In recent years, the financial service industry has made significant strides in making it easier for consumers to make daily purchases through robust payment platforms, applications, and tools like Zelle, PayPal, Dosh and Apple Pay. While these powerful applications provide the ability for consumers to make fast and frequent purchases, the technology may impact a consumer’s ability to save and maintain a predictable monthly budget due to the increased likelihood of more purchases. This increase in consumer spending has helped grow profits for some companies in the greater payments ecosystem, as well as pump dollars into the economy. However, these spending patterns could prove to be harmful to the average U.S. consumer’s long-term financial health.
In the past, consumers had to wait for a monthly bank or credit card statement to review all of their transactions and account balances. Today, consumers have the ability to review their account balance and each transaction in real-time by simply going into the applications on their smartphone (or signing up for proactive alerts) instead of visiting a local ATM or going to their local bank branch. This increased adoption and investment in technology allows consumers to make fast P2P payments, money transfers from a savings to checking account, and bill payments– anytime/anywhere. In fact, according to data from CACI, 1.91 billion banking interactions were made on mobile devices in 2016, compared to 278 million branch visits. This is predicted to rise to 3.4 billion in 2021, while branch visits will fall to 185 million. Clearly, the adoption of on-the-go digital payments and increased consumer spending is continuing on a growth trajectory.
While an increase in consumer spending is great for companies and the economy, this spending behavior has caused some negative impacts on consumers’ financial health. With 55 percent of families reporting that they spend as much as they make or more each month, rises in the cost of living across the U.S., credit card and student debt levels remaining high, and rising home prices and auto loans, it should come as no surprise that consumer savings accounts have dwindled to alarmingly low levels. According to a GoBankingRates survey, which asked people how much money they had in their savings accounts in August 2017, 57 percent of Americans have less than $1,000 in savings. Without an emergency fund and a dangerously low savings level, any unexpected life event could cause a long-term debt issue very quickly.
Given this lack of savings and the rise in consumer debt, it would be prudent for companies to encourage their customers to create a more transparent monthly budget and allocate additional funds to savings or other interest-bearing accounts. However, some of the major players in our industry have yet to make investments in marketing efforts to encourage the use of budgeting and savings tools in their applications. To fill this void, companies like PNC, Simple, USAA, Alliant and Netspend offer unique budgeting/expense management tools for their customers within their applications. Outside of applications, there are opportunities for savings incentives through card programs. A popular choice for consumers who are looking to get real value out of a card program lies in the cash-back reward, as it allows a cardholder to use points to pay off card balances instead of applying them towards a hotel stay or flight. According to a survey from U.S. News, cash back or a statement credit were the most popular reward features for consumers who were looking for a credit card with a rewards program. As you can see, cash-back rewards can increase the likelihood of customers choosing a particular card or institution, and it can allow them to use their spending to help pay down their balances. This type of reward is a win-win situation for both the company and the financial well-being of the consumer. Some companies also offer a high-yield savings account which is very attractive to customers who want to see their savings account grow and still have the ability to transfer funds to their primary transaction account when needed.
Additionally, companies should consider providing blog posts and videos that help educate customers on how to use the budgeting and expense management tools within their applications and that offer advice on saving money. By gaining access to these types of educational tools and content, consumers will be better armed to manage their finances in the short/long-term.
At the end of the day, companies have a responsibility to provide consumers with easy-to-use tools and innovative applications to help manage their finances in a prudent, and realistic, fashion. While technology has streamlined and enhanced the consumer experience as it relates to financial services and payment ecosystem access, it has also potentially created new behaviors for overspending. Consumers are now looking for companies that can provide both the education and tools they need to pay off their resulting debts and maintain a healthy account balance. In the long run, wise consumer spending behaviors will help determine the long-term success of both our economy and the companies within the greater payments ecosystem.