CO-OP Payments Trends Report (Spending Data from June 1-30)
July 25, 2022 – Despite a strong jobs report for June, most other economic indicators are pointing directly toward an economic slowdown. Co-op Solutions’ June credit union card portfolio data showed flattening month-over-month results across most categories in both credit and debit, with a continued shift away from debit spending as consumers seek to hold on to the cash they have in their deposit accounts in anticipation of the “rainy day” that’s almost here.
June showed unexpectedly strong job gains of 372,000, keeping unemployment at a low 3.6%, identical to May’s level. Wages also climbed by 5.1% on an annualized basis. However, other economic indicators are not as encouraging. Retail sales slowed by 0.3% in May, and consumer sentiment fell to its lowest level in 70 years. In perhaps the biggest news, inflation jumped up to a 9.1% annual rate in June, hitting a new 40-year high.
The bond market is now in a yield curve inversion, a sign that bond investors are predicting an impending economic slowdown. Meanwhile, in an effort to combat rising inflation, the Federal Reserve raised its benchmark lending rate by three-quarters of a percentage point at its June meeting, and Fed watchers expect additional rate hikes later this year.
Here are some of the key spending trends Co-op’s SmartGrowth consultants are watching this month:
#1: Subscriptions “Pause”?
According to Co-op’s month-over-month credit union portfolio data for June, spending in the subscription services merchant classification fell by 4.7% in debit and 3.5% in credit. This comes as no surprise, as “subscription fatigue” is weighing on growth in the category.
Merchants are taking notice of consumer preferences and are offering their subscribers more flexible options. According to the PYMNTS Subscription Commerce Conversion Index, the number of merchants that allow subscribers to pause rather than cancel their subscriptions has risen by 40% since May 2021.
“Subscriptions are ‘pausing’ as those feeling the impact of inflation are reviewing their streaming services and other recurring memberships and canceling those they no longer watch or forgot they were still paying,” said John Patton, Senior Payments Advisor with Co-op. “This cycle occurs annually as consumer spending ebbs and flows.”
#2: Shortages Turn to Oversupply in Furniture and Appliances
Supply chain issues have been a recurring theme over the past year, as disruptions like the pandemic, the war in Ukraine and the “great resignation” have affected the ability of manufacturers and distributers to meet rising consumer demand for durable goods.
However, the script has flipped in recent months. According to Co-op’s month-over-month credit and debit portfolio data, spending on furniture fell by double digits in June, and computers also declined from the prior month.
Part of this may be consumers’ frustration with months-long delays in receiving delivery on orders, combined with less appetite for discretionary purchases in light of rising inflation. Now, there are reports of big box retailers like Walmart and Target offloading an oversupply of appliances, furniture and apparel to liquidators.
#3: Credit Shift Continues
The growth in credit portfolio balances continues to accelerate, as consumers shift their spending from debit to credit to preserve cash in their deposit accounts. For June, balances grew by 1.36% month over month, and were up by 9.55% year over year.
“Issuers indicate that credit spend is increasing, especially on those cards with robust rewards programs,” said Beth Phillips, Director, Co-op Solutions. “Plus, as inflation continues, consumers will be more conservative with cash spending, opting to shift to credit as they try to navigate inflation and manage their balance sheet.”
“Consumers will likely adjust their spending across debit and credit based on ticket amount,” said Patton. “Debit will continue to be used for small and everyday spending in categories like groceries, eateries and gas, while credit will be used for higher-priced transactions or to earn rewards. If the economic landscape continues to deteriorate, we expect consumers to open more credit cards as a fallback strategy to supplement their livelihood, as we observed in the last slowdown.”
What Credit Unions Should Do Now
As members continue to shift their spending from debit to credit, credit unions should take a prudent approach to analyzing their members’ credit line usage patterns to best meet their needs.
Experts caution that credit quality may decline as the economy slows down, especially if inflation remains high. Credit unions have always taken a “people helping people” approach to member relationships, and this provides an opportunity to support their members’ financial wellness.
“Now may be a good time to administer an account review to implement credit line management strategies and dormant accounts,” said Patton. “In this effort, you could take advantage of Co-op’s pre-delinquency models, shortening reissue dates and automated line management.”
Patton also suggests running targeted communication strategies focused on helping members better understand and manage their financial lives. “This outreach effort can offer financial wellness tips and highlight how your products, including payment products are an invaluable option with low rates, minimal fees, and exceptional employees to help you every step of the way as they navigate finances,” he said.
Month-Over-Month Category-Level Spending (Comparing June 2022 to May 2022)
Please note that the category spending below reflects month-over-month comparisons (rather than year-over-year) – i.e., compares June 2022 with May 2022, rather than June 2022 to June 2021.
| June 2022 Count | |||||
| Category | Debit | Credit | |||
| Airline | -0.4% | 2.5% | |||
| Amazon/Bookstores | -3.6% | -1.0% | |||
| Auto Rental/Sales/Parts | -2.3% | -1.6% | |||
| Cable, Satellite, and Other | -2.4% | -2.6% | |||
| Campers/Camping | 3.7% | -2.2% | |||
| Computers | -2.0% | -2.2% | |||
| Courier/Delivery Services | -2.5% | 0.6% | |||
| Digital Goods | -3.8% | -1.3% | |||
| Education | -27.0% | -24.8% | |||
| Entertainment | 2.8% | 8.3% | |||
| Fast food, Restaurants, Bars | -5.4% | -5.3% | |||
| Furniture | -10.0% | -8.2% | |||
| Gas | -1.0% | -1.5% | |||
| Government/postal services | 4.4% | 5.8% | |||
| Grocery | -4.1% | -4.0% | |||
| Home Improvement | -10.0% | -11.1% | |||
| Insurance | 2.9% | 3.0% | |||
| Lodging | -0.3% | 3.5% | |||
| Medical | -1.4% | -0.3% | |||
| Office | -2.8% | -2.4% | |||
| Pet | -1.7% | -0.6% | |||
| Professional Services | -3.6% | -2.7% | |||
| Real Estate | 0.7% | 2.3% | |||
| Retail | -4.5% | -5.2% | |||
| Self-care | -2.6% | -3.1% | |||
| Specialty Retail | -6.3% | -6.3% | |||
| Sports/Recreation | 7.4% | 9.2% | |||
| Subscription services | -4.7% | -3.5% | |||
| Travel | -2.3% | 1.2% | |||
| Utilities | 0.5% | 1.9% | |||
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
Director, Public Relations
Co-op Solutions
(909) 532-9416
Bill.Prichard@coop.org
