By Ray Birch
ST. PETERSBURG, Fla.—The growth credit card lending saw during the final months of 2021 will continue this year, says PSCU, which notes credit spend on larger-ticket items will drive a good part of that expansion.
“PSCU is seeing both debit and credit performing extremely well, but credit has jumped to the forefront,” said Tom Bennett, strategic portfolio principal, Advisors Plus, PSCU. “Looking at PSCU same-store purchase volume for November 2021 compared to 2020, credit was up 25%. This is noteworthy given that November 2020 was not typical, but still grew 5% over 2019. In addition, debit was up 18%, strong when viewed on top of 14% growth last year over 2019. Overall, cards are going strong with credit now taking the lead.”
But what is not changing in any real measurable way is the focus by consumers on managing their spending, a focus brought on by the pandemic.
“Interestingly enough, we believe consumers are more prudently managing their finances,” said Bennett. “We have seen credit card balances decline throughout the pandemic as people have paid down debt. While balances have shown slight growth of late, they are down 4% from 2020 and 12% from 2019.”
Bennett pointed out that fewer accounts are past due, with delinquencies very low at 1.43%, which is over 50 basis points lower than 2019.
“Consumers are smartly managing their accounts,” he added.
Debit Vs. Credit Spend
In terms of usage, the average transaction size was $72 for credit and $45 for debit in November 2021. Credit was $5 higher than last year, PSCU Advisors Plus data show.
“This higher ticket suggests consumers are prudently using credit cards for more expensive discretionary things versus daily goods,” Bennett said. “Even (buy now, pay later) may be smart on the part of some consumers who are avoiding adding the charge to a card balance and paying interest on the charge.”
Bennett described 2022 credit usage as not as much a resurgence in this type of spend, but rather a “continuation of where we are. We expect credit to perform well in 2022. In recent months credit has shown good growth with only limited contribution from important spend categories including travel and entertainment. Those categories, and their components—airlines, lodging, theaters, amusement parks—are now back above their absolute dollar levels from 2019. We expect this should continue, as consumers have money to spend, with credit card utilization rates under 30%—their lowest level in years. Barring major setbacks, credit should do very well in the coming year.”
What 1 Study Shows
A new Pymnts.com study reveals that debit trumps credit usage when consumers shop in physical stores, while credit cards are the most popular payment method for online purchases. More than 38% of the consumers use debit cards to pay for their purchases in physical stores, while nearly 33% use credit cards, the report shows. The opposite is true when making online purchases, with 37% of consumers using credit cards to pay and 33% using debit cards. Overall, 37% of consumers used debit cards to pay for purchases, while 32% said they used credit cards, the Pymnts.com study shows.
“While we expect credit to do well, debit is well-entrenched with consumers,” said Bennettt. “Not only is it key for everyday spend such as gas and grocery, it has extended through the pandemic into digital wallets. A consistent 42% of debit purchases are now card not present, up from 35% pre-pandemic, suggesting debit has made significant inroads as the payment on file in many digital wallets and shopping applications.”
Bennett noted, however, the debit driven by government stimulus, will likely slow due to stimulus funds drying up. He added that small-dollar cash transactions converting to card will continue to benefit debit.
“Oddly enough, growth in alternatives like BNPL benefit debit, as those payments typically come in as a debit transaction,” Bennett explained. “While the rate of growth will slow from the extreme levels of past years, debit has a positive outlook as well.”
The Recommendation
PSCU data show consumer willingness to spend has resumed, as seen in seasonal holiday spend and the reemergence of travel and entertainment.
“We recommend credit unions find the right opportunities to communicate with and incentivize members,” Bennett said. “It’s a great time to prepare for balance transfers in Q1, which is the top period for consumer use. New account acquisition is key to overall performance—ensure your products have the right value proposition and are competitive with the current market, which is migrating towards higher rewards by category, member-chosen reward categories and relationship rewards. Member experience is also key. Credit unions should ensure they are keeping up and investing in technology and enhancing the member experience. Credit unions should also continue to maintain a watchful eye on credit quality.”