How COVID-19 is Shifting Member Spending Behavior and How to Prepare for the Future, May 1-May 31, 2020
Credit and debit spending began picking up in May, as parts of the economy started to reopen. Overall debit transactions were still down 9 percent compared to May 2019; however, the dollar amount of those purchases increased 14 percent. Credit transactions, on the other hand, were down 14 percent with purchase volume down 5 percent. This was due to the fact that many popular merchant credit card categories like airlines, restaurants, and live entertainment continues to suffer the effects of COVID-19.
Looking at spending within CO-OP’s own Credit and Debit portfolio data, we are seeing the following trends inside these essential categories (data comparing May 1-31, 2020 with May 1 – 31, 2019):
Online Bookstores (Amazon)
Debit: Up 47 percent
Credit: Up 73 percent
CO-OP Analysis: Amazon bookstore purchases continued to see strong increases across both credit and debit in May. While Amazon Prime Day, traditionally the busiest online shopping day of the year, has been postponed the retailer has quietly announced plans for other sale events throughout the summer. Amazon continues to be a strong opportunity for credit unions to not only capture meaningful transaction volume but also secure top-of-wallet status for the future.
Grocery Stores/Supermarkets
Debit: Down 8 percent
Credit: Down 11 percent
CO-OP Analysis: Despite stay-at-home guidelines being lifted in most states, in-person transactions at grocery stores continued to decline in May. This may indicate a longer-turn trend towards online grocery shopping.
Hardware Stores
Debit: Up 46 percent
Credit: Up 35 percent
CO-OP Analysis: Sales at hardware stores saw a huge jump in May, which may indicate that they are one of the early benefactors of the reopening of the economy.
Freezer & Meat Locker Provisioners
Debit: Up 34 percent
Credit: Up 22 percent
CO-OP Analysis: Bulk frozen food purchases appear to be a popular grocery list item for many consumers; Nielsen reported that frozen food purchases have increased 40 percent year-over-year in the last 11 weeks. Within the CO-OP Credit/Debit portfolio, the number of debit transactions increased 35 percent compared to the previous year; however the dollar amount for those purchases skyrocketed 450 percent.
Department Stores
Debit: Down 32 percent
Credit: Down 20 percent
CO-OP Analysis: Department stores continued to suffer the effects of COVID-19 in May. Several prominent department stores, such as JC Penny and Pier 1 Imports, declared bankruptcy, and Macy’s expects that it lost close to $1 billion over the last several weeks. Even as parts of the economy begin to open over the coming weeks, department stores anticipate declining traffic numbers and sales to continue.
Discount Stores
Debit: Up 18 percent
Credit: Up 23 percent
CO-OP Analysis: Discount stores, on the other hand, saw their eighth consecutive week of year-over-year growth in credit and debit transactions. It will be interesting to see whether this trend continues as other retail stores finally begin to reopen.
Three Payments Trends to Leverage Now and Post-COVID-19
A BCG Consumer Sentiment Study found that most consumers expect to resume the same levels of spending (if not more) as COVID-19 becomes more under control. Credit unions should use this opportunity to refocus their payments strategies, not only as a means of driving meaningful interchange revenue but also to position themselves at the center of their members’ lifestyles – with the goal of becoming their Primary Financial Relationship (“PFR”).
As the effects of COVID-19 continue to unfold, here are three payments trends to watch for:
- Payments Driving Lending Opportunities.
With interest rates at record-lows right now, members may be looking to apply for auto and mortgage loans and credit unions will want to quickly seize on those opportunities.
By analyzing card portfolios and looking at spending patterns, credit unions can identify and introduce lending opportunities to members at the right time. This will enable them to simultaneously capture new lending revenue while also holistically supporting their members’ financial needs.
Credit unions should also consider the fact that more of their members are likely carrying credit card balances or have missed payments due to COVID-19. This can adversely impact lending opportunities, in which case it may be worth reevaluating your lending criteria or relaxing penalties on delinquent cardholders.
- Contactless and Mobile Wallet Adoption.
Experts agree that even as physical distancing guidelines are relaxed, consumers will still prefer digital and contactless payments. 27 percent of small businesses have reported an increase in mobile wallet transactions over the last few weeks. A Mastercard global study found that 46 percent of consumers have swapped out their top-of-wallet card for a card that provides contactless functionality and 74 percent of consumers will continue using contactless payments post-pandemic.
- Now is the time to reassess your mobile wallets and contactless payment offerings, as well how you’re promoting them to your members. As more members adopt digital payments into their daily lives, it will be vital for credit unions to secure top-of-digital-wallet.
- Increased Payments Fraud and Delinquency.
As card-not-present transactions continue to rise, credit unions should remain vigilant about an uptick in online fraud.
- Encourage your members to actively monitor and control their payments activity using card controls and by signing up to receive fraud text alerts.
- Remain proactive in your credit union’s risk mitigation efforts and financial wellness communication outreach with your members.
CO-OP will continue to monitor trends across our Credit and Debit portfolio and provide solutions to ensure credit unions have what they need to serve their members. For more information on how we can support you throughout COVID-19, please visit www.co-opfs.org/COVID19.
About CO-OP Financial Services
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.
