Payment delays suggest paycheck-to-paycheck pressures | PYMNTS.com

Every earnings season tells a story. So far, the story is that consumers remain dynamic, always ready to open their wallets and use their credit cards to get what they need.

Visa’s results on Tuesday evening (October 25) showed double-digit growth in card spending; American Express said business billed increased 30% in the last quarter. And while spending growth is slowing, it’s still growing.

The wild card is what happens with those bloated balances — especially in the paycheck-to-paycheck economy.

While no one is saying canaries sing in a coal mine when it comes to credit, for some of the consumers in the lower credit rungs, for younger consumers as well, there are some data points worth watching.

Synchrony Financial differs from other players as it offers the private label card which tends to be a preferred option by consumers with relatively lower credit scores. The company’s SEC filings reveal that approximately 94.5% of its claims relate to these partner or program branded cards.

The company’s earnings results offer a few data points that hint at some of the pressures on consumer pay. Core expense growth was 16% in the quarter.

And, as CEO Brian Wenzel said on the call, “when we look at consumer spending behavior patterns we don’t see much change,” consumers aren’t changing their behavior, and management called for growth in spending by Millennials and Gen Z, where these cohorts account for about 25% of sales.

The savings cushion is, for some of Synchrony’s borrowers, less padded than it once was. Consumer payment rates on card balances are slowing, just a little, and the balances themselves are increasing. Delinquencies are also on the rise.

There is still a savings cushion in place, although it has shrunk a bit. The percentage of customers who spent the full amount of stimulus payments they received amid the pandemic has increased from 38% to 40% just a few months ago. Inflation weighs heavily on these excess savings.

Management noted on the call that the balance cuts in the upper tiers of consumer savings have been (somewhat replenished), the lower tier has reduced their savings by approximately $100.

PYMNTS’ own data shows that for paycheck-to-paycheck consumers who are struggling with expenses, and where the average savings on hand is less than $3,000, compared to more than $4,000 at the peak.

Discussing credit performance, Wenzel said on the call that “we feel good about credit” as there continue to be “signs of gradual normalization.” Synchrony, its latest additional results released on Tuesday, show its delinquency rate was 3.28% compared to 2.42% last year, and its delinquency rate for over-90s was 1.43% compared to 1, 05% last year.

What remains to be seen is how consumers juggle these balances, which in Synchrony’s latest filings have increased 8% to an average of $1,268 per account. We’ll know more as companies like LendingClub weigh in on loan consolidation and the overall state of paycheck to paycheck consumer – but for now the consumer is willing to spend, has the dry powder to do so – and the pressures are manageable, unless so far.

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