Will credit unions feel a pinch from Amazon's Prime Day delay?
Amazon is reportedly set to shift the 2020 edition of Prime Day from July to August or sometime in September, according to several reports, a move that could impact credit card growth at credit unions.
Sales volumes for Prime Day in 2019 were up 46%, according to data from PSCU, while the number of transactions rose by 31%. Credit card spending increased by 23% and by 37% for debit cards.
It’s unclear how the current economic crisis might impact Prime Day spending, which is heavily focused on steep discounts on normally high-priced items, such as tablets and other electronics.
There’s some evidence, however, that consumers are still willing to pull out their credit cards for Amazon purchases. Data from CO-OP Financial Services found a 74% lift in Amazon credit card use during the first half of May and a 52% increase in debit spending. PSCU has reported similar trends.
“Prime Day is important, but [it] is no longer the only driver for Amazon,” said Tom Bennett, principal at PSCU’s Advisors Plus Consulting. Part of the reason for the shift, he added, is because the company’s “fundamentals have only gotten stronger as a result of the pandemic,” thanks in part to subscriptions for various products it offers and growth in its grocery business during the COVID-19 crisis.
“By pushing it back [Amazon] allow[s] people to recover a bit from any financial devastation they experienced early on, but there’s also the possibility that if we’re still in these lockdowns, people’s financial situation is just going to get worse,” said Francesca Ortegren, a research associate at Clever, a real estate research firm that also covers credit cards and consumer finance issues.
Ortegren noted that August and September are often strong periods for credit card spending because of factors such as purchases related to the start of a new academic year. Credit unions’ credit card loan growth rebounded slightly in September during each of the last two years after dips in the preceding months. But data from CUNA Mutual Group on seasonal factors in credit union loan growth suggested spending actually declines somewhat in September and October, and doesn’t pick back up until the holiday season kicks off in November.
Still, the industry’s overall loan growth rate continues to slow, including in the credit card space. Year-over-year credit card growth for the industry stood at 9.9% in January 2018, according to CUNA Mutual. That fell to 7% one year later and was just 5.8% in January 2020. Total credit card balances rose by about 13% over that period.
Michigan State University Federal Credit Union saw a 19% lift in card usage during Prime Day last year. That exceeded its own projections by 4 percentage points for a total of about $850,000 in transactions in just under 48 hours. Because the shopping event occurs over such a short period, any scheduling changes aren’t likely to have a dramatic impact on a credit union’s portfolio, but any uptick could be helpful if reduced spending trends continue.
Deidre Davis, VP of marketing, said credit and debit usage among MSUFCU members dropped starting in March when Michigan entered a statewide lockdown as a result of the coronavirus. While debit has rebounded, credit is still down by about 20% compared to last year.
As fears surrounding the pandemic have changed somewhat, MSUFCU has shifted its marketing focus away from safety and soundness issues and toward more consumer-centric matters, including the fact that its Visa Signature card pays 3% cash back on groceries. Davis suggested the credit union’s approach to Prime Day this year will be focused on increasing awareness surrounding top-of-wallet status and encouraging members to use their MSUFCU card for purchases at a variety of retailers, not just Amazon, which she said will hopefully offset any decline in growth that may occur from a potential change to the event’s timing.
Deb Wieczorek, VP of strategic advisory and portfolio growth at CO-OP Financial Services, said whatever Amazon does with Prime Day, the most important thing is that credit unions put themselves in a position to capitalize on it.
“Credit unions should continue to look at Prime Day as a way to secure the default position of spend in Amazon’s merchant account through an achievable promotion that incents their cardholders,” she advised. “Credit unions should also pay attention to what other major retailers, like Target, Walmart and others will do — in past years they have used Prime Day as an opportunity to launch their own limited-time sales events during the same period, creating what has been coined the ‘Black Friday of Summer.’ These sales events represent additional opportunities to capture ongoing retail spend by getting your cards into major merchant accounts and mobile applications.”
If Amazon pushes the event late enough in September, the move could also serve to kick off the holiday shopping season even earlier than normal.
By that time of year, said Ortegren, “people are starting to think about fall and winter, so they might put more thought into buying gifts than they would in July. But if we’re still experiencing the lockdowns and people are still unsure about their financial futures and job security, then we might not see that same looking forward in terms of spending.”
The scenario changes even further if the government issues additional relief checks to consumers before then, and could vary wildly based on individuals’ financial situations.
“Barring an unforeseen change in consumer habits, we would expect to see sales at least as strong as the old Prime Period in July…as they would have been had the pandemic not occurred,” said PSCU’s Bennet.