By: Norm Patrick, Vice President, Advisors Plus Consulting, PSCU
The past month has been a time of continued growth and change in the payments landscape. The number of Americans who have received a COVID-19 vaccine continues to climb and the easing of restrictions on both the state and federal levels has inspired confidence among consumers. Spending is on the rise despite lower than anticipated job growth in April, as reported earlier this month.
In the second edition of the monthly PSCU Payments Index, we present several key observations and take an in-depth look at the Goods sector, which has been one of the strongest areas of consumer spend throughout the pandemic.
- Economic indicators had mixed results through April.
The U.S. economy grew at an annualized rate of 6.4% during the first quarter, fueled in part by the two stimulus payments Americans received in 2021. The Consumer Price Index rose 4.2% year over year in April – the fastest growth since September 2008. While April inflation came in higher than expected, this level of growth is expected to be short-term and will likely not warrant action by the Federal Reserve. The April unemployment rate also increased slightly to 6.1% as fewer jobs were created than expected, whereas the number of new people in the U.S. applying for unemployment claims dropped below 500,000. This suggests new hiring will make a strong recovery.
- We continue to see strong spend growth in cards, with spending in the Goods sector being a major contributor.
Comparing April 2021 to the baseline of April 2019, both credit and debit experienced strong sales volume growth. Credit card sales grew 19% over 2019, while debit card sales grew 37% over 2019. The Goods sector, a top performer throughout the pandemic, has continued to buoy spend growth in the early part of 2021. Two additional stimulus payments earlier this year helped to fuel this growth, with purchases increasing by 57% for debit and 40% for credit in April 2021 as compared to baseline data from April 2019. Increased spending in the Goods sector came from retail stores, clothing stores and Amazon, with additional spending in furniture, home furnishings, appliances, sporting goods, liquor, pet and hobby stores.
- Card Present volume is improving, but Card Not Present is still leading the way.
Card Present (CP) activity is on the rise, especially with regard to credit, which can be partly attributed to rising consumer comfort and confidence. While CP activity is increasing, Card Not Present (CNP) still accounts for the majority of debit and credit spending. The gap is narrowing, however, with CP activity representing 49% of all purchases, and CNP activity accounting for 51%. With the upswing in CP purchases and the continued hopefulness of the nation, we expect CP Goods sector purchases to supersede CNP purchases in the upcoming months.
- Credit card balances are declining.
Declining credit card balances can be attributed to a decrease in sales volume over the last year, as well as higher payment volume, facilitated by the three stimulus payments consumers received (most often directly deposited into a checking account) since the start of the pandemic. Year-over-year average credit account balances have decreased by 10% since April 2020, and by 14% since April 2019, as consumers pay down balances with the help of stimulus payments.
- “Revenge” spending is on the horizon.
The rate of savings in the U.S. increased to 17.2% in 2020, according to the U.S. Bureau of Economic Analysis (BEA), and CUNA reported 2020 growth of 20% in savings and deposits. While many consumers used additional funds to bolster savings and checking accounts during the pandemic, we anticipate consumers making up for lost time in the coming months as the pandemic continues to subside.
The increase in savings and decrease in credit card balances mean that many Americans will have a great deal of spending power as we enter the post-pandemic months. We expect consumer spending to continue to trend upwards as a result of the aggressive efforts to regain a sense of normalcy after the unprecedented pandemic months of 2020 and 2021. The sustainability of the trend is yet to be seen, as job growth continues to increase at a slower rate than expected.
The post-pandemic payments landscape will reflect our financial efforts to find or create a new normal. Growing confidence in in-person interactions will result in an uptick of CP purchasing activity, but much of the popularity of CNP spending will not dwindle, especially in the Goods sector, which benefited from the most growth in recent months. We look forward to providing you with monthly payments trends and in-depth analysis each month in the PSCU Payments Index.
Norm Patrick leads the overall Consulting practice at Advisors Plus, utilizing his 25+ years of expertise in the areas of payments and business strategy. Drawing on his experience managing one of the largest debit card portfolios in the U.S., Norm originated the Advisors Plus Debit and Checking practice in 2007. Today, by closely examining the profitability, functionality and positioning of a client’s debit card business, Norm helps credit unions optimize complex portfolio details to achieve their big picture goals of increasing profitability and enhancing member satisfaction.