RANCHO CUCAMONGA, CA (July 26, 2021) — Consumer spending continued to heat up in June as the weather turned warmer and the economy continued to open. Merchant categories like dining, entertainment, lodging, camping, home improvement and gas all continuing to grow, while categories like digital goods, computers, and office equipment, furniture and supplies, that had been hot in the first half of 2020, showed decline.
Debit use is still surprisingly high, showing that members’ checking accounts are still flush with cash from stimulus checks received earlier this year. But credit use is increasing in certain sectors, particularly for larger travel and tourism expenses like advance airfare and high-end hotel reservations. With strong job growth numbers and a tight labor market, consumer confidence will increase, and CO-OP Financial Services expects growth in credit usage to continue.
“Companies are paying out substantial hiring bonuses to incent employees to come back to work, and salaries for existing workers are getting bumped up,” says John Patton, CO-OP Senior Payments Advisor. “As people have more free cash flow, they will spend more. We’re looking forward to a normalization of credit use to where we were in 2019, prior to the pandemic.”
To help credit unions prepare for emerging payment portfolio growth opportunities, here are some of the key trends the CO-OP SmartGrowth Consulting Team is watching closely:
#1: Back to School Means Back to Stores
Late July through August is traditionally the Back-to-School shopping season. But consumer spending behaviors changed dramatically during the pandemic, as many retail businesses were closed to in-person shopping, and students adjusted to remote learning. In 2020, the Back-to-School season ran basically flat against 2019, with a major shift toward ecommerce and away from brick-and-mortar department stores and other retail outlets.
CO-OP’s experts expect the traditional Back-to-School shopping season to return with a vengeance this year as primary, secondary and collegiate students return to the classroom and students and parents are looking to buy new clothes, school supplies, computers and electronics – big pent-up demand!
Mastercard predicts retail sales during the traditional Back-to-School shopping season of mid-July to early September to increase by 5.5 percent over the same period in 2020, and 6.7 percent over 2019, with big lifts in apparel and department store sales.
#2: Outstanding Balances Remain Underwater
One of the most resilient trends since the beginning of the pandemic has been the consistent decline of outstanding credit balances. There are several reasons for this, including the multiple rounds of federal stimulus payments and robust Pandemic Unemployment Assistance (PUA) payments that helped laid-off workers keep up with their monthly bills during the pandemic.
But this trend may be slowing down. Since a 19 percent contraction in November 2020, declines in year-over year outstanding balances have lessened steadily, reaching 9 percent in June 2021. The last round of stimulus payments hit consumers’ accounts months ago, and the PUA program is scheduled to end on July 31.
“Consumers paid down their outstanding balances with stimulus funds,” Patton says. “Now, the question is whether people are managing their budgets better and – coupled with higher earnings – will keep outstanding balances compressed. We anticipate it will take several years to return to pre-pandemic outstanding balance levels.”
#3: Digital Spend Has Flattened Out…But …
Digital goods spending on credit has dropped roughly 20 percent between December and June. The decline in Amazon credit spend has been even more precipitous – around 41 percent over the same period. But this doesn’t mean digital and ecommerce spending is going away.
Credit unions getting their cards provisioned into members’ online subscription services is more critical than ever, as competing issuers are doing everything they can to capture interchange income from these channels. For example, American Express has expanded the benefits offered through its luxury Platinum Card beyond traditional travel perks to include “everyday benefits” such as a $240 credit for digital entertainment services like Audible and SiriusXM, and a $300 annual credit for Equinox fitness memberships. Amex clearly sees the benefit of getting their card on file with the services their customers use most, and credit unions need to do so as well.
What Credit Unions Should Do Now
With a resurgent economy and retailers prepping for a busy Back-to-School season, credit unions can look forward to strong payment portfolio growth later this summer and well into fall. To fend off increased competition from brands like American Express, credit unions should not hold back on getting creative with their loyalty rewards programs. Credit unions can begin by analyzing their portfolio to see where their members are spending, and which categories –like retail and travel – are growing most quickly. Then, treat members to highly targeted discounts and perks that incent desired behaviors, particularly those that encourage the provisioning of the institution’s card into recurring subscriptions and cards on file.
Month-Over-Month Category-Level Spending (Comparing June 2021 to May 2021)
Please note that the category spending below reflects month-over-month comparisons (rather than year-over-year), i.e., compares June 2021 with May 2021, rather than June 2021 and June 2020.
Amazon/Bookstores
Transaction Volume (#):
Credit: Unchanged 0%. Debit: Up 4%.
Transaction Amount ($):
Credit: Up 3%. Debit: Up 7%.
Interchange ($):
Credit: Up 1%. Debit: Up 4%.
Digital Goods
Transaction Volume (#):
Credit: Down 9%. Debit: Down 2%.
Transaction Amount ($):
Credit: Down 10%. Debit: Down 3%.
Interchange ($):
Credit: Down 9%. Debit: Down 1%.
Dining and Entertainment
Transaction Volume (#):
Credit: Down 6%. Debit: Down 3%.
Transaction Amount ($):
Credit: Down 4%. Debit: Down 2%.
Interchange ($):
Credit: Down 4%. Debit: Down 3%.
Education
Transaction Volume (#):
Credit: Down 21%. Debit: Down 18%.
Transaction Amount ($):
Credit: Down 18%. Debit: Down 11%.
Interchange ($):
Credit: Down 16%. Debit: Down 14%.
Gas
Transaction Volume (#):
Credit: Down 4%. Debit: Unchanged 0%.
Transaction Amount ($):
Credit: Down 3%. Debit: Up 1%.
Interchange ($):
Credit: Down 4%. Debit: Unchanged 0%.
Grocery
Transaction Volume (#):
Credit: Down 8%. Debit: Down 4%.
Transaction Amount ($):
Credit: Down 9%. Debit: Down 7%.
Interchange ($):
Credit: Down 8%. Debit: Down 5%.
Lodging
Transaction Volume (#):
Credit: Up 13%. Debit: Up 8%.
Transaction Amount ($):
Credit: Up 16%. Debit: Up 11%.
Interchange ($):
Credit: Up 15%. Debit: Up 11%.
Medical
Transaction Volume (#):
Credit: Down 5%. Debit: Down 2%.
Transaction Amount ($):
Credit: Down 6%. Debit: Down 4%.
Interchange ($):
Credit: Down 6%. Debit: Down 4%.
Retail
Transaction Volume (#):
Credit: Down 6%. Debit: Down 4%.
Transaction Amount ($):
Credit: Down 9%. Debit: Down 7%.
Interchange ($):
Credit: Down 8%. Debit: Down 7%.
Travel
Transaction Volume (#):
Credit: Up 6%. Debit: Up 5%.
Transaction Amount ($):
Credit: Up 12%. Debit: Up 5%.
Interchange ($):
Credit: Up 12%. Debit: Up 5%.
Computers
Transaction Volume (#):
Credit: Down 12%. Debit: Unchanged 0%.
Transaction Amount ($):
Credit: Down 5%. Debit: Up 2%.
Interchange ($):
Credit: Down 5%. Debit: Down 1%.
Office
Transaction Volume (#):
Credit: Down 11%. Debit: Down 6%.
Transaction Amount ($):
Credit: Down 2%. Debit: Down 4%.
Interchange ($):
Credit: Down 2%. Debit: Down 3%.
Campers & Camping
Transaction Volume (#):
Credit: Down 5%. Debit: Down 4%.
Transaction Amount ($):
Credit: Down 14%. Debit: Down 17%.
Interchange ($):
Credit: Down 18%. Debit: Down 15%.
Home Improvement
Transaction Volume (#):
Credit: Down 17%. Debit: Down 14%.
Transaction Amount ($):
Credit: Down 13%. Debit: Down 13%.
Interchange ($):
Credit: Down 12%. Debit: Down 13%.
More information on the CO-OP SmartGrowth Consulting Team can be found here.
CO-OP Financial Services is a payments and financial technology company whose mission is ensuring the success of the credit union movement. CO-OP payments solutions, engagement services and strategic counsel help credit unions optimize member experiences to consistently provide seamless, personalized multi-channel offerings, while delivering secure, sophisticated fraud mitigation service. For more information, visit www.co-opfs.org.
Bill Prichard, APR
Director, Public Relations
CO-OP Financial Services
(909) 532-9416
Bill.Prichard@coop.org
