Is ‘Buy Now, Pay Later’ the Future of Consumer Lending?

Major specialists like Klarna, Afterpay and Affirm, as well as payments giant PayPal, are raking in big bucks financing consumer purchases. They are playing a different game than many banks and credit unions. But amid this tectonic shift there may be opportunity for traditional institutions — in part by picking up the pieces.

That buy now, pay later purchasing is booming is indisputable. It’s a story that’s been building up over the course of the last several years. Predictions that it would surge to new heights during the 2021 holiday shopping season were supported when PayPal CEO Dan Schulman, appearing on CNBC, crowed that on Black Friday, “our volume on buy now, pay later was up almost 400% year over year.”

Schulman added that his company’s “Pay in Four” installment plans proved to be “one of the stars, actually, of the holiday season for us.”

Contrast that euphoria with comments by Scott Galloway, NYU Stern marketing professor. In a blog post written a few days after the national shopping binge, ironically titled “Red Friday, “he points out something that often seems forgotten by consumers who tap this service: “Buy Now Pay Later" is (wait for it) credit.”

An outspoken BNPL skeptic, Galloway adds: “The stale product formerly known as a loan has been rebranded as ‘Buy Now Pay Later’ … The premise is simple: Buy a product for a fraction of its cost at checkout and pay the rest of it off over a few weeks or months. The good news: Debt is not as bad as cancer. Though it can trigger depression or even revolution. But that’s another post.”

BNPL is often promoted as a friendlier way to spend without racking up credit card debt, with a key feature of most plans offered by fintechs being no interest rate, with merchants paying the lenders a fee instead. BNPL websites take a page from credit card promotions, showing photos of happy consumers happily, well, consuming.

Not everyone buys the BNPL message, especially when missteps can be costly in terms of fees. In congressional testimony, Marisable Torres, Director of California Policy at the Center for Responsible Lending, stated that: “We are wearied by the now-familiar claim, particularly among many occupying the ‘fintech’ space, that extending credit, without any accompanying requirement that it be affordable, promotes financial inclusion. Unaffordable credit may provide a quick inflow of cash, but it exacerbates financial exclusion over the longer term which, in the case of BNPL, can be just a few weeks or months down the road.” Continue Reading

First Responders, Last Days - Stop for a Moment & Remember at Least This Name from 2021

By Frank J. Diekmann CUToday

Stop. Before we all race to get into our 2022 resolutions and strategic plans, let’s pause. Let’s breathe (preferably through a mask if we ever want to get this thing behind us). And let’s first remember the credit unions that left us in 2021, from A(rrowpoint) to X(ceed). Let’s remember their stories, let’s remember what they teach us, and let’s especially remember why one now former CU’s name should be practiced by credit unions everywhere, especially if you want to see 2023 and 2033 and 2050 and beyond.

From the beginning credit unions have always been so much more than just little not-for-profit companies no different than the local oil change place or pizza joint; from 1909 on they have always been mirrors to their communities and pages in the American history book inscribed with the words from earlier generations--living, breathing snapshots of different eras until they live and breathe no more.

History pages from this last year that have turned for a last time include Boys Town (sorry, Father Flanagan) and Tin Mill Employees. It was also a goodbye to some old historical legacies that many believe deserve to be forgotten, such as Jeff Davis Teachers (2021 also meant, ironically, goodbye to Legacy CU, too).

Let’s Stand and Turn

So, before we get into this new year, let us all stand slowly and do a 360-degree turn as we wave one last goodbye in all directions, first toward Northern United, Tesoro Northwest, and Northland, then toward South Division, and finally in the direction of a sun setting on Western Districts, Western Rockies, Western Heritage and Western States Regional FCU. 

Place names were once automatic when chartering CUs and why wouldn’t they be? It was the places, after all, that very often put the “field” in field of membership. Today, the fences have fallen, and “rebranded” credit unions select generic, fabricated names that have no geographic ties and suggest in an Internet age they are everywhere and nowhere at the same time.

We shall not forget those places and instead on the CU History Book pages we will record where you once lived, Dane County, Tallahassee Community, Sumter City, Waterbury Police, Des Moines Water Works, SUNY Geneseo, Town of Palm Beach, Virginia Beach Schools, Gloucester Fire Department, Essex County NJ Employees, South Bend Post Office, Romeoville Community (where art thou now?), Credit Union of the Berkshires, Texas, Borinquen Community, Lancaster PA Firemen, First Credit Union of Scranton (no word on whether Dunder Mifflin was a SEG), Greater Watertown FCU, Firestone Lake Charles, Nishna Valley CU, Munseetown Community, General Portland Peninsular Employees, Greenup County, Gloucester Municipal, Columbus Metro, Canoga Postal, Fairmont Village, Groton Municipal Employees, Fort McPherson, and Canaan (named for the land once conquered by the tribes of Israel, but, alas, no match for the tribes from the Land of Financial Services).

If the place name wasn’t automatically in a CU’s name, then a company’s name was. It was other bond in common bond. So, as the days of knowing who the sponsor was/is just by looking at someone’s nametag increasingly fade, we honor you as you SEG-ue into new CUs, Patterson Pump, Meadow Gold Employees, McKesson Employees FCU, Flowers Employees, Burns & McDonnell, Roper Corp. Employees, Holston Methodist, CONE CU, AE Goetze Employees, Norton-Troy Employees, Cal Poly, Central Hanna Employees, Construction Industries CU, Electrogas, and Bacharach Employees (I can only guess that all those raindrops falling on the CU’s head finally became a flood).

First Responders, Last Days 

It’s difficult for the scribe not to notice Continue Reading

Real-Time Payments the key to 2022

NEW YORK—The key to 2022 when it comes to payments can be boiled down to one word, according to one person. 

FIS Executive Vice President of Global Real-Time Payments Raja Gopalakrishnan told Pymnts.com the key to 2022, and the continued adoption of faster payments, all comes down to “simplification.”

“Adoption has just shot up,” he said, adding that If 2021 has been the year of digital payments, it should also be recognized as the year for real-time payments.

Exactly the degree to which adoption has increased is not yet clear, but Gopalakrishnan said indications are that real-time payments volumes globally are up at least 40%, with values surging by at least 30%.

And yet the market is still largely untapped, according to Gopalakrishnan, who cited data indicating that 80% of global real-time payments, about 55 billion transactions, are still tied to five countries: India, China, South Korea, Thailand and the U.K. That’s only a sliver of the roughly 56 countries that have laid the groundwork for at least some form of payment method, he said.

“The projections dovetail with Pymnts.com’s own findings on consumer demand for faster payments. In 2021, three times as many consumers received instant payments across a variety of use cases than in 2020,” the news outlet said.

2022 & Auto Lending

WASHINGTON–Rapidly changing consumer attitudes make it clear credit unions will need to move even faster in 2022 and beyond when it comes to auto lending and relationships with not just dealers, but manufacturers.

That much is clear in a recent survey that reveals half of U.S. consumers say they would consider purchasing an electric vehicle (EV) in the next decade, and the share is increasing.

The change in consumer attitudes is reflected in the market, with 2022 expected to bring an especially dramatic increase in the number of EVs on the U.S. market, growing from the approximately 62 models available at present to at least 100.

The new survey, from Morning Consult polling, shows 51% of U.S. adults say they are likely to consider purchasing an electric vehicle in the next decade, up from 39% in January and 43% in March-April.

Inflection Point

2022 could be an inflection point when it comes to actually getting drivers in EV seats, Chris Harto, senior policy analyst for transportation and energy at Consumer Reports, told Morning Consult.

“There’s all of this pent-up demand from consumers for EVs at a reasonable price, at a reasonable range, in segments they want,” he told the publication. “And they haven’t had that option, up until really this year.”

According to the Morning Consult poll:

• 58% of Gen Zers are "very likely" or "somewhat likely" to purchase an EV
• 60% of Millennials are "very likely" or "somewhat likely" to purchase an EV
• 37% of Americans say they will consider buying an EV if they’re in the market for a new car in the next 12 months; 15% are “very likely” and 22% “somewhat likely”

New Models to Drive New Volume

Credit union lenders should be watching for all those new models to shift the landscape entirely, according to Morning Consult, which said the most significant increase will be in sports utility vehicles and pickup trucks, according to research conducted by the Electric Power Research Institute. As U.S. consumers love to buy pickup trucks, crossovers and SUVs, the EPRI said their arrival on the EV market is one of the main reasons 2022 could be significant for adoption.

Among the most highly anticipated release of the new releases: Ford Motor Co. is beginning production on its F-150 Lightning pickup truck in spring 2022, giving consumers the option of purchasing an electric version of the best-selling car in the country. Ford recently said it already has nearly 200,000 pre-orders for the Lightning, Morning Consult noted.

 

 

Strategists see more gains in 2022

NEW YORK, Dec 1 (Reuters) - The S&P 500 will gain 7.5% between now and the end of 2022 to finish at 4,910, driven by earnings and economic growth that will extend this year's rally, according to the median prediction in a Reuters poll of strategists.

Those upbeat forecasts come even as growing concerns about the effect of a new coronavirus variant cloud the picture for the near term, with Wall Street falling sharply on Tuesday, partly on concerns about the Omicron variant.

Yet the S&P 500 (.SPX) remains up over 21% in 2021, benefiting from an economy reopening from pandemic lockdowns.

For 2022, the benchmark S&P 500 will gain 7.5% from Tuesday's close of 4,567 to end the year at 4,910, according to the median forecast of 45 strategists polled by Reuters over the last two weeks.

That forecast is higher than the 4,725 in the late August Reuters poll, although many of the latest forecasts for 2022 were given before the Omicron news.

"Next year is going to slow a little bit, but it's still going to be stronger than trend" for the economy, and that's likely to extend the bull market, said Ryan Detrick, chief market strategist at LPL Financial, which has a 5,050 year-end 2022 target on the S&P 500.

Based on the poll, the Dow Jones industrial average (.DJI) will finish next year at 37,500, up about 8.7% from Tuesday's close.

While profit growth for 2022 is expected to be well below the blowout growth seen this year when businesses bounced back from the start of the pandemic, some strategists think consensus views may be underestimating strength.

"Analysts are still going to be behind the eight ball," Brian Belski, chief investment strategist at BMO Capital Markets, said this week in a virtual chat for his year-ahead outlook. He forecasts the S&P 500 will end 2022 at 5,300.

Strategists in the poll mostly saw earnings expectations improving rather than worsening over the next six months.

Higher costs from supply chain disruptions and labor prompted warnings from companies in the recent earnings season, but many companies so far have been able to pass costs on to consumers.

Wall Street analysts expect S&P 500 earnings to grow 7.9% in 2022, compared with an estimated 49.3% growth in 2021, according to I/B/E/S data from Refinitiv.

Many strategists in the poll, however, viewed a correction or pullback in the S&P 500 in the next six months as likely.

Among the latest reasons for concern, Federal Reserve Chair Jerome Powell signaled Tuesday the U.S. central bank would consider speeding up its withdrawal of bond purchases as inflation risks increase.

Earlier this month, the Fed began reducing its purchases of Treasuries and mortgage-backed securities at a pace that would put it on track to complete the wind-down by mid-2022. The program was introduced in early 2020 to ease the economy through the pandemic.

Savita Subramanian, equity & quant strategist at BofA Securities, told investors in a year-ahead video presentation this week that focus within the large-cap space should be on companies "with more stable and growing dividends that will benefit, rather than be hurt from, inflation."

"We like energy and financials for inflation-protected dividends," she said. BofA has a 4,600 year-end target on the S&P 500 for 2022.

By Caroline Valetkevitch Reuters

Treasury Official Says Regulators Prepared to Rein in Stablecoins

WASHINGTON—A top U.S. Treasury official said financial regulators are prepared to extend existing authorities to rein in stablecoins, although Treasury hopes instead Congress will move on key legislation to regulate the space.




Nellie Liang, undersecretary for domestic finance at the Department of the Treasury and formerly the top financial stability official at the Federal Reserve, told Bloomberg that lawmakers must enact legislation to reduce risks around stablecoins—or digital assets pegged to fiat currency—including fraud, illicit finance and cybersecurity concerns. Congressional action, she said, would help protect the nation's wider financial system.

Without new legislation, "regulators will try to use what authority they have," though it lacks oversight power, Liang told Bloomberg. She added that authority would equate to "a little here and a little there," and warned that leveraging it could not even be described as a sufficient "plan B."

Blockchain expert David Gerard, author of the book "Attack of the 50 Foot Blockchain," told Information Security Media Group, "Stablecoin regulation can't come soon enough. These are wildcat banks, 1800s-style. … This regulation should have been in place years ago, but now is better than never…Stablecoins pull the sort of nonsense that money market funds pulled to cause the 2008 financial crisis—dollars backed by rubbish and complicated nonsense. … Stablecoin companies need to be regulated as either banks or accredited-investor-only money-market funds."

Retail sales in the United States jumped nearly 11% this holiday season

PURCHASE, N.Y.–Retail sales in the United States jumped nearly 11% this holiday season compared with the holiday period in 2019, the year before the pandemic upended the global economy, according to a new Mastercard analysis.

The report, Mastercard SpendingPulse, showed an 8.5% increase in retail sales over the holiday season, defined as Nov. 1 to Dec. 24, compared with last year. The figures exclude automobile sales.

According to Mastercard, sales in stores were up 8.1% compared with last year, while e-commerce sales were up 11%. Compared with 2019, before the pandemic brought about an explosion of online ordering, e-commerce sales jumped over 61%.



Online sales made up 20.9% of all retail sales this year, the Mastercard SpendingPulse reported. In 2019, online sales accounted for just 14.6% of all retail sales, underscoring how the pandemic has accelerated the shift to e-commerce.

Beating the Rush

In a statement cited by the Times, Steve Sadove, senior adviser for Mastercard, said many Americans got their Christmas shopping done early this year. “Shoppers were eager to secure their gifts ahead of the retail rush,” he said, “with conversations surrounding supply chain and labor supply issues sending consumers online and to stores in droves.”

While the holiday period starts on Nov. 1 according to the Mastercard accounting, Thanksgiving weekend, the traditional start to holiday shopping, was crucial for retailers. Black Friday, Mastercard noted, was the top day for spending during the holiday season, and spending for the entire long weekend was up 14% compared with last year.

Latest Data Show Income May Be Up, But So is Inflation (And Sharply)

WASHINGTON–Americans’ personal income may have increased $90.4 billion (0.4%) in November, but they’re paying nearly 6% more for common goods and services compared with one year earlier, according to estimates released by the Bureau of Economic Analysis (BEA).

The BEA said disposable personal income (DPI) increased $70.4 billion (0.4%) and personal consumption expenditures (PCE) increased $104.7 billion (0.6%).

In addition, the BEA said real DPI decreased 0.2% in November and Real PCE increased less than 0.1%; spending on services increased 0.5% and spending on goods decreased 0.8%. Of particular concern to consumers, the BEA said the PCE price index increased 0.6%. Excluding food and energy, the PCE price index increased 0.5%, the Bureau added.

“The estimate for November personal income and outlays reflected the continued economic recovery and government response to the COVID-19 pandemic,” the BEA said in releasing its latest numbers. “Government social benefits increased in November, reflecting an increase in the Provider Relief Fund (extended by the American Rescue Plan) that was partly offset by declines in many other pandemic-assistance programs. The full economic effects of the COVID-19 pandemic cannot be quantified in the personal income and outlays estimate because the impacts are generally embedded in source data and cannot be separately identified.”

According to the BEA, the increase in personal income in November primarily reflected increases in compensation of employees and government social benefits. Within compensation, the increase reflected increases in both private and government wages and salaries. Within government social benefits, an increase in "other" benefits (notably, an increase in the Provider Relief Fund to health care nonprofits) was partly offset by a decrease in unemployment insurance.

Other Data Points

Other data points included in the latest BEA numbers include:
The $104.7 billion increase in current-dollar PCE in November reflected an increase of $97.4 billion in spending for services and a $7.4 billion increase in spending for goods (table 3). The increase in services was widespread, led by housing and utilities. Within goods, an increase in nondurable goods (mainly gasoline and other energy goods) was partly offset by a decrease in durable goods (led by recreational goods and vehicles as well as motor vehicles and parts).
Personal outlays increased $106.3 billion in November. Personal saving was $1.25 trillion in November and the personal saving rate—personal saving as a percentage of disposable personal income—was 6.9%.
The PCE price index for November increased 5.7% from one year ago, reflecting increases in both goods and services (table 11). Energy prices increased 34% while food prices increased 5.6%. Excluding food and energy, the PCE price index for November increased 4.7% from one year ago.

Free Overdrafts Are Not Really Free, And Neither is Attacking Other Credit Unions

By John Deese

John Deese is president/CEO of Guardians Credit Union in West Palm Beach, Fla.

I recently discovered that a credit union was advertising “free NSFs and overdraft services.” On the surface, it seemed like a clever marketing tool, which is certainly their prerogative. The troubling part is that it was using the opportunity to blast banks and credit unions that charge a fee by quoting data that says they take $30 billion annually from consumers. It further states it is being taken from consumers that can least afford it.

While on the surface this sounds terrible and could easily be turned into a political weapon by our adversaries, I think there is much more to the story, which I will share later in my thoughts.

But most concerning is that a credit union that is supposed to embrace cooperation would attack other credit unions. As I pondered this issue I had to pause and wonder if this is an isolated attack by an arrogant CEO and credit union or is it the new “norm” for future credit union advertising? I hope it’s an isolated attempt to create news that doesn’t really tell the whole story.

A Perplexing Issue

As the CEO of a credit union for 43 years, I have struggled with how to help the underserved while also providing great member service and valuable products to all of the membership. One of the perplexing things that I have tried to grasp is why people continue to have NSFs and are willing to use courtesy overdraft services. Part of the strategy at my credit union has been to monitor these accounts and reach out to members on a regular basis to offer low-cost loans or other ways to help them get out of the cycle of using those services.

In my conversations with many of these members, the one thing I realize is they are aware of the services they are using and often times consider it part of their financial existence.

Members, like the rest of the populace, often act irrationally and contrary to their best interests; this is true in financial matters and especially with NSF fees.

Offering a loan to them fails as a solution because they feel they will just use the money and the NSFs will start again and at that point they will be paying NSF fees while still having a loan to pay. They have also shared with me that using a courtesy pay overdraft is so much less expensive than using the payday lending organizations, since their interest rates are excessive.

Not Meeting Needs

Payday lenders have thrived because credit unions didn’t—and still don’t—meet the needs of folks who use these lenders. It seems to me that if credit unions really want to do something to help the underserved, our best collective efforts would be to put the “payday” lenders out of business and help develop a financial services model that would truly provide much needed services to the underserved in our communities.

On the surface, the idea of offering free NSF and overdrafts seems wonderful, but in the end the rest of the membership will subsidize this service. And, sadly, the very people that can least afford it are most likely going to be forced out. I say this because you have to consider the staffing time it takes to process the NSFs, the costs for the processing, the potential charge-offs with overdrafts, and the potential fraud. And this fraud will likely will be expanded when you allow accounts to be opened using a marketing ploy to attract the general population with “free” services.

Nothing in Life is Free

Nothing in life or financial services is free. Most courtesy overdrafts are designed with the losses factored into the overall program. If we have no fees to cover the losses then it follows that you will have to tighten your criteria, which will eliminate more people from using the product. That will lead to forcing them to turn to payday lenders to get help and paying fees far above any reasonable fees charged by credit unions.

The answer is to embrace the cooperative spirit of credit unions and to avoid using advertising tools to attack other credit unions. We are better than this and can avoid conflict within the “family” by working together on a common goal whether that be eliminating the appeal of payday lenders or making sure that banks do the right thing for consumers.

While I agree we need to do more to help the underserved in our communities I feel strongly there are ways to do it cooperatively. Maybe after 43 years I am too idealistic, but if that is the case I accept it and hope that others that take over the leadership when I retire will continue to carry the torch of cooperation.

 

Venmo’s Real Threat to Banking: Making Payments Fun

History may show that Venmo, part payment app, part social media channel, did more to 'un-bank' consumer payments than any other factor. The mobile P2P app now has stiff competition from bank-owned Zelle and others, but continues to grow rapidly. The reasons why are not all unique, but taken together make it a potent competitor.

Of all the things changed by the pandemic, consumer payment habits was one of the largest. In response to the pandemic, more than eight in ten consumers (86%) say their payment habits have changed, a Paysafe survey found. According to the Atlanta Federal Reserve, 62% of consumers adopted at least one new payment app such as PayPal, Venmo, or Zelle in 2020, up from 54% in 2019.

In the first quarter of 2021, Venmo’s total payment volume grew by 60% year-on-year to $51 billion, according to Statista.

Venmo essentially has five things going for it. They’re not all exclusive to the app, but together they explain its continued growth, even in the face of tougher competition. 

1. Venmo Rides the Wave of Mobile Payments According to the Atlanta Fed, non-bank online payment account adoption increased from 54% in 2019 to 62% in 2020. The biggest winners in the consumer adoption wars were Continue Reading