The widespread adoption of digital payments that took place in 2020 could open up a big opportunity for U.S. credit unions in the year ahead, according to CO-OP Financial Services' latest alert on consumer spending trends.
“Payments cut right to the core of the member relationship,” said Tom Church-Adams, SVP of pay products for CO-OP, said in a release Monday. “We saw that in the early weeks of the pandemic when financially-struggling members reached out to their financial institutions for interest and fee relief; and now we’re seeing it manifest in the behavioral shifts within our members. Payments have become their lifeline to financial wellness, as well as a means by which we can offer them the safe, secure and frictionless service they’ve come to expect.”
Comparing year-over-year transaction amounts in the company’s credit and debit portfolios, credit dropped nearly 20% in April as worried members reduced non-essential spending and most of the country shifted into stay-at-home mode. The arrival of stimulus checks via the CARES Act in mid-April gave credit and debit spending a quick boost, with many consumers turning to debit to pay for essentials.
“This was our first clue that consumer spending was undergoing a significant shift,” said John Patton, a senior payments advisor at CO-OP. “Members began hunkering down in anticipation of prolonged stay-at-home guidelines, stocking up on the essentials but also spending more on those DIY and home improvement projects they may have put off."
CO-OP cautioned, however, that focusing only on transaction volume and interchange revenue can lead credit unions to overlook major opportunities. Instead, they need to use data as the roadmap to payments growth and look for the stories within their payments data to build a deeper understanding and relationships with their members.
In the year ahead, CO-OP said in the report, members will continue to shift between credit and debit spending. Credit might have been expected to consistently outperform debit in 2020, but that was not the case. And digital payments are here for the long haul.
“What’s clear is that digital payments aren’t going away, even when the pandemic recedes,” said Beth Phillips, director of strategic portfolio growth for CO-OP. “Members are integrating these tools into their daily lifestyles. Before the pandemic, some members might have felt anxiety about pulling out their phone or a contactless card at the point-of-sale; now they’re gaining more confidence and that’s leading to increased usage.”
