By: Velera 

In the February edition of the Velera Payments Index, we see strong levels of purchasing activity, despite a drop in consumer confidence and higher-than-forecasted inflation against the backdrop of a new presidential administration and flurry of early activity and legislation. Credit remained strong, while Debit purchases posted the best monthly year-over-year growth since February 2022. This edition also provides a Deep Dive into Buy Now, Pay Later (BNPL) consumer activity and the continued rise in popularity of the offering. 

The Consumer Confidence Index declined by 5.4 points in January to 104.1, as consumers’ assessments of the present economic situation experienced the largest decline. The University of Michigan Index of Consumer Sentiment fell to 67.8 in January. During this second straight month of decline, all five index components fell with increased fears of inflation returning, likely in part due to the imposition of tariffs. Jobs grew by 143,000 in January, with increases in healthcare, retail trade and social assistance. The U.S. Bureau of Labor Statistics (BLS) reported the overall unemployment rate decreased slightly for January to 4.0% or 6.8 million people. 

Key Takeaways

Key takeaways from the February 2025 edition of the Payments Index include:

• For the first month of 2025, year-over-year growth rates improved for debit and held steady for credit. Debit purchases were up 7.8% and credit purchases were up 2.5% in January. Debit transactions were up 4.8% and credit transactions were up 2.8%. 
   
• For debit, Money Services returned as the top contributor to growth in purchases, accounting for one-third of the year-over-year increase. The Goods and Services sectors had the second largest impact for debit and the largest year-over-year increase in credit purchases. 
   
• The 12-month CPI through January increased by 3.0%, up 0.5% from December. The Shelter index increased 0.4% and accounted for 30% of the overall increase. Core inflation, now at 3.3%, was up 0.4% for January, the largest increase in two years. The next opportunity for an interest rate change by the Fed is on March 19. 
   
• Growth in Buy Now, Pay Later payments and transactions facilitated by cards increased 28% and 22%, respectively, for the top BNPL merchants for full-year 2024 compared to 2023. According to PYMNTS Intelligence, 56% of consumers have used a BNPL service within the last year. The rise of BNPL highlights the increasing demand for convenience and flexibility, especially among younger consumers. Gen Alpha, the youngest cohort of consumers, had the most year-over-year growth than any other generation at 12%, even as they had the lowest average payment amount at $34.78 for 2024. 

What Should Credit Unions Do Now? 

• As members continue to embrace alternative payments, credit unions should keep a pulse on their usage, including Buy Now, Pay Later options. Credit unions should constantly communicate the value of their card offerings, including zero liability, rewards and convenience in order to offset the impacts of BNPL. To keep pace with members’ preferences and expectations, credit unions should optimize card integration into digital banking and leverage the usage of mobile wallets, as well as consider adding post-purchase installment options on their credit card products. 
   
• To drive debit growth, focus on checking accounts. According to Velera’s Advisors Plus Payments & Deposits Consulting, credit unions should expect volume growth to be nominally lower – or even decline – if they don’t focus on checking accounts in 2025. 
   
• To drive member engagement and enhance loyalty, credit unions should strengthen their portfolios with competitive rewards products. By positioning rewards programs as valuable financial tools, credit unions will be able to deepen member relationships, as well as increase transaction volumes and boost fee income.  

Checking In: TikTok

TikTok is known for viral dance memes, but there has been increasing growth in consumer purchases made through the app. Transaction activity within the app itself began in early 2023 and continues to increase. 70% of TikTok users claim to discover new brands on the app and three in four users are likely to buy something while scrolling. However, TikTok represents a small portion of activity when compared as a subset to the Goods sector, with TikTok debit transactions representing 1.1% of overall Goods sector debit transactions and TikTok credit transactions represented 0.6% of overall Goods sector credit transactions. 

President Trump signed an executive order on Jan. 20 imposing a 75-day period where no action will be taken against the congressional ban, allowing TikTok to continue to serve the 170 million Americans that use the app. We will continue to monitor the related consumer purchasing activity as news continues to unfold about the future of TikTok in the U.S. 

Looking Ahead

“No buy” trends for 2025 are gaining traction on social media platforms, where consumers are pledging to buy as little as possible this year. Time will tell if consumers will be successful in following their pledges and if it becomes a more widespread movement. In January, 68 million Americans began to benefit from a 2.5% cost-of-living adjustment (COLA) for Social Security, with an increase of about $50 per month. It is yet to be seen how the additional funds each month will affect consumer spending for the generations receiving it.

While the unsettled regulatory and policy environment is leading to uncertainty about the future, credit unions should remain proactive in their decision-making. In order to best serve their members, we hope that our credit unions are able to make informed and strategic decisions based on insights from this and future editions of the Velera Payments Index.