PSCU Owners’ Holiday Spending Outpaces Industry Growth Rate

Spending is up, but credit card interchange compression is an emerging story

St. Petersburg, FL – (Feb. 13, 2017) – PSCU Owners experienced extraordinary 8.6 percent growth in 2016 holiday sales during the period from November to December. A 3.6 percent increase in accounts and higher spending per card, coupled with 7 percent more cards actively purchasing during the holiday period, accounted for PSCU credit unions outperforming the Visa industry growth rate of 4-5 percent. PSCU has released a new white paper that reports on the company’s analysis of holiday spending by members of the CUSO’s Owner credit unions. The company applied its analytics engine and tools to examine nearly 300 million credit and debit card transactions.

The analysis tells an emerging story of credit card interchange rate compression due to special interchange pricing arrangements with mega retailers like Amazon and Costco. PSCU’s findings are published in the white paper, “If Holiday Spending is Up, Why is Credit Card Interchange Down? Behind the Numbers,” which can be downloaded here. The CUSO is hosting a webinar on Thursday, March 2 at 3:00 p.m. ET to provide further details on the recent research. Attendees can register here for the webinar.

The research notes that debit experienced interchange rate compression earlier in the decade, but has since stabilized. Most issuers should see an increase in debit interchange for the holiday period, proportional to their growth in debit spending. But with credit cards, the white paper reveals an entirely new dynamic at play. For the 2016 holiday season, PSCU Owners begin to see a material reduction in yield – 0.16 percent or 16 basis points. Because interchange is priced through a complex matrix of rates by merchant category and merchant size, and applied to each individual purchase transaction, changes in the spending mix across merchant categories often create some fluctuation in yield. For example, the paper notes, high dollar volume at merchants with lower interchange pricing can depress overall yield.

“Our analytics show that while holiday spending helped identify the drivers for credit card interchange rate compression, this actually is not a holiday-related issue,” said Jeff Rosenbeck, Leader, PSCU Enterprise Analytics and Business Intelligence and author of the white paper. “The merchant level rate reductions are here to stay and while we hesitate to predict further, they may well be the start of a growing trend.”

The report suggests three growth strategies credit unions can implement to effectively counter the downward pressure on credit interchange:

  • Persistent card program management and attention to the classic penetration, activation and usage strategies
  • Increasing credit lines on qualified accounts for the holiday period, and early summer (for back to school); and planning balance transfer campaigns a month or two after a peak spending period to capture competitor card balances and grow interest income
  • Develop incentive programs with merchants or leverage the Small Business Association’s “Small Business Saturday” concepts all year long to take advantage of transactions at merchants whose rates won’t compress yield.

Credit unions can benefit from a strong analytic approach in understanding changes and trends in the payments environment and member spending behaviors. The results of analyzing holiday spending in 2016, together with recommendations on growing cards and usage, can help credit unions prepare for the 2017 peak spending periods. Over 300 PSCU Owner credit unions use the CUSO’s powerful suite of Member Insight analytics tools to extract actionable insights from their portfolios’ card and transactional histories to make informed adjustments around their optimization strategies for growth and profitability.

About PSCU

Established in 1977, PSCU (St. Petersburg, Fla.) is the nation's leading credit union service organization (CUSO). The company was recognized as CUSO of the Year in 2016 by the National Association of Credit Union Service Organizations. PSCU’s products, financial services solutions and service model collectively support over 850 Owner credit unions representing more than 20 million credit, debit, prepaid, online bill payment and mobile accounts; protect over 2 billion transactions annually from fraud; and optimize credit union performance and growth. Comprehensive 24/7/365 member support is delivered through call centers located throughout the United States. For more information, visit