Pandemic Drives Dramatic Card Transaction Shifts

Cash is no longer king. And that may be good for credit unions.

As COVID-19 has swept across the country, credit union members’ use of cash for purchases has fallen to an all-time low, financial experts who advise the nation’s credit unions said.

That trend – driven by a dramatic reduction in in-store shopping and consumers’ desire to avoid less hygienic cash transactions that could transmit the virus – is one experts advised credit unions to take advantage of and encourage.

They can do so with the help of data that offers a roadmap of often dramatic, pandemic-driven shifts in consumer expenditures while still protecting their portfolios and members, experts said.

Data gathered by PSCU, CO-OP Financial Services, CU Rise Analytics and Fiserv showed that consumers abandoned cash for electronic transactions and favored debit over credit as consumer spending plunged last March and April.

But that reluctance to spend has significantly abated – even while the virus hasn’t. Experts said consumer spending began recovering in May and June as people received stimulus checks and some states reopened despite COVID’s continued spread.

Payments experts said that as credit use and overall spending rebounds, credit unions can boost member engagement by encouraging the use of credit and debit cards by members in arenas that were formerly dominated by cash.

Still, they cautioned that credit unions should prepare for a potential wave of credit delinquencies this fall, particularly if Congress fails to pass another stimulus package with enhanced unemployment payments.

Abandoning Cash

Even before the onset of COVID-19, consumers were shifting away from cash, according to Glynn Frechette, SVP of Advisors Plus at the St. Petersburg, Fla.-based CUSO PSCU.

“What was apparent to us is that transactions were being conducted by all generations in the digital space,” including payment apps on mobile phones and online banking, he said.

Members’ ability to interact with credit unions on a 24/7 basis “was becoming a reality,” he said. “COVID-19 simply accelerated this consumer shift.”

ATM withdrawals dropped 22% in 2020, he said. “That’s a staggering number,” Frechette noted.

Meanwhile, debit card use was up 19.6 % for the week ending Aug. 9 compared to the same week in 2019. Frechette called the uptick “a significant win” for the payment processing industry.

“Small ticket items that were once paid with cash will now be done electronically, digitally,” he said. “The shift has occurred over the last five months. I will expect it to continue.”

He was not alone in that assessment. Digital wallet and other electronic transactions grew by 64% from July 2019 to July 2020, said Allison Edwards, vice president and chief of staff for the card services unit at the Brookfield, Wis.-based technology provider Fiserv. “It’s very much an indicative trend.”

And card transactions benefit credit unions, emphasized Deb Wieczorek, vice president of Strategic Advisory and Portfolio Growth at the Rancho Cucamonga, Calif.-based CUSO CO-OP Financial Services. “It helps their portfolio. It allows cards to be top of the wallet. That means they’re picking their credit union card over some other card.”

How and When Consumers Spent Their Money

In April, as the pandemic took hold, total credit card spending dropped nearly 33% over April 2019, said Suchit Shah, COO for CU Rise Analytics, a data management CUSO based in Vienna, Va. Debit spending dropped by nearly 20%, he said, as many consumers just stopped spending and elected instead to pay off debts.

Grocery store and wholesale club spending was a notable ­exception, he said. “This was the time when all the racks were empty. People were stocking up … overall spending was down, but people were spending more on groceries.”

In May and June, consumers began spending more on home improvement projects, furnishings and gardening, he said. Beginning in May, people began receiving federal stimulus payments. After paying off credit balances and curtailing spending, they found they still had money, Shah said. In June and July, consumer spending recovered and was on par with 2019 pre-holiday spending levels, he said.

CO-OP’s data reflected similar trends, Wieczoreck said. While airline travel credit transaction volume fell 48% and debit transaction volume was down by 54% between July 2019 and July 2020, credit transactions at online bookstores (which includes Amazon purchases) rose 48% and debit transactions rose 24%, CO-OP data showed. Meanwhile, July hardware store credit and debit transaction volume increased 29% over 2019, according to CO-OP.

“I think the pandemic kind of scared people a little bit,” Wieczorek said. “They decided they wanted to make sure that what they were buying they had the money for. They didn’t want to go into debt. People were unsure … of their jobs and what was happening around us.”

Wieczorek predicted that credit card use will continue to rebound. “I think people are going to continue to have caution around their spending habits but I don’t think they are going to be afraid to spend,” she said. “We are seeing travel start to increase again, not at pre-pandemic levels but they are starting to experience an uptick. I think that will continue.”

Spending “has definitely surged” from March and April, Fiserv’s Edwards said. “Grocery transactions have spiked. They remain slightly down year over year because consumers are generally shopping less often. But their ticket prices continue to be significantly higher. They may be going to the grocery store less, but when they are buying, they are buying a lot more.”

Edwards also predicted a continued spending surge in home renovation projects and electronics because of the ongoing demands of virtual schooling and working from home. “Reality has driven those spend behaviors to thrive in the current landscape,” she said.

Capitalizing on a New Normal

Experts said credit unions should promote the shift from cash to credit and debit cards, payment apps and other electronic transactions.

“Credit unions greatly desire membership engagement,” Edwards said. “Having them use the card products they issue keeps their members deeply engaged with the credit union experience.”

She added, “The use of their cards drives income to the credit union … as opposed to competitors.”

Frechette said tracking where debit and credit cards are used can guide credit unions in offering incentives that can encourage more card use.

“They may tie a reward or an incentive to go out and utilize cards in a particular way, at a particular business,” he said. But the key to getting members on board with more electronic and digital pay options available “is providing guidance on how to use them,” Frechette said.

Edwards suggested that rather than offering the more traditional rewards for travel and entertainment spending, credit union executives “may want to consider maximizing rewards in the grocery space, the stay-cation purchases” and house and garden projects.

Moreover, credit unions have “a unique opportunity to capitalize on these times and help their members … spend on credit and debit cards” because major banks have largely tabled promotional activities for credit and debit card use, Shah said.

Wieczorek said CO-OP can help credit unions evaluate their marketing campaigns that educate members on when to use a debit card versus a credit card.

“It makes a credit union look as though they are trying to do things to help people survive the environment we are in today,” she said. “For instance, maybe someone, they’re employed, they have cash in their savings and checking account, but they don’t feel comfortable getting rid of those savings. Maybe they save that credit card for big purchases until we get out of this environment and make smaller payments. If a credit union wanted to offer a balance transfer campaign at a lower interest percentage, and members have cards that have higher interests and transfer those balances to credit unions for a lower interest rate, that can help the member with a lower payment amount.”

And, she added, “If a credit card gives you rewards based on usage, it’s probably a benefit for the credit union and the member, particularly if they are disciplined enough to pay it off every month.”

But experts also warned credit union executives that there is a risk delinquencies could rise this fall.

“Right now, PSCU is waiting to see what might happen as a result of the expiration of the $600 in enhanced unemployment benefits,” Frechette said. “That is very real for many Americans. We are watching that very closely.”

He added, “We won’t see the true impact of delinquency for a few months,” he added. But PSCU has been advising credit union executives “to have the right ­program and strategy set up for collection efforts. Credit unions, at times, do act kindly and ­liberally. At times, it becomes about solvency.”

Wieczorek said credit union executives should “remind members that using your debit cards is safe, and that if you do not want to incur debt, that’s probably the card you should be using.”

“If there is part of the membership that potentially has a higher unemployment rate, they might need that credit,” she said. “But help them understand or use that responsibly so it doesn’t get to a point where they are not able to pay that back.”

Credit union executives also need to make sure credit lines are managed appropriately for members, with appropriate credit lines for “good” members that allow them to spend on their cards, and smaller lines of credit for members who are potentially more risky, Wieczorek noted.

“If someone is having trouble making a payment because they lost their job or is short this month, maybe extending or giving them a payment option or reducing the interest charge for a period of time could help them weather the storm better,” she said. “I don’t think it’s a time to disconnect relationships.”