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 below are July 2023 payments reports from PSCU and Co-op Solutions.
PSCU Payments Index
In its July edition of its Payments Index, St. Petersburg, Fla.-based payments credit union service organization (CUSO) PSCU found recession fears abating in the near-term, but continuing to be a concern over the next year. The June edition of the Payments Index represents a total of 2.7 billion transactions valued at $139 billion of credit and debit card activity from July 2022 through June 2023.
Overall this month’s PSCU Payments Index finds improved consumer sentiment and renewed purchasing growth for both credit and debit. In June, the Index revealed credit card purchases rebounded with positive year-over-year growth, while debit card purchases posted similar upward gains.
PSCU also acknowledged Consumer Price Index (CPI) increased by 0.2% in June. The annual rate of inflation dropped from 4 % through May to 3% through June, the lowest in the past 26 months. While this is the 12th consecutive monthly drop in the annual rate from the peak of 9.1% in June 2022, it remains higher than the Fed’s target annual inflation rate of 2.0% and is likely to tick up slightly in August. The largest contributor to inflation continues to be shelter, accounting for over 70% of the annual increase, with contributions from motor vehicle insurance, apparel, recreation and personal care. After falling in May, the energy index (which includes gasoline) increased 0.6% in June.
“While consumers continue to feel financial pain from two years of high inflation and sharply increased borrowing costs, signs of improved sentiment were evident in the positive year-over-year credit and debit purchase growth in June,” said
. “In this month’s ‘Deep Dive,’ we explore the services sector, which contributed to the largest share of positive overall growth for credit purchases. For now, resilient consumer spending and the strong job market are staving off the odds of a full-blown recession. The coming months will be key in determining the full effects of the Fed’s aggressive rate hikes.”
A sampling of key takeaways from the PSCU July 2023 report include:
· After a decline in May, year-over-year growth in credit purchases rebounded in June, finishing up 1.7%. Growth in debit purchases also grew, up 4.3% for June. Transaction growth for June continued to be stronger than growth in purchases, with credit up 4.1% and debit up %.
· For credit purchases, the largest contributor to growth continued to be the services sector (1.3% growth) while again offset by a reduction in gasoline (1.4%). For debit purchases, the two sectors that generated the highest growth for June were money services, contributing 1.7%, and restaurants, contributing 1%. Debit purchases were offset by a reduction of 1.8% in gasoline.
· Purchase growth in the services sector had the biggest impact in June for credit cards. While growth in most of the merchant categories in services was marginally positive, the two common standout categories were insurance and medical/healthcare. For the overall services sector, growth in credit purchases was up 6% and debit purchases were up 6.6% for June with these top merchant categories contributing over half of the growth for the sector.
· Credit card non-discretionary spending also rebounded from the negative growth in May, finishing up 0.8% for June. Non-discretionary spending for debit cards was up 3.2%. Discretionary spending continues to grow at a greater rate than non-discretionary spending growth, with credit up 4.9% and debit up 12.2%.
· The credit card delinquency rate for June finished at 1.94%, above the June 2019 pre-pandemic level by 20 basis points. Total credit card balances were up 13.1% for June compared to a year ago, while the average credit card balance for active accounts was $2,971, up 8.7% (or $238) year over year.
Co-op Solutions’ Payments Trends Report
In its latest spending Payments Trends Report, which covers June 2023, Rancho Cucamonga, Calif.-based Co-op Solutions found summer spending is in full swing. Overall, per Co-op spending data, June year-over-year transaction volume rose by 4.7% in credit and 2.4% in debit.
The Co-op report noted June’s economic signals were largely positive. Nonfarm payrolls increased by 209,000 in June, less than the 2023 average of 278,000 per month and well behind 2022’s average of nearly 400,00 per month. Yet, unemployment ticked down to 3.6% for the month, and wages rose by 4.4% over the prior year.
Co-op Solutions’ SmartGrowth consultants unit, which contributed to the Trends Report, is closely watching the following key spending trends:
· The travel sector continues to see robust growth in 2023, with the overall category posting transaction volume gains of 12.7% in credit and 7.6% in debit year-over-year in June. Although airline spending has shown more modest increases versus 2022, transaction growth picked up with the arrival of summer, with month over month gains of 5.2% in credit and 2.5% in debit.
“Lower airline ticket prices, a more favorable economic outlook and consumers’ desire for escape to more remote locales are all contributing to the boom in long-distance leisure travel this summer,” said Beth Phillips, director, Co-op Solutions. “We expect to see continued strength in the overall travel category through the remainder of the summer season.”
· The overall sport/recreation merchant category was up 2% in credit and 4% in debit transaction volume year over year, with notable spikes in the sub-categories of commercial/professional sports, golf courses and recreation vehicle rental. Similarly, the dining and entertainment category grew by 5.7% in credit and 3.7% in debit, led by transaction volume increases in arcades, bars, caterers, fast food and restaurants, sports/country clubs, theater and tourist attractions.
“Consumers are really enjoying their recreational activities this year,” said John Patton, senior payments advisor, Co-op Solutions. “Whether it is hitting the beach or the golf course, credit union members are opening their wallets to maximize the good weather and family time.”
· Home improvement continues recent decline. The category was down 11.9% in credit and 12.3% in debit month over month in June, putting both into negative territory compared with prior year. Much of this drop was led by the sub-category of equipment, parts and supplies, indicating that the industry has not yet fully recovered from high prices and lingering post-pandemic supply chain issues.
“Slow delivery and high costs of materials are still impacting the home sector,” said Phillips. “In addition, residential real estate sales have slowed considerably due to high mortgage rates, so homeowners are deferring some of these big projects for the time being.”
· Credit transaction volume has accelerated in the employment agencies category, rising 65.2% year over year in June. This rise mirrors the recent softening in the job market, and an increase in job seekers pursuing better-paying opportunities.
· Following rapid growth in credit card balances through much of 2022, the trend has decelerated in 2023. Co-op’s credit union credit portfolio balances were up 14.39% in June 2023 over the prior year, a figure that has slowly declined since hitting a peak growth rate of 15.63% in December 2022. Co-op also cited reports, whereby more U.S. credit card holders are having trouble making monthly payments.
Since high borrowing rates and ballooning credit balances are taking its toll on consumers’ balance sheets, Co-op suggested credit unions should make sure they are there for their members during times of economic need. “Institutions should review their credit portfolio regularly to identify concerning trends, like late credit card or loan payments, high revolving balances or an increase in checking account overdrafts. Then proactively reach out to those members showing signs of struggle to offer personalized solutions like low-interest balance transfers, skip-a-pay relief and loan consolidation,” the report noted.