By: PSCU

2023 ended with continued evidence of a soft economic landing and softening consumer spending. The January edition of the PSCU Payments Index explores the third part of our Deep Dive into the three-month 2023 holiday shopping season. According to Adobe Analytics, consumers’ usage of Buy Now, Pay Later (BNPL) programs hit an all-time high, up 14% year over year for the November and December timeframe. 

The Consumer Confidence Index increased to 110.7 in December from a revised November result of 101.0. Consumer expectations for their financial situation over the next six months increased, reflecting more positive outlook on business conditions, job availability and incomes.  

Key Takeaways

In the January 2024 edition of the PSCU Payments Index, we presented the final installment in our annual three-part Deep Dive series on holiday spending, which includes insights into holiday season BNPL activity. Key takeaways include:

• Debit purchase growth, up 4.9% for December, continued to outpace growth in credit purchases, up 0.7%. For transactions, credit grew 2.6% and debit grew 5.0% year over year. The Service sector continued to drive purchase growth for both debit and credit, contributing 1.3% growth for debit and 0.7% for credit. 
   
• Holiday spending growth in the Goods sector softened in December when compared to November. Year-over-year growth in purchases for the overall Goods sector was down 1.3% for credit and up 2.9% for debit in December. For the cumulative holiday season, purchase growth in the Goods sector was down 1.2% for credit and up 2.7% for debit. Growth in Card Not Present (CNP) transactions (+2.2% for credit and +7.0% for debit) outpaced growth in CP transactions (-0.8% for credit and +0.9% for debit) for the cumulative holiday season. Within the Goods sector, the sub-category with the largest year-over-year positive growth and largest percentage of Goods sector purchases was Digital Merchants, which mainly consists of Amazon. During the three-month holiday shopping season, credit purchases were up 7.3% and debit purchases were up 8.2%. Discount stores (Target, Walmart, Ross, HomeGoods, Dollar General), Wholesale Clubs (Costco, Sam’s Club, BJ’s Wholesale Club), Drug and Pharmacy stores (CVS, Walgreens) and Digital Goods (Google, Apple and Microsoft) all experienced positive year-over-year growth in both credit and debit purchases. 
   
• The Consumer Price Index (CPI-U) increased 0.3% in December, while the 12-month rate of inflation was up 3.4%. Shelter contributed to more than half of the increase. Excluding the volatile Energy and Food sectors, the core CPI index increased 0.3% in December, putting the 12-month Core CPI index at 3.9%. The next Federal Open Market Committee (FOMC) meeting is scheduled for Jan. 30-31, with greater uncertainty on the path of rate changes possible for 2024. 
   
• Growth in BNPL payments for the top BNPL merchants increased 24% for the cumulative holiday season (October to December) compared to 2022. These BNPL transactions represented 3.6% of the overall debit transactions in the Goods sector for the three-month period. Klarna and Afterpay had the highest growth in BNPL payments for the cumulative holiday season, up 27% and 26%, respectively. The largest year-over-year generational increase of users was with Gen Z consumers, with an increase of 28% compared to the holiday season in 2022.
   
• The credit card delinquency rate continued to increase in December, reaching 2.53%, an increase of seven basis points from November and the highest point when compared to pre-pandemic 2019 data.

Looking Ahead

As Congress returns from its winter break, legislators are faced with the need to pass multiple funding bills to keep the government open. Congress passed a short-term funding extension on Jan. 18, averting a partial government shutdown on the next day. Now, lawmakers must pass a series of full-year spending bills before new March shutdown deadlines. Negotiations on these bills will likely include funding requests for border security and the ongoing wars in Israel and Ukraine. We will continue to monitor these developments, as government shutdowns typically result in substantial economic impacts.  

As we begin 2024, we hope the Payments Index continues to provide valuable insights each month. We strive to help our credit unions make informed and strategic decisions about the latest trends in consumer sentiment and payment preferences to best serve their members.