Perception, as they say, is everything.
That’s especially true when it comes to consumer spending, where individuals can pivot between payment choices depending on how they perceive any number of external factors. Those factors could include inflation, for example, or job prospects.
Recent earnings results from companies — the banks and the payment networks — have spotlighted a resurgence in credit card spending, particularly on goods and services tied to travel and entertainment.
Read more: Visa, Mastercard, Synchrony Results Spotlight Credit Rebound — But for How Long?
And yet, there may be some headwinds taking shape against that credit rebound, perhaps to the benefit of buy now, pay later (BNPL) and debit spend.
As noted by the most recent University of Michigan Surveys of Consumers, individuals’ perception of current and future economic conditions in December stood at a multi-year low.
At a high level, the Consumer Sentiment Index fell to 67.2 in the January survey, down from 70.6 in December and well below last January’s 79. The Expectations Index fell to 64.1 in January, down slightly from the previous month’s 68.3 reading, below last year’s 74.
As to what remains top of mind, the survey estimated that 75% reported that inflation remains a key concern and ranks higher as a concern than unemployment. Half of the households surveyed think the economy has worsened coming into 2022; a third of respondents (which represents a minority) think the economy will improve.
Interestingly, and as is germane to payments themselves, 41% of the consumers surveyed said high prices remained a reason not to buy in December.
The less than sanguine outlook — indeed the sentiment index is at its lowest level in a decade — might spur consumers to re-examine not just what they buy, but how they buy.
Higher Rates Loom
Inflation translates into higher interest rates, which in turn translates into more expensive credit card debt.
One option is for consumers to consolidate their debt. In an interview with Karen Webster, LendingClub CEO Scott Sanborn said that roughly 40% of people who earn at least $100,000 annually live paycheck to paycheck and might take a closer look at consolidating debt (with the aid of the company’s platform) as rates rise.
See more: Looming Rate Increases Pose New Challenges — and Opportunities — for Lenders
Additionally, debit offers a way to spend cash on hand, in essence, providing a budgeting tool, one that keeps consumers from becoming overleveraged.
Within debit, BNPL options are fast emerging as a preferred payment method, as installment loans offer a way for consumers to more accurately account for and anticipate cash outflows. Considering that more than half of us live paycheck to paycheck, stretching to meet monthly expenses, that sort of visibility can be critical.
PYMNTS data show that 40% relatively financially stable, “worry-free” consumers — those with good credit or access to credit — want to use alternatives to traditional credit. Drilling down into that tally, 40% want to avoid overspending and 35% are focused on high interest rates.
Read more: User Personas Proving That Installments Have Value Beyond Instant Gratification
Those top-of-mind concerns, amid waning consumer sentiment, seem tailor-made for a continued use of debit in general, and BNPL options, specifically.
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