Author: Jalyn Lindeman

CO-OP Solutions Payments Trends Report (Spending Data from April 1-30)

For Release on May 16, 2023:

RANCHO CUCAMONGA, California – Following a strong March, a rise in economic uncertainty resulted in more muted consumer spending activity in April.

Nonfarm payrolls grew by 253,000 in April, and unemployment remained low at 3.4%. Industry sectors including professional and business services, health care, leisure and hospitality, and social assistance all trended higher for the month. However, the ongoing spate of layoff announcements continued at prominent tech firms including Intel and Microsoft (as well as at its subsidiary, LinkedIn). And in other concerning news, the consumer confidence index fell in April to its lowest level since July 2022.

Belying the deep uncertainty following the recent failures of Silicon Valley Bank, First Republic Bank and others, the Federal Reserve raised its benchmark rate for the tenth time in a little over a year at their May 3 meeting. The rate is now in a range of 5 – 5.25%.

Overall, Co-op spending data reports that April year over year transaction volume was up slightly across both the debit and credit portfolios.

Co-op’s SmartGrowth consultants areclosely watching the following key spending trends this month:

1. Consumers seek discounts on everyday goods: After more than a year of rising inflation, consumers are pulling back on their everyday grocery and retail spending, seeking out deals wherever they can. Even though grocery prices were down 0.3% in March and 0.2% in April, they remain more than 7% higher than a year ago. According to PYMTS data, this has led to four out of five shoppers taking at least one cost-cutting measure such as reducing the quantity or quality of the goods they purchase.

“Consumers are reserving their hard-earned dollar to spend on staples in lieu of luxury goods,” said John Patton, Co-op Senior Payments Advisor. “We expect discount stores, along with generic grocery and household brands, to continue to do well as long as this economic uncertainty lingers.“

2. And pivot to debit on Amazon purchases: Amazon spending grew year over year across both Co-op’s client credit and debit portfolios. But the growth was much sharper in debit with an increase of 65.7% from April 2022 to April 2023, compared with just 30.0% in credit.

“We’re seeing a mindset shift in how shoppers are using debit online,” said Beth Phillips, Director, Co-op Solutions. “As Co-op’s latest research with Mastercard shows, consumers that fit a ‘budgeter’ profile tend to use credit more than debit. But this recent trend in Amazon spending highlights that recent economic trends – coupled with a growing comfort level in using debit online – is beginning to infiltrate across multiple member personas, including those with budgeter and non-budgeter behavior tendencies.”

3. Credit balances continue to rise: More broadly, cash-strapped shoppers are increasingly allowing their credit card balances to carry over from month to month. According to data from the Federal Reserve, annualized revolving debt grew by 17% in March 2023, a big jump from February’s 5.7% gain.

Co-op’s proprietary data aligns with this trend. Following small declines in total credit card balances at the start of the year, Co-op customer credit balances restarted their upward ascent in March and April, rising by 1.13% and 2.38%, respectively. Year over year, credit balances were 15.13% higher in April 2023 than April 2022.

4. Subscriptions and delivery models begin to shift: More than three years after the beginning of the pandemic, online delivery services have become part of the fabric of modern consumerism. DoorDash reported 40% revenue growth in the latest quarter, spurred by increases in both total orders and order value.

Meanwhile, despite recent reports of subscribers dropping off of Netflix and other major streaming services, this segment of the subscription universe continues to out-perform. Warner Bros.’ direct-to-consumer unit, which includes the popular Discover+ and HBO Max services, reported adding 1.6 million subscribers in the first quarter of 2023.

“Services like subscriptions and food delivery that really took off during COVID-19 are continuing to do well,” said Patton. “Consumers have gotten used to the convenience of ordering online from the comfort of home, and are willing to pay a little more for these services.”

Year-Over-Year Category Level Spending (Rolling Year Average, and Comparing April 2022 to April 2023)

	Credit #Transactions		Debit #Transactions
Category	(May’21 – Apr’22) vs (May’22 – Apr’23)	Apr’22 vs Apr’23	(May’21 – Apr’22) vs (May’22 – Apr’23)	Apr’22 vs Apr’23
Amazon/Bookstores	18.6%	29.6%	23.5%	64.4%
Amazon/Bookstores	19.1%	30.0%	24.6%	65.7%
Books, Periodicals, and Newspapers	-13.0%	1.7%	-22.2%	-0.9%
Campers & Camping	-3.9%	-11.1%	-14.6%	-9.0%
Campers & Camping	-3.0%	-9.4%	-13.4%	-8.1%
Mobile Home Dealers	-7.2%	-16.3%	-18.9%	-11.8%
Computers	-0.2%	-22.2%	-12.7%	-20.5%
Digital Goods	17.4%	21.8%	11.7%	19.0%
Dining & Entertainment	9.5%	3.9%	0.9%	2.7%
Entertainment	18.3%	13.0%	9.6%	10.7%
Fast food, Restaurants, Bars	8.7%	3.2%	-0.2%	1.5%
Education	19.0%	9.9%	15.7%	13.7%
Gas	14.7%	0.0%	-2.3%	-2.0%
Grocery	16.3%	4.7%	-1.1%	1.5%
Grocery	16.4%	4.5%	-1.1%	1.3%
Wholesale	15.0%	9.1%	-0.9%	5.5%
Home Improvement	3.8%	-1.2%	-10.1%	-4.3%
Medical	6.8%	-0.6%	-4.2%	-2.5%
Office	-1.0%	-2.0%	-5.1%	-3.3%
Other	7.5%	3.9%	-1.0%	2.9%
Auto Dealers/Services/Parts	4.6%	2.9%	-5.3%	1.0%
Cable, Satellite, and Other	10.0%	2.0%	-1.1%	-0.7%
CU Services	45.4%	17.7%	34.4%	24.2%
Furniture	-10.4%	-12.0%	-18.8%	-13.9%
Insurance	6.4%	1.9%	-1.3%	-0.5%
Money Transfer	18.5%	14.7%	4.2%	-2.8%
Other	22.3%	48.7%	21.0%	53.4%
Pet	3.7%	-2.6%	-5.9%	-4.2%
Professional Services	1.3%	-0.8%	-3.8%	2.2%
Real Estate	19.8%	16.0%	12.0%	10.7%
Self-care	8.7%	3.0%	5.9%	41.7%
Subscription services	-6.8%	-5.1%	-20.1%	-7.8%
Utilities	11.5%	5.5%	1.4%	0.5%
Retail	8.3%	-0.6%	-6.5%	-4.1%
Department Stores	-3.3%	-8.6%	-13.0%	-10.5%
Discount Stores	30.0%	1.6%	10.7%	-2.0%
Retail	0.1%	-0.4%	-13.6%	-4.3%
Specialty Retail	5.6%	-16.9%	-1.7%	-17.7%
Florists, antiques, jewelers, cigars, stamps, etc.	5.6%	-16.9%	-1.7%	-17.7%
Sport/Recreation	5.4%	3.8%	-3.1%	3.7%
Golf courses	5.6%	15.1%	-3.1%	10.7%
Sport/Recreation	5.4%	2.4%	-3.1%	2.8%
Travel	23.5%	10.0%	5.1%	5.6%
Airline	8.8%	-0.2%	-11.5%	-5.5%
Auto Rental	4.1%	1.9%	-12.8%	-2.6%
Lodging	7.0%	-4.8%	-12.7%	-10.9%
Other Travel (railroad, taxi, cruise lines, toll fees, etc.)	29.9%	14.6%	9.7%	8.8%
5999 Retail	-69.2%	5.5%	2.9%	2.2%
Grand Total	6.6%	3.2%	-0.9%	1.2%

What Credit Unions Should Do Now

Faced with multiple economic headwinds, including high prices for groceries, gas and rent, rising interest rates and an uncertain job market, many credit union members are struggling to meet their loan obligations alongside their monthly household needs. Credit unions are in a unique position of trust to support their members through these turbulent times ahead.

Credit unions should begin by offering members low-rate incentives to transfer their high credit balances to the institution’s card. With lower average rates than most bank-issued cards, credit unions have a strong value position and positive story to tell.

A robust rewards program is also important, so now is a good time for credit unions to conduct a review of their current loyalty program to see if it is meeting members’ needs. Determine, for instance, if cash back is a more compelling offer than travel rewards in the current climate. In addition, consider developing a relationship rewards program as a way to entice members to move their deposit accounts, mortgages, installment loans and other key products to their credit union.

Lastly, dig into member data to analyze which relationships are struggling, looking at key warning signs like late credit card or loan payments, high revolving balances, or an increased incidence of overdrafts on checking. Identify these members and proactively reach out to them to offer advice and recommendations to help them achieve their financial wellness goals.

More information on the Co-op SmartGrowth Consulting Team can be found here.

About Co-op Solutions
Co-op Solutions is the market-leading financial technology platform whose mission is to connect credit unions to the technology, strategic partnership and scale they need to best serve their members now and into the future. Co-op partners with credit unions to unlock their potential so they can compete; does the hard work of innovation, creating a one-stop opportunity to help credit unions grow; and offers knowledge and expertise in a world where everything must be integrated. For more information, visit coop.org.

Contact: Bill Prichard, APR, Dir., P.R., Co-op Solutions, (909) 532-9416, bill.prichard@cooop.org.

Today, PSCU – the nation’s premier payments CUSO and an integrated financial technology solutions provider – published the May edition of the PSCU Payments Index, the goal of which is to provide information and insights to help financial institutions navigate the evolving financial landscape to make informed, strategic decisions for their organizations and members.

This month’s report finds continued softening of consumer purchasing activity amidst contracting inflation. While overall payment growth is still positive, April 2023 data revealed extended weakening of consumer spend and lower average purchases for both credit and debit cards. This month’s Deep Dive highlights strength in contactless card payments, led partially by generational differences, as well usage concentrations in certain sectors.

In the Labor Department’s May 10 update, the Consumer Price Index (CPI) increased by 0.4% in April. The annual rate of inflation dropped from 5.0% through March to 4.9% through April. While this is the tenth consecutive monthly drop in the annual rate from the peak of 9.1% in June 2022, it is still much higher than the Fed’s target annual inflation rate of 2.0%. The largest contributor to inflation was again shelter, followed by used cars and trucks, which offset the decline in the gasoline index. The Federal Reserve increased rates by 25 basis points on May 3 and signaled a potential pause in rate hikes, with their next meeting scheduled for June 13-14. The current Fed Funds Rate is 5.25%, compared to 0.5% a year ago.

The Consumer Confidence Index fell in April to 101.3 (1985=100), down from 104.0 in March, while the job market remains strong. The Bureau of Labor Statistics (BLS) reported in its April 2023 jobs report that 253,000 jobs were added for the month, with the continued trend of increased jobs in professional and business services, health care, leisure and hospitality and social assistance. This is stronger than the 180,000 new jobs that were expected by economists in a recent WSJ poll. The overall unemployment rate for April finished at 3.4% or 5.7 million people, which is now the lowest since 1969.

Taking center stage in Washington, D.C. in the coming weeks will be the battle to increase the debt ceiling, with the Treasury Secretary indicating that the U.S. Government will default on or about June 1. The White House estimates that a protracted default would have a devastating impact on the economy, with potential job losses at over eight million, raising unemployment by five percentage points and dropping GDP by over six percentage points. One of the immediate impacts would likely be a delay of social security benefits and military staff payments.

“While contactless adoption is still behind other regions, we expect that contactless card volume in the U.S. will continue to grow quickly,” said David Albertazzi, Director, Retail Banking & Payments at Aite-Novarica Group. “The acceptance infrastructure is already available, with Apple Pay now accepted at more than 90 percent of U.S. retailers. The recent introduction of SoftPOS, aka Tap to Pay, enables merchants to accept contactless payments on a regular smartphone. SoftPOS will further drive the migration from cash to card, as well as the shift to contactless as the preferred payment method at the point of sale.”

A sampling of key takeaways from the May report includes:

• Transactions in April grew at a higher rate than purchase dollars, for both credit and debit cards, for the second consecutive month. For April, both credit and debit transactions were up 4% year over year. Credit purchases were up 2% and debit purchases were up 3%. For credit purchases, the largest contributor to growth was the Services sector (1.0 percentage point of growth) while the Goods sector offset that with a 0.8 percentage point reduction. For debit purchases, three sectors generated the highest growth, with Restaurants, Money Services and Food & Groceries each contributing 0.8 percentage points of growth. Debit purchases were offset by a reduction of 0.6 percentage points in Gasoline.
• The Consumer Price Index (CPI-U) decreased on an annual basis from 5.0% to 4.9% in April. For the third consecutive month, shelter accounted for the majority of the all-items inflationary increase. The Fed increased rates by 25 basis points on May 3 and signaled a potential pause on subsequent near-term increases. The next update will occur on June 14.
• Growth in contactless “tap-and-go” transactions remained strong in April, with credit transactions up 9.6 percentage points and debit transactions up 11.7 percentage points compared to a year ago. Growth in “tap-and-go” was strongest in the food-related sectors of Restaurants and Grocery Stores, as well with the younger age demographics of Gen Z and Millennials.
• Growth in non-discretionary spending slowed on both credit and debit cards with credit up 1% and debit up 2% year over year. Discretionary spending grew at a greater rate than non-discretionary spending, with credit up 4% and debit up 8%. Transaction growth on credit cards was up 4% each for discretionary and non-discretionary transactions. Transaction growth on debit cards was up 12% for discretionary and up 3% for non-discretionary transactions.
• The credit card delinquency rate for April finished at 1.81%, above the March 2019 pre-pandemic level by 0.13%. Total credit card balances were up 13.9% for April compared to a year ago, while the average credit card balance for active accounts was $2,946, up 8.7% (or $235) year over year.

The full report is available for download here or can be shared as a PDF upon request. Let us know of any questions or additional needs, or if you’d like to coordinate an interview.

Co-op Solutions White Paper Points to ‘Compelling Golden Opportunity’ for Credit Unions

For Release on May 17, 2023:

RANCHO CUCAMONGA, California – In response to ongoing financial uncertainty, consumers are looking for reassurance in the form of convenient financial solutions that balance immediate needs with long-term financial success. New research from Co-op Solutions indicates credit unions have an opportunity to provide that reassurance through convenient tools that manage day-to-day needs.

The research, conducted in partnership with EY and Mastercard, studied recent changes in consumer and credit union member behaviors, preferences, challenges and activities. More than 2,000 current credit union members and 1,000 credit union prospects participated in the survey.

Co-op’s research is available at no charge for immediate download, via the white paper “Co-op CU Growth Outlook: Fueling financial performance through daily interactions.”

Among the research findings were four key takeaways pointing to what the report calls, “the compelling golden opportunity” for credit unions:

1. Credit union relationships are increasingly fragmented: Credit union members have on average triple the number of financial relationships as non-credit union members.

2. Convenience tops cost: Both members and prospects show a preference for financial products that offer additional convenience features along with rates that are on par with the market.

3. Digital payments are primary: Making payments digitally continues to expand and has emerged as the primary driver of daily interactions and member engagement. Forty-five percent of respondents cited engagement as the top reason for maintaining a primary relationship with their financial services provider.

4. Micro interactions lead to long-term loyalty: There is a direct correlation between daily money management and long-term spending and savings impacting members’ overall financial wellness.

“These insights highlight the compelling golden opportunity that credit unions have to effectively compete with national banks and fintechs, by offering financial tools focused on meeting their members’ daily micro transaction needs to grow member economic participation,” concludes the report.

In response to the research, Co-op Solutions recommends credit unions address three areas of focus:

1. Engage everyday: Credit unions can acquire and deepen member relationships across all segments and categories of behavior by becoming more deeply embedded into transactional value streams and winning the primary financial interaction moment-by-moment.

2. Give good guidance: By helping members manage their daily financial needs, credit unions are well positioned to support their long-term financial wellness goals.

3. Earn the member balance sheet: Credit unions can earn more of their member’s financial relationship by offering solutions that combine competitive rates and pricing with outstanding convenience – all designed around personalized member needs.

“To regain the trust of financial consumers and achieve long-term growth, credit unions must rethink their reliance on life-stage services like lending and embrace a new model of member centricity that begins with serving members’ everyday lifestyle financial needs,” said Samantha Paxson, Chief Experience Officer for Co-op. “Daily, micro transactions are the gateway to long-term relationship value, and are the best route to institutional growth and fulfilling our role of helping to enable members’ financial wellness.”

Credit unions are invited to immediately download at no charge the research report, “Co-op CU Growth Outlook: Fueling financial performance through daily interactions.”

About Co-op Solutions

Co-op Solutions is the market-leading financial technology platform whose mission is to connect credit unions to the technology, strategic partnership and scale they need to best serve their members now and into the future. Co-op partners with credit unions to unlock their potential so they can compete; does the hard work of innovation, creating a one-stop opportunity to help credit unions grow; and offers knowledge and expertise in a world where everything must be integrated. For more information, visit www.coop.org.

Contact:

Bill Prichard, APR

Director, Public Relations

Co-op Solutions

(909) 532-9416

Bill.Prichard@coop.org