Making members’ financial lives bright and hopeful in the new year

The biggest annual spending event of the year has come to a close. Fears of a recession led to an overall slower holiday shopping season than originally expected. While data is still coming in to show the full picture of the three-month spending event, purchasing trends from October and November are likely to have continued in December.

PSCU’s November Payments Index reported fewer purchases in clothing and sporting goods, one of the shifts in consumer spending. Growth in purchases for the overall Goods sector was up 4.1% for credit and 2.9% for debit year over year in October. Amazon, which held its second Prime Day sale of the year on Oct. 11-12, posted stronger growth numbers than other featured retailers with credit purchases up 15.7% and debit purchases up 10.1%.

Many consumers have been tightening their belts due to the uncertain economic outlook. According to Accenture’s U.S. holiday shopping research, just over one-third (35%) of all consumers said they were trying to stick to a holiday budget, and 45% were shopping at different times in search of the lowest prices. Almost two-thirds planned to spend the same or less than the previous year – with a third of those planning to spend more, indicating they were doing so involuntarily because of inflation.

PSCU’s December Payments Index saw similar trends. Mixed economic signals – including a strong job market combined with continued high inflation and concerns about a recession in 2023 – remained top of mind for consumers. Holiday spending in the Goods sector remained soft throughout November. Year-over-year growth in purchases for the overall Goods sector was down 1.6% for credit and up 1.3% for debit in November. For the five-day peak shopping period that includes Black Friday and Cyber Monday, growth in debit purchases (+1.4%) outpaced growth in credit purchases (+1.0%). There was also a noticeable shift to more experiential gifts versus goods. Select “experience categories” posted strong results during that same time period, including cruises (credit +79% and debit +75%), travel agencies/tour operators (credit +67% and debit +39%) and professional sporting events (credit +34% and debit +35%).

As we embark upon 2023 in the face of an unpredictable economy, credit unions – whose beginnings lie in fostering financial well-being through the “people helping people” philosophy – have an opportunity to differentiate themselves by focusing on improving their members’ financial health.

First, credit unions have data and community connections that allow them to craft and implement actionable strategies. Surveys to gauge the financial health of employees and members can provide a baseline to understand the pain points both are experiencing. The data collected can help guide which actions your credit union should take or which tools, already in your toolbox, you should be leveraging.

For example, as evidenced in PSCU’s 2022 Eye on Payments study, today’s consumers expect the highest level of service and variety of offerings. They also want different channels in which to make purchases, transact and interact with their financial institution, among other activities. Credit unions must make an effort to understand what types of payments offerings and services are of interest to their current membership base, as well as to potential members they hope to attract.

Once this baseline is established, credit unions can promote tools and solutions that aim to improve the financial health of members, ranging from financial counseling, balance transfer campaigns, behavior modification nudges and alerts, and more. Taking it a step further, predictive analytics can help identify those members headed for financial hardship and allow the credit union to proactively intercede and offer assistance.

Education and counseling, especially around newer payments offerings are important. There was an uptick in the number of consumers turning to Buy Now, Pay Later (BNPL) offerings this holiday season. According to Adobe Analytics, BNPL companies saw a 68% increase in online sales during the week of Black Friday when compared to the prior week in November. While there are many benefits of solutions like BNPL, it is also important for consumers to understand the risks associated with these newer payment types, especially when utilized in excess. BNPL may tempt consumers to overspend, making it important for credit unions to provide education and transparency around these offerings and best practices for their use.

The good news for credit unions: According to the same PSCU study, one in four respondents (26%) would be likely or extremely likely to utilize educational classes or resources from their financial institution if offered, meaning the opportunity and interest is there. Plus, financially healthy members are more likely to be satisfied with their credit union as their primary financial institution and rely on it as their trusted financial partner.

While the final trends of the holiday shopping season, including how and where consumers chose to shop and spend, are yet to been seen, keeping these tips and tools in mind will help members’ financial outlook remain bright and hopeful throughout the new year.