Velera Payments Report Shows Increases in Debit Spending and a Rise in Credit Card Balances

By Roy Urrico

 In August 2024, growth in consumer spending increased on debit, but softened on credit. Those are some of the findings in Sept. 2024 edition of the Velera Payments Index, which also featured a “Deep Dive” on back-to-school spending.

St. Petersburg, Fla.-based Velera – formerly PSCU/Co-op Solutions – which describes itself as the nation’s premier payments CUSO and an integrated financial technology solutions provider – designed the Velera Payments Index to help credit unions and other financial institutions make strategic, data-informed decisions on behalf of their members and customers.

Tom Bennett, principal, consulting at Velera.

 “In this month’s Deep Dive, back-to-school spending revealed growth in discount and department stores, digital merchants and wholesale clubs, as consumers look to continue stretching their dollars as they battle inflation. While consumer spending on credit softened in August, credit card balances continue to rise,” said Tom Bennett, principal, consulting at Velera. “As the holiday shopping season approaches, now is the time for credit unions to prepare for supporting increased member credit usage. Developing campaigns to launch in the new year and planning ahead for managing the seasonal rise in delinquencies are timely strategies to consider."

Some Economic Indicators

While the Consumer Confidence Index ticked up in August 2024 to 103.3 (from an upwardly revised 101.9 in July), “Survey results reveal confidence has remained within a narrow range for the past two years,” according to the Velera Payments Index. Confidence increased for consumers 35 and older, while dropping for those under 35. The University of Michigan Index of Consumer Sentiment increased slightly in August, from July, up 1.5 points at 67.9.

In August, jobs increased by 142,000, with gains taking place in construction and healthcare. The U.S. Bureau of Labor Statistics (BLS) reported the overall unemployment rate for August was slightly lower from July 2024 by 0.1 percentage point to 4.2%, or 7.1 million people. The labor force participation rate, which has seen little change over the past year, remained at 62.7% in August.

Key Takeaways:

• For August, debit purchases were up 6.2%, with almost a third of the growth coming from money services (e.g., Cash App, Venmo, Zelle). Credit purchases were down 0.8%, with most of the reduction coming from the gasoline sector (-0.6%). Debit transactions were up 4.2% and credit transactions were up 1.3% year over year.

• The Consumer Price Index for All Urban Consumers (CPI-U) declined in August, bringing the 12-month rate of inflation to 2.5% – the lowest point in the past three years. Shelter, which rose 0.5 percent in August, accounted for the majority of the monthly increase, while energy contributed to the largest decrease, down 0.8. The food index increased by 0.1% while the energy index, which includes gasoline, declined 0.8%. Core CPI, which excludes the food and energy sectors, decreased to 3.2% for the 12-month core CPI rate through August.

• Year-over-year growth in debit purchases was up 7.5% and growth in back-to-school credit purchases was up 1.7%, fueled by growth with digital merchants, discount and department stores, and wholesale clubs. Purchase growth in more specialized merchant categories, like sports apparel, electronics and office supplies, was much lower year-over-year.

  The August delinquency rate was down 6 basis points compared to July 2024, but up 36 basis points compared to August 2023. Despite the monthly improvement, the credit card delinquency rate in 2024 remains elevated compared to the past few years, as well as when compared to the pre-pandemic patterns of 2019.

• Growth in year-over-year total credit card balances was up 4.2% for August. While total balances continue to increase, the growth rate is slowing with August marking the low point for 2024, thus far.

Deep Dive on Back-to-School Spending

The Sept. 2024 edition of the Velera Payments Index presented a Deep Dive on back-to-school spending activity.

Highlighted:

• The National Retail Federation’s (NRF) annual back-to-school survey identified that 55% of consumers purchased back-to-school supplies during July. For 2024, the NRF projected that average back to-school spending would decline by $15, to $875 per household, for K-12 students as compared to 2023. College students and their families were expected to spend $1,365 this year, which is in line with 2023 spending at $1,367.

• Supermarkets expanded their back-to-school merchandise with discounts and buy one, get one (BOGO) offers on items such as pens, markers, notebooks, etc. “While supermarket merchant categories are not included as part of our Deep Dive, aggressive supermarket back-to-school sales pulled sales away from more traditional retailers selling similar merchandise,” said the Velera Payments Index.

• Aggregate debit purchases in merchant categories (including discount stores, wholesale clubs, digital merchants and department stores) were up in August 2024 compared to August 2023 by 7.5%. Credit purchases in the same categories and timeframe were up by 1.7%. Growth in both credit and debit purchases for these select back-to-school purchasing-related categories was in line when compared to the overall growth in credit and debit purchases, respectively, with debit cards outpacing credit cards.

• Retailers, especially many large, big-box retailers and wholesale clubs, embraced “Summerween,” the sale of Halloween related items between the Fourth of July and Labor Day.

What Should Credit Unions Do Now?

As holiday spending begins in October, Velera Payments Index recommends credit unions should look to launch holiday card marketing communications. “Promoting awareness of card features and benefits, as well as implementing targeted card usage strategies are vital to ensuring card-of-choice designation.”

A post-holiday balance transfer campaign is an essential credit card marketing strategy, Velera also suggested. “As an example, Velera Consulting post-holiday transfer campaigns showed an average responder amount over $6,500. Now is the time to begin planning a marketing campaign, as peak usage for balance transfer checks occurs each March.”

Velera Payments Index proposed as credit card delinquencies remain elevated and tend to rise during the holiday season that credit unions should consider resources to assist or supplement collection activities.