If there’s been one constant in 2020, it is uncertainty. From an unprecedented worldwide pandemic to a crushing economic downturn and contentious presidential election, this year has thrown more curveballs than any other in recent memory.
But, as we march through the final quarter of this very long year, we’re seeing a pattern of consumer payment behavior coming into focus. October credit and debit payment trends are largely in line with what we’ve seen over the past few months, providing some insight into what 2021 may bring once the political season and COVID-19 worries are in the rear view mirror.
Spending is Up, but Credit/Debit Shifts are Becoming More Common
Despite depressed volume in the early months of the pandemic, transaction volume and dollar amounts have been quickly climbing back, with year-over-year credit lifts of 17% in September and 15% in October, and growth in debit by 9% and 18%, respectively.
Year-over-year growth in monthly credit transaction counts among CO-OP member credit unions has outpaced debit since July, peaking at 16% in September before slipping to 7% in October. This likely reflects a combination of factors, including back to school shopping, late summer vacations deferred from earlier in the year and waning CARES Act stimulus relief. In comparison, year-over-year debit transaction counts have been less volatile but still grew by 3% in October.
Credit unions should keep an eye on the evolving split between debit and credit spending trends over the coming months. Some consumers use their debit card as a budget-managing tool, while others prefer using credit to score rewards points and other benefits. Meanwhile, a large segment of consumers may be forced to tap into their credit lines to pay for holiday gifts and other expenses as their household income shrinks due to business downsizing and temporary job furloughs.
Among specific trending categories, the trends of the past few months have largely stayed consistent. Top growth categories include digital goods, online gaming, catalog sales and golf courses and shopping clubs. Meanwhile, categories within the travel, tourism and entertainment sectors remain severely depressed, with Disney Resorts credit transaction amounts down by 68% and cruise line debit transaction amounts down by 84% in for October.
Essential and Popular Spending Categories in October (Year-Over-Year Comparison)
Among essential categories, purchases at hardware stores, warehouse clubs, discount retailers and home supply stores remained elevated in October for both debit and credit.
One trend line has remained steady all year long —online shopping is growing significantly. In October, Amazon purchase transaction counts were up year over year by 49% for credit and 22% for debit.
“Online credit card transactions are going gangbusters,” says Beth Phillips, Director of Strategic Growth and SmartGrowthTM consultant at CO-OP. “We are continuing to see sharp declines in brick and mortar categories, especially in travel, entertainment, and social industries. Meanwhile, digital remains very strong, and credit unions should focus on getting their cards into their members’ digital wallets and online shopping carts.”
A Different Kind of Holiday Shopping Season
CO-OP’s SmartGrowth Team are closely watching payment trends as the holiday shopping season builds, and anticipate that this year’s shopping patterns will differ greatly from those of past seasons.
“Going into the holiday shopping season, I’m watching two buckets of members,” says John Patton, Senior Payments Advisor and SmartGrowth consultant at CO-OP. “One group includes those workers who have been furloughed and are struggling to figure out how they will pay for gifts this year. The other group is still employed, but they’re budget-conscious. They’re also doing a lot more online shopping this year. Walmart recently launched its Walmart Plus program in competition with Amazon Prime, and a reported 37% of their customers have already signed up.”
According to research from Salesforce, online holiday sales in the U.S. is expected to explode by 34% year over year in 2020, and will make up nearly a third of all holiday purchases this season.
The holiday shopping season is also starting much earlier this year, with Amazon’s later-than usual Prime Day serving as the unofficial kickoff. According to research from AlixPartners, 49% of consumers planned to start their holiday shopping before Halloween.
Digital Wallets Hold the Key
To optimize your digital payment program in response to rapidly changing member payment behaviors, begin with a deep analysis of your credit and debit portfolio. Look at which channels your members are using, and where transactions are growing. Specifically, it’s critical to understand whether your members’ eCommerce and online shopping purchases are rising in line with national trends.
Once you have an understanding of your members’ payment behaviors, it’s time to personalize your approach to meeting their needs. If you are seeing a rise in digital payments, develop a strategy to get your credit and debit cards into your members’ digital wallets. Begin with these four steps:
- Determine how comfortable your member is with technology. Be careful not to generalize, but millennial and Gen Z members tend to be more tech savvy and are often early adopters of technology. They may already be comfortable using digital wallets and purchasing goods and services online.
- Explore how digital payments fit your member’s lifestyle. For example, a busy, on the go parent may often forget their purse or physical wallet at home. The option of using their smartphone for point of sale purchases at the grocery or pharmacy may be convenient or even necessary.
- Focus on ease of use. Digital wallets like Apple Pay and Samsung Pay are extremely convenient. Make sure to offer your members hands-on training on how to provision their card, as well as how to use the app in-store.
- Lastly, pitch the benefits. Depending on the member’s lifestyle, they may value features like push notifications and in-store discounts. Others may desire benefits like credit card loyalty rewards. Make sure to customize your offers to your members’ unique needs.
KEY TAKEAWAY: Credit unions should look at how their members’ purchasing and payment behaviors are shifting, in order to meet their unique needs. CO-OP Credit/Debit Processing clients can utilize CO-OP’s recently launched Insight Center solution, which allows them to clearly understand how their credit and debit portfolios are performing. They can also leverage custom portfolio consultation from the CO-OP SmartGrowth Team.