By Ray Birch
ST. PETERSBURG, Fla.—Credit unions are currently doing all they can to help members during the coronavirus pandemic, but it won’t be long before CUs themselves are going to need some help, according to one expert—who is urging many to take steps beginning today.
Among the critical steps to take: start paying closer attention to how members’ card spending patterns are changing.
As CUToday.info has been reporting, PSCU’s Advisors Plus has been publishing weekly reports revealing big shifts in how consumers are using their plastic and digital wallets as the nation is forced to stay home.
In sum, the weekly reports show, no surprise, that entertainment and travel spend is way down, as well as expenditures at the pump, while grocery store and debit spend are seeing some big hikes. All this means issuers’ rewards incentives, designed to encourage spending in particular categories to drive greater use of debit and credit, need to be reviewed and adjusted.
“Millions upon millions of Americans are hurting now and are looking to credit union nation for help,” Glynn Frechette, SVP, Advisors Plus at PSCU. “But very soon we're going to find ourselves needing to take care of the credit union. At the end of the day solvency is important, and credit unions will soon face headwinds with respect to losses.”
As several credit union CEOs have told CUToday.info, keeping the credit union afloat while facing revenue reductions resulting from loan forbearance, fee reductions and more, may be challenging if the pandemic persists for an extended period.
The Initial Data
Glynn Frechette
Advisors Plus data initially showed:
- While year-over-year spending for the first 21 days of March was up 9.0% overall, the travel sector saw a dramatic decrease of 30.3%.
- Grocery stores/supermarkets saw the greatest increase in spend and transaction volume. Year-over-year, transaction dollars are up 41.3%, with debit card incremental spend outpacing credit cards by 3.5x. The average grocery transaction on a credit card is up 25.0% or $11.41.
- The consumer goods sector posted an overall gain of 9.2% in dollars spent, with the vast majority of the increase coming from debit cards. The incremental debit card purchase amounts were twice as high as credit cards. Clothing stores (a subset of consumer goods) have seen a substantive decrease in year-over-year sales, with a 22.5% drop in dollars and 23.9% drop in transactions.
- Drug stores/pharmacies have seen a 21.4% increase in total dollars spent with an average increase per sale of 7.2%, or $1.93 per sale. The year-over-year increase in drug store transactions on debit cards outpaced credit cards by 2x.
- Gas transactions were flat, only increasing by 0.04%. With the drop in price for crude oil, gas prices are lower in 2020, resulting in a drop of 4.9% in total spend and a lower average ticket of $1.04 per transaction.
What a Difference 14 Days Make
Two weeks later Advisors Plus data showed spending habits of Americans were continuing to evolve, including:
- Overall credit card spend was down 29.3% and overall debit card spend was down 12.1% year over year
- Currently, there are eight states without “Stay At Home” orders in place. The weekly buying patterns for these states closely mimic the overall U.S. weekly spending trends. For these eight states, credit card spend was down 27.5% last week and debit card spend was down 13.2%
- For the areas of the country hardest hit by the pandemic (“hot zones”), spending was slightly more curtailed than the overall U.S. The credit card spend for California, Connecticut, the District of Columbia, Illinois, Louisiana, Minnesota, New Jersey, Michigan and New York was down 32.1% last week, while debit card spend for these same areas was down 15.2%.
- Grocery stores/supermarkets continue to show significant elevated spend. The week ending April 5, 2020, saw an increase of 27.8% for credit card and 16.9% for debit card over the comparable week last year, PSCU said. “This remains elevated from the single-digit increases that were realized during the weeks preceding the COVID-19 pandemic.”
- The swell in drug store/pharmacy spending appears to have softened. Credit card spend at drug stores dropped by 5.3% and debit card spend was also down 6.0%. “This is most likely an indication that short-term demand will be soft given recent consumer stockpiling,” according to the analysis.
- Gas purchases remain soft, hovering near the same rate over the past two weeks. Spend is down 55.5% for credit card and 40.6% for debit cards for the week ending April 5. Lower gasoline prices at the pump and decreased transaction activity, likely driven by the substantial increase in remote work and stay-at-home orders, continue to significantly affect these declines.
- Consumer goods saw a modest improvement over the prior week, with a 15.8% decrease on credit card and an 11.7% decrease on debit card for the week ending April 5.
The big shift to which to pay attention in the first report, said Frechett, is the movement towards debit. Later data showed both credit and debit use declining, but debit usage falling at a much slower pace than credit.
“Debit is being used at a greater frequency than credit, so maybe the credit union leans in to this change and develops a rewards or incentive campaign for debit,” said Frechette. “That would make a heck of a lot of sense now.”
Frechette said the shift towards debit is one that harkens back to the Great Recession, when consumers put away their credit cards and spent directly from money in their checking account. He said the coronavirus pandemic is once again persuading cardholders to be more prudent with their finances—often because many have no choice.
“You have a public that is becoming reluctant to borrow. Credit unions have to reshuffle what they're doing now, at least temporarily,” said Frechette. “And then they have to clearly communicate to members what they are doing. That is important right now.”
‘Get More Creative’
Frechette said credit unions need to use as many channels as possible to get the message out to the membership.
“Without a doubt the messaging has to increase,” said Frechette. “And the traditional mediums are not going to cut it during these changing times. So, if a credit union were only accustomed to communicating via email and maybe a banner on their site, they have to get more creative.”
He said that would likely involve using SMS texting, and certainly social media.
“Credit unions need to make more of their social media presence than they did before the pandemic,” he said. “Communication has to be high because you are trying to now get the membership to quickly behave in a way that will help you achieve your objectives.”
Those objectives should be identified by closely looking at spend data. Frechette said credit unions must increase the frequency with which they are examining how members are spending, and that the days of “set it and forget it” are over.
‘New Trends’
“New trends are afoot, so credit unions have to pay close attention to sales volume and balances that are occurring every day,” he said. “And it's in their best interest to look at the purchase volume by merchant category so they can understand where cardholders are spending and where they're not.”
Frechette suggested it might be an opportune time to persuade more members to move away from using cash and checks, and into cards that generate revenue.
“This is a very good time to encourage the membership to move away from cash and checks and make those transactions digital or plastic,” said Frechette. “Everyone is working from home and no one wants to touch cash and checks. This is a significant opportunity for credit unions, and PSCU is going to help credit unions by guiding them appropriately.”