Future Trends in Consumer Credit and Spending
The Post-Holiday Credit Boom
The holiday season is a whirlwind of consumer spending. According to the Federal Reserve’s latest data, December 2023 saw a staggering $37.1 billion surge in total credit. Revolving credit, which includes credit card debt, skyrocketed at an annualized pace of 18.5%. This dramatic increase reflects consumers’ penchant for hoarding credit ahead of the festive season. This trend of rapid spending during holidays followed by gradual return to spending norms has become commonly observed in recent years.
Fun Fact: Last year, over 74% of lower-income cardholders (annually earnings less than $50,000) carried balances on their credit cards.
Overall consumer spending took a breath in early 2024, with a normalized rate measured in incremental credit card usage, issuing an $18.1 billion increase in overall credit till last march. However, this rate was higher than the consensus estimate of $15 billion. Despite this slowdown, consumer expenditure remains steady and increase by 19% compared to the pre-holiday season.
Did you know?
The heightened credit utilization, particularly for revolving debt like credit cards, has become a regular post-holiday occurrence in years 2022, 2023 and 2024.
The Rise of Buy Now, Pay Later (BNPL)
One notable trend emerging from the credit data is the shift towards Buy Now, Pay Later (BNPL) services. As consumers reconsider traditional credit avenues, there’s a growing preference to utilize BNPL options linked to debit accounts.
Companies like Sezzle and Affirm experienced impressive growth in 2023. Categories across these platforms saw double-digit spending growth, and Sezzle reported over triple-digit revenue growth. Though these are boom in BPLP, credit cards continue to remain the highest form of credit, with 11.5% delinquencies.
| Year | Revolving Credit Rate (Jan) | Non-Revolving Credit Rate (Jan) |
|---|---|---|
| 2020 | 4.4% | 2.1% |
| 2021 | 3.1% | 3.2% |
| 2022 | 10.5% | 8.5% |
| PYMNTS Data on Credit Card Usage by Income | |
|---|---|
| Cardholders Annual Income >$100,000 | 75% |
| 50,000 0 $100,000 | 75% |
| <$50,000 | 74% |
The Future of Consumer Credit and Spending
The normalization in spending suggests a cautious approach but does not indicate a halting of the spending habits entirely. For householders facing additional debt, close monitoring of substantial budget spending is becoming more important.
Companies that aren’t early adopters of BNPL and other ‘instalment loans’ might find it difficult to manage cash inflow due changing economic situations. Another important factor is the ability to keep consumers engaged in the medium term, amidst shifting borrowing habits.
Facts & Insights on Non-Revolving Debt
Non-revolving debt — which includes auto loans — rose by $9 billion in January 2024 compared to December. The rise in car loan marketing and the adoption of new car loan EMI plans by niche players like Affirm have come at an ongoing cost to consumers.
Pro Tip: Keep an eye on rising-only trends, such as those linked to car loans, which IDC reports is now the fastest-growing area of BNPL financing amongst big credit cards since last year.
Consumer Credit and Real-World Data
Consumer debt reached its zenith in previous summer and just fell by 0.6% in January 2024 on a annualized basis. While this seems alarming to the government, financial consultants find no cause for an immediate economic collapse.
Furthermore, January’s increase in consumer debt is deceptively stable given historical data. While debt has increased, the growth rate slowed down indicating consumer expenditure that evidences a 4.3% increase against the previous months of 2022 at 8.5% and 8.6% in 2023+2024.
However, credit card debt is likely the “dry powder” for consumers in future disruptions of normal consumer spending and balancing the ratios is unlikely to add any surgering growth to any economy that is dependent on consumer credit.
FAQ Section
What factors affect consumer credit trends post the holiday season?
Post-holiday, consumers typically normalize their spending, influenced mostly by increased financial responsibilities and cautious re-evaluations of their year-end spending. This is also greatly affected by the late interest rates and easy financing options as the result of competition in the banking sector, which inflates the overall consumer credit figures.
How does BNPL impact traditional credit usage?
BNPL services are becoming increasingly popular as they offer a flexible payment alternative linked to debit accounts. This may reduce reliance on traditional credit methods, influencing the overall consumer credit landscape.
What does the future hold for consumer spending and borrowing rates?
The economic landscape is unpredictable, but current trends suggest a cautious yet stable outlook. Future growth in non-revolving debts and BNPL remain unpredictable while encouraging regular monitoring, particularly for subsets of consumers currently juggling heavy debts.
Today we closed this year with advance warnings, pre-crisis data points, and a host of ideas to veer away from turbulent borrowings trends, dependent on your ‘price point’ it’s time to manage, invest and recover from the economic avalanches caused by excessive consumer loans.
