RANCHO CUCAMONGA, Calif. – In a retail and employment marketplace that continues to evolve rapidly, especially with Russia’s invasion of Ukraine affecting global markets, new data from Co-op’s member credit union payment portfolio data show mostly strong month-over-month results across several merchant categories in both debit and credit during February.
Most notably, Co-op reported, the categories that have underperformed for much of the past year, including travel, lodging, camping and sport/recreation.
“This is a positive sign that consumers are eager to re-engage in activities they were missing during the pandemic,” Co-op Solutions said in releasing the data.
According to the company, some of the key spending trends Co-op’s SmartGrowth experts are watching closely this month:
Travel, Sports and Recreation Spending Picking Up
Co-op said its February credit union spending data showed strong double-digit month-over-month increases in the Travel Merchant category, while the Lodging, Campers & Camping and Sport/Recreation categories also had healthy growth. These patterns were fairly consistent across both debit and credit.
“Our February spending data shows that consumers started making their last-minute travel plans for the spring once concerns with the Omicron variant started to dissipate,” said Beth Phillips, director at Co-op Solutions.
Education, Computers and Office Show Declines
During February, Co-op said its data show a softening in spending in the Education, Computers and Office categories.
“While education spending was basically flat by count in both debit and credit, it showed double-digit decreases in amount and interchange across both portfolios,” Co-op said in its analysis. “This indicates that as students return to school and campus, they are spending less on pricy supplies and technology that they may have needed to learn from home.”
Meanwhile, the Office category fell by 10% in credit count for the month, reflecting an uncertain outlook for the next few months as employers begin asking staff to return to the office, Co-op added.
“It'll be interesting to see what happens in the job market as employers begin requiring staff to return to the office,” said Phillips. “The Great Resignation saw a lot of people leave their jobs over the past year. Now, it’s the time of year when people traditionally receive merit increases, and raises may not keep up with the fast pace of inflation. This may lead to an uptick in workers leaving their jobs for greener pastures.”
Co-op noted a SHRM survey of employers taken between November 2021 and January 2022, 85% of those surveyed were “concerned about rising inflation eroding the value of pay increases.”
Cardholders are Shifting to Credit
“The year is young,” Co-op said, but its experts are predicting that fear and uncertainty concerning evolving economic and geopolitical factors, along with increasingly competitive rewards programs, will spur consumers to begin shifting their spending from debit to credit, after a steady move toward debit over the past year-plus.
“One reason why consumers are moving to credit from debit are the rich rewards offered on their credit card,” said Phillips. “Earning rewards points on eligible categories like travel helps to lessen the impact of these large-dollar purchases.”
Added John Patton, senior payments advisor with Co-op, “With rising inflation, supply chain issues and a war in Europe, there will be real-world impacts to credit unions’ card portfolios. Consumers may begin shifting more to spending on credit as a way to hold on to cash for safety, while avoiding riskier investments like cryptocurrencies.”
What Credit Unions Should Do Now
According to Co-op, “rewards are where the action is at the moment, as consumers get back to dining, travel and events.”
Whereas a 1% reward rate was sufficient to be competitive not very long ago, a minimum rate of 1.5% is now considered table stakes to be in the game, the company said.
“While a one-to-one rewards earning structure is still prevalent across the industry, a growing number of organizations are offering richer earn rates closer to one and a half points for each dollar spent,” said Phillips.
Co-op pointed out that a number of leading issuers are getting creative with their rewards programs, and offering higher cash back rates for purchases of goods and services most affected by inflation, such as fuel.
“These programs also seek to reward cardholders for spending on travel, dining and experiences – exactly those activities that consumers have been eager to resume since the start of the pandemic,” Co-op said. “For example, the Costco Anywhere Visa Card by Citi offers 4% cash back rewards on gas purchases, 3% on restaurants and eligible travel purchases, 2% cash back on all Costco purchases, and 1% on everything else.”
‘Evaluation Urged’
“To ensure success in 2022 and beyond,” said Phillips, “credit unions should evaluate their standard rewards program earn rates against the competitive marketplace, and then look to complement these benefits with richer, short-term promotional offers throughout the year.”