Perception, as they say, is everything.
That’s especially true when it comes to consumer spending, where people can switch between payment options based on how they perceive any number of external factors. Those factors could include inflation, for example, or job prospects.
Recent earnings results from companies (banks and payment networks) have highlighted a resurgence in credit card spending, particularly on goods and services linked to travel and entertainment.
Read more: The results of Visa, Mastercard and Synchrony highlight the recovery of credit, but for how long?
And yet, there may be some headwinds against that credit rally, perhaps to the benefit of buy now, pay later (BNPL) and debit spending.
As pointed out by the most recent University of Michigan Consumer SurveysPeople’s perception of current and future economic conditions in December was at a multi-year low.
At a high level, the Consumer Sentiment Index fell to 67.2 in the January survey, down from December’s 70.6 and well below last January’s 79. The Expectations Index fell to 64.1 in January, slightly down from the previous month’s reading of 68.3, down from last year’s 74.
As for what remains most important, the survey estimated that 75% reported that inflation remains a key concern and ranks higher than unemployment. Half of households surveyed believe the economy got worse by 2022; a third of those surveyed (representing a minority) believe that the economy will improve.
Interestingly, and in relation to the payments themselves, 41% of surveyed consumers said that high prices were still a reason not to buy in December.
The less-than-optimistic outlook — in fact, the sentiment index is at its lowest level in a decade — could encourage consumers to re-examine not just what they buy, but how they buy.
Higher Rates Coming
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 about 40% of people making at least $100,000 a year live paycheck to paycheck and could take a closer look at debt consolidation (with the help of the company’s platform) as rates rise .
See more: Imminent rate increases pose new challenges and opportunities for lenders
Additionally, debit offers a way to spend available cash, in essence providing a budgeting tool, which prevents consumers from over-leveraging.
Within debit, BNPL options are rapidly 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, struggling to cover monthly expenses, that kind of visibility can be critical.
PYMNTS data shows that 40% of relatively financially stable and “worry-free” consumers (those with good credit or access to credit) want to use alternatives to traditional credit. Digging deeper into that account, 40% want to avoid overspending and 35% focus on high interest rates.
Read more: User personas proving fees have value beyond instant gratification
Those top concerns, amid declining consumer confidence, seem tailor-made for continued use of debit in general and BNPL options in particular.