CO-OP Solutions Payments Trends Report (Spending Data from February 1-28)
March 15, 2023 – Uneasiness about the current economy continued as most spending categories were off significantly from not only the holiday shopping season, but January’s more modest results as well.
It seems that consumers are still waiting for the other shoe to drop, as strong underlying economic reports belie the widespread belief that a recession is just around the corner.
The early returns on February’s jobs data is encouraging, with ADP showing 242,000 private payroll jobs added, a strong increase over January’s 106,000 growth figure. February CPI index data is not expected to be released until mid-March, but inflation held steady in January at a rate of 6.4% over the last 12 months.
All major stock market indexes tumbled by more than 1% in the wake of Fed Chairman Jerome Powell’s recent comments, in which he fretted over stubborn inflation and the still-hot economy, indicating the Fed would consider more aggressive rate hikes this year if needed. Market watchers are predicting the Fed will raise interest rates by another 50 basis points at its next meeting on March 22.
Overall, Co-op spending data reports that February 2023 transaction volume was higher across both the debit and credit portfolios versus February 2022.
Co-op’s SmartGrowth consultants areclosely watching the following key spending trends this month:
1. Back to basics: Co-op’s February month-over-month data shows that consumers are tightening their wallets and hunting for bargains. While higher-end retail categories like Department Stores and Specialty Retail – which includes items like florists, antiques, and jewelry – fell by double digits in February, Discount Stores and Wholesale Grocery declined much more modestly (3-4%).
Moreover, Home Improvement, a high-flier during the pandemic, fell again in February after a precipitous drop in January. This continued downward trend coincides with the period when consumers typically begin to think about investing in home renovations and “sprucing up” in early spring.
Co-op’s data is backed up by national trends, as both Walmart and Home Depot recently warned of profit pressures as high inflation motivates consumers to focus on everyday needs like groceries at the expense of luxuries like home improvement goods. Meanwhile, popular discounter T.J. Maxx has seen a 5% increase in sales as economic uncertainty drives shoppers to the bargain bin for clothing.
2. Amazon volume slides: The biggest month over month declines in Co-op’s February portfolio data were seen in the Amazon/Bookstores category, which fell by -41.7% in debit and -23.9% in credit, off of similar large declines in January.
“Despite the recent month-over-month softness in transaction volume, year-over-year Amazon is still up over 15%,” said Beth Phillips, Director, Co-op Solutions. “There is this narrative that consumers are waiting for a recession that hasn’t yet arrived, so they are naturally being more cautious with their spending. As consumers focus more on their immediate needs, they are taking a break from their online shopping habits.”
3. Credit balances slip slightly: Following a year of steadily growing credit portfolio balances, Co-op data showed a modest drop of -0.29% in February 2023, following a -1.53% drop in January. Despite this, credit balances as of February 28, 2023, were still up by 14.42% over February 2022.
According to data from the New York Fed, credit card balances reached $986 billion in the fourth quarter of 2022, a record high. In addition, the percentage of credit card users making payments 30 days late rose to 5.9%, from 5.2% in the prior quarter.
“The fact is, consumers – and particularly younger consumers – are feeling increasingly stressed financially,” said John Patton, Co-op Senior Payments Advisor. “Despite a resilient job market, the pressure of high rates, inflation and the depletion of pandemic-era stimulus funds have left families’ cash reserves at their lowest level in years.“
Year-Over-Year Category Level Spending (Comparing February 2022 to February 2023)
| % Difference from Feb’22 vs Feb’23 YoY | Debit | Credit | ||||||
| Category | # Transactions YOY | Trans Amt YOY | Interchange YOY | # Transactions YOY | Trans Amt YOY | Interchange YOY | ||
| Amazon/Bookstores | 7.3% | 4.7% | 4.2% | 13.2% | 10.0% | -3.4% | ||
| Amazon/Bookstores | 7.5% | 4.9% | 4.5% | 13.4% | 10.3% | -3.2% | ||
| Books, Periodicals and Newspapers | -2.0% | -7.2% | -2.6% | 0.3% | -6.3% | -8.7% | ||
| Campers & Camping | -13.6% | -7.4% | -5.9% | -8.6% | -3.5% | -4.0% | ||
| Campers & Camping | -13.0% | 0.2% | -0.8% | -8.7% | 1.5% | 0.7% | ||
| Mobile Home Dealers | -15.5% | -18.1% | -16.6% | -8.3% | -9.8% | -10.2% | ||
| Computers | 10.0% | 5.8% | -3.7% | 4.8% | 4.3% | 8.4% | ||
| Digital Goods | 16.0% | 16.9% | 19.3% | 20.5% | 20.3% | 16.9% | ||
| Dining & Entertainment | 4.7% | 10.5% | 9.5% | 6.8% | 11.9% | 8.2% | ||
| Entertainment | 10.3% | 18.6% | 13.5% | 13.8% | 20.0% | 15.1% | ||
| Fast food, Restaurants, Bars | 3.6% | 7.0% | 7.6% | 6.1% | 10.2% | 6.5% | ||
| Education | 18.8% | 8.2% | 10.9% | 16.4% | 8.9% | 10.2% | ||
| Gas | -1.4% | -2.1% | -1.9% | -0.7% | -2.0% | 2.8% | ||
| Grocery | 2.2% | 2.9% | 2.6% | 4.7% | 4.7% | 10.7% | ||
| Grocery | 2.2% | 3.1% | 2.6% | 4.6% | 4.5% | 10.7% | ||
| Wholesale | 2.3% | 0.7% | 2.4% | 7.3% | 5.6% | 10.0% | ||
| Home Improvement | -7.8% | -9.2% | -9.5% | -4.7% | -3.9% | -3.4% | ||
| Medical | 2.8% | 3.8% | 3.0% | 4.2% | 3.9% | 4.3% | ||
| Office | -2.8% | -1.6% | -0.3% | -1.4% | -1.4% | -5.8% | ||
| Other | 3.0% | 6.3% | 5.5% | 4.8% | 10.3% | 8.6% | ||
| Auto Dealers/Services/Parts | -4.0% | 0.8% | -1.2% | -2.0% | 7.0% | 6.8% | ||
| Cable, Satellite and Other | 0.0% | 0.7% | 2.0% | 3.6% | 3.2% | 4.4% | ||
| Courier/Delivery Services | -9.6% | -5.6% | -8.4% | -5.8% | -4.5% | -7.1% | ||
| Furniture | -16.0% | -16.2% | -18.2% | -13.6% | -13.1% | -12.5% | ||
| Giving | 5.1% | 4.3% | 8.9% | 6.2% | 10.8% | 10.6% | ||
| Insurance | 2.1% | 8.2% | 5.4% | 5.1% | 12.5% | 14.0% | ||
| Other | 40.0% | -1.7% | 9.5% | 33.9% | 1.8% | 3.6% | ||
| Pet | -2.4% | 3.5% | -1.2% | -0.9% | 7.5% | 5.2% | ||
| Professional Services | 3.3% | 5.1% | 0.5% | 2.4% | 5.3% | 3.1% | ||
| Real Estate | 12.9% | 22.1% | 29.2% | 18.6% | 25.4% | 19.1% | ||
| Self-care | 3.3% | 5.7% | 5.0% | 5.6% | 7.6% | 5.2% | ||
| Subscription services | -10.9% | -5.1% | -13.2% | -6.6% | -1.3% | -5.5% | ||
| Utilities | 3.5% | 10.0% | 5.7% | 8.0% | 16.7% | 20.7% | ||
| Retail | -1.7% | -2.6% | -2.7% | 1.7% | 1.6% | 2.1% | ||
| Department Stores | -7.4% | -8.0% | -7.2% | -5.3% | -5.2% | -7.2% | ||
| Discount Stores | 11.1% | 17.7% | 16.1% | 13.5% | 21.0% | 26.4% | ||
| Retail | -7.3% | -11.0% | -8.6% | -3.4% | -5.1% | -6.4% | ||
| Specialty Retail | -11.6% | -2.0% | -8.8% | -11.0% | -2.1% | -2.5% | ||
| Florists, antiques, jewelers, cigars, stamps, etc. | -11.6% | -2.0% | -8.8% | -11.0% | -2.1% | -2.5% | ||
| Sport/Recreation | 1.0% | -2.7% | -1.0% | 2.3% | -0.7% | -2.2% | ||
| Golf courses | -4.0% | 1.9% | 2.9% | -3.5% | 0.1% | -3.8% | ||
| Sport/Recreation | 1.3% | -2.9% | -1.1% | 2.7% | -0.7% | -2.2% | ||
| Travel | 6.7% | 5.4% | 7.1% | 18.9% | 23.0% | 20.3% | ||
| Airline | -6.0% | 7.6% | 6.6% | 3.4% | 27.9% | 24.8% | ||
| Auto Rental | -3.7% | -2.1% | -2.9% | 6.7% | 8.5% | 3.6% | ||
| Lodging | -8.2% | -20.7% | -18.9% | 3.4% | -3.1% | -5.4% | ||
| Other Travel (railroad, taxi, cruise lines, toll fees, etc.) | 10.1% | 29.7% | 27.6% | 24.7% | 52.6% | 49.2% | ||
| 5999 Retail | 4.4% | 3.9% | 5.7% | 8.5% | 4.5% | 1.5% | ||
| Grand Total | 2.6% | 3.8% | 3.5% | 4.8% | 6.6% | 6.5% | ||
What Credit Unions Should Do Now
As we move deeper into 2023, credit unions must simultaneously navigate an uncertain economic environment, while also fending off market disruptions like BNPL and digital wallets.
“Credit unions need to focus on the increasing diversification of consumers in terms of lifestyle behaviors, employment and the payment lending tools they have at their disposal,” said Phillips. “To prepare for the continuous disruption to come, you must establish your credit union as your members’ primary choice for their everyday financial needs, which begins with payments. Once you are their go-to resource for daily financial behaviors, they will think of you first when it’s time to get an auto loan or mortgage.”
To have success in the competitive payments space, credit unions need to think differently. This means offering a competitive rewards program, with cash-back being top of the list in a recessionary environment. It also means conducting more sophisticated data analysis on members’ spending behaviors in order to effectively curate product offerings to their specific needs.
It also means investing now in payment products and digital offerings. Credit unions should seek out niche micro markets within their membership – like small business owners or recent college grads – and design customized payment and lending products just for them. For example, institutions may offer a business rewards card targeted to entrepreneurs, or a secured card to help young members build their credit.
“This needs to be more than a simple card campaign,” said Phillips. “Credit unions must adopt a strategic mindset shift, where your payments program is deployed to capture your members’ everyday spending behaviors, and then drive them toward your lucrative loan generation channels.”
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.
