday overindulgence has left many of your members’ credit balances overstuffed, so January is a great time to introduce low-rate balance transfer offers and debt consolidation loans.” The report added, this approach delivers a triple bottom line impact, by spurring credit portfolio growth and attracting new members (and their deposits), all while supporting members’ financial wellness needs. “And do not forget about your debit portfolio. With members increasingly worried about ballooning debt, show them how easy it is to use debit as a practical budgeting tool for everyday purchases.”