By Ryan Prentice, Director, Consulting Services and John Patton, Senior Payments Advisor

Despite an uncertain economic climate, retailers are preparing for an active holiday season highlighted by shoppers’ ongoing migration from in-store to online.

For the second year in a row, major retailers like Amazon, Target and Walmart have promoted early sales days as a way to spread traffic across a longer holiday shopping season, which accounts for roughly 19% of total annual retail sales.

Early results are encouraging, with Amazon reporting that its 48-hour “Prime Big Deal Days” “outpaced” last year’s event. According to the eCommerce giant, Prime members ordered more than 150 million items from third-party sellers during the second Prime Day event of the year, held October 10-11, 2023. This represented a significant increase over the 100 million items ordered during 2022’s event.

Regardless, households remain concerned with high prices and ballooning debt loads, leading many to prioritize obtaining everyday “essentials” over big-ticket purchases.

Following are our payment trends predictions for the upcoming holiday shopping season, along with some recommendations for how credit unions can meet their members’ payment needs during this crucial time of year.

3 Spending Predictions for the Holiday Shopping Season

1. Consumers Shift More Shopping Online: As the early returns of Amazon’s Prime Big Deal Days show, consumers are growing increasingly comfortable with shopping online. According to research from Celigo, three out of four consumers plan to do most of their holiday shopping online this year, and 65% will use the channel for all their gift-buying needs. Adobe predicts an increase in online spending of 4.8% this season over last year.
   
   In anticipation of the higher demand, Amazon is reportedly hiring 250,000 temporary workers this holiday season—67% more than in 2022.
   
   In contrast, department stores and other in-store retailers are taking a more cautious approach. Stores are planning to hire just 410,000 seasonal positions this year, a level not seen since 2008, during the depths of the Great Recession.
    
2. Essentials Win Out Over Big-ticket Items: Inflation rates may have slowed in recent months, but prices are still 3.7% higher this year than last holiday season, a fact that is leaving many households strapped for cash this holiday season. According to joint research from PYMNTS and LendingClub, more households are reporting difficulty with paying their bills. The combination of price increases and a return to post-COVID normalcy over the past two years has led to a gradual increase in household expenses, which is particularly damaging to individuals living paycheck to paycheck.
   
   Two out of 10 paycheck-to-paycheck consumers cited “non-essential spending” as a cause of their predicament. This is causing many consumers—especially those in younger generations—to consider reducing their spending on non-essential expenditures, including holiday gifts. This trend is already taking shape, as market research firm Numerator reports that 60% of the items ordered during Amazon’s Prime Days were for less than $20.
    
3. Installment Plans Rise: Among these younger generations, buy-now/pay-later (BNPL) and other deferred payment options are gaining traction and rapidly becoming a normal way to purchase goods and services.
   
   Whereas traditional retailers have offered classic layaway plans to their customers for decades, such programs are evolving to become part of the broader BNPL landscape. For example, some major retailers are allowing shoppers to stretch out payments on eligible items for a set period with a minimum down payment of 10 or 20%. Other merchants offer customers the option of placing items on hold for up to 30 or 60 days, and then taking delivery once the item is paid off in full.
   
   Some big box retailers no longer offer a traditional layaway plan, but allow their proprietary credit card holders the option of deferring payments interest-free for up to 18 months.
   
   According to a recent study, more than four in 10 shoppers plan to increase their use of installment plans this holiday season. Well over 50% of millennials and Gen Z consumers intend to do so.
   
   BNPL remains the hottest POS payment trend, but we also expect to see an increase in the use of more traditional installment programs like those included with store credit cards and general-purpose credit cards, along with old-school layaway.

Co-op Merchant Category Forecasts

Co-op’s data scientists have created a forecasting model of future spending by merchant classification code, based on an analysis of past trends in our credit union client portfolios. Based on this model, most spending categories will see month-over-month volume increases in the fourth quarter of 2023 due to normal seasonality. The biggest gains are expected in Courier/Delivery Services; Digital Goods; Sport/Recreation; Travel; Airline; Discount Stores; and Furniture. Exceptions include Computers; Real Estate; Auto Dealers, Services or Parts; Auto Rental; and Subscription Services, all of which are projected to show declines over the next three months.

Note: These forecasts are not guarantees of future trends. Each forecast is subject to a 95% confidence level, which is defined as the range of values expected with 95% confidence. The percentage probability that actual results fall outside of these confidence levels is less than 5%.

What Credit Unions Should Do Now

As your members gear up for this year’s holiday shopping season, make sure you’re prepared! Focus on the following initiatives to ensure you’re serving your members’ most urgent needs.

• Activate your Spend & Get Campaigns: One of the best ways to ensure your payment methods stay top of wallet is through a “spend and get” marketing campaign. It works like this: identify where your members are likely to do most of their shopping this season. Then offer them higher rewards on select merchant category codes to ensure your credit and debit cards are their first choice. Bonus points if you include local (as well as national) retailers in your campaign!
• Promote Contactless and Digital Payments: You’re offering contactless and digital wallet provisioning to your members, right? Well, there’s no better time to promote these offerings than right now, as members ramp up their retail purchases both in-store and online.
• Encourage Members to Place Your Card on File: With online shopping increasing in popularity, ensure your members have your debit and credit cards on file with their favorite eCommerce sites.
• Ready Your Balance Transfer Campaigns for January: Holiday shoppers rack up big credit card bills this time of year. Help them reduce their interest payments with a low-interest balance transfer offer for the first quarter of 2023. It takes time to implement such campaigns, so get started now! .

Wrap up the holidays in style with help from SmartGrowth!

Holiday shopping season is here, and it’s time to optimize your payments program for the busiest time of the year. Contact Co-op SmartGrowth Consultant Services for help in analyzing your member data for maximum profitability.