RANCHO CUCAMONGA, Calif.–Nearing the one-year mark of the pandemic, credit union member spending appears to have rebounded in all categories other than travel, in-person dining and entertainment, CO-OP Financial Services reported.
“For credit unions, this is a strong signal that now is the time to aggressively promote their credit and debit card offerings in order to capture a greater share of interchange revenue and members’ lifestyle interactions as spending continues to improve,” CO-OP said.
Despite the increase in spending, credit card balances were down 14% compared to 2020.
“This tells us that while spend is normalizing, members are less comfortable carrying high credit balances during periods of economic uncertainty,” CO-OP said. “If they have the ability, they will reduce their revolving debt balances to gain some wiggle room for navigating the emerging crisis.”
Such a reduction could present a challenge for credit unions if interchange income earned on credit transaction activity cannot offset losses in net interest income as balances fall, according to CO-OP, which said the key metric to watch right now is cards utilization rate.
“Economic uncertainty tends to lead to lower utilization rates,” said Beth Phillips, CO-OP’s director, strategic portfolio growth. “In the first few months of the 2008 recession, borrowers reduced their credit utilization by 4%. When we look at the first few months of COVID-19, Americans reduced their average utilization by an eye-popping 13%. This trend is likely to continue as long as economic uncertainty lingers.”
Spending by Category
Below are some of the category-level spending trends CO-OP tracked in January across the CO-OP credit and debit portfolios (data comparing January 2021 to January 2020):
Online Bookstores (Amazon)
Transaction Volume (#):
- Credit: Up 38%. Debit: Up 44%
Transaction Amount ($):
- Credit: Up 43%. Debit: Up 46%
Restaurants
Transaction Volume (#):
- Credit: Down 11%. Debit: Down 12%
Transaction Amount ($):
- Credit: Down 9%. Debit: Down 27%
Air Travel
Transaction Volume (#):
- Credit: Down 59%. Debit: Down 34%
Transaction Amount ($):
- Credit: Down 71%. Debit: Down 79%
Grocery Stores
Transaction Volume (#):
- Credit: Up 7%. Debit: Down 2%
Transaction Amount ($):
- Credit: Up 27%. Debit: Up 8%
Department Stores
Transaction Volume (#):
- Credit: Up 41%. Debit: Up 23%
Transaction Amount ($):
- Credit: Up 35%. Debit: Down 6%
Hardware Stores
Transaction Volume (#):
- Credit: Up 29%. Debit: Up 32%
Transaction Amount ($):
- Credit: Up 44%. Debit: Up 39%
Wholesale Clubs
Transaction Volume (#):
- Credit: Up 14%. Debit: Up 18%
Transaction Amount ($):
- Credit: Up 32%. Debit: Up 42%
Strategies to Drive Payments Growth
CO-OP offered the following recommendations for driving payments growth:
Proactive Credit Line Increases
CO-OP said a program of modest, proactive line increases can serve as both a lifeline for members and a credit growth strategy – a way to effectively boost member loyalty as well as a credit union’s payment portfolio. Generally, a modest increase, managed by more conservative underwriting criteria, can provide members the extra financial breathing room they need, while encouraging them to increase card usage, the company said.
“It is natural for cardholders to stop using their credit card when utilization rates reach 35-40 percent of their available line,” said CO-OP Senior Payments Advisor John Patton. “At that point, they will typically switch their usage to another card in their wallet.”
To balance increased risk of delinquency from line increases, credit unions may want to consider tighter lending qualifications in accordance with their underwriting standards, CO-OP added.
Focus on Acquiring Current Members
While economic uncertainty might tempt credit unions to be more conservative in their card acquisition and marketing efforts, CO-OP recommends the opposite. With spending on the rise, now is a great opportunity to promote credit and debit offerings to a credit union’s existing members, the company said.
“Armed with the trove of behavioral, balance and transactional data credit unions have about their members, institutions can make informed, data-driven decisions, and incent those with strong deposit accounts and payment activity to acquire their cards for everyday purchases,” CO-OP stated. “A member-centric approach will build loyalty across all product offerings and establish a credit union as the member’s primary financial relationship – a key to growth in today’s payments space.”
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