As the race to contain the spread of COVID-19 continues, consumers worldwide are feeling the economic burn.
Although consumer spending, which makes up 70% of the U.S. economy, is certainly declining, the good news is that there are pockets of increasing spending in key areas. In addition, consumers are adopting new behaviors and mindsets about where and how they allocate their available funds.
To better understand current spending patterns, we analyzed hundreds of thousands of global transactions from retailers from over 30 countries during the period of March 15 to April 10, 2020, and compared them to the previous 12 months.
Not surprisingly, we found more consumers shopping online to satisfy stay-at-home orders. We also found that consumers are shifting their categories of spending as they increasingly adopt more budget conscious behaviors to manage their spending on their own terms.
Understandably, consumers are looking to create healthy, comfortable and connected environments while sheltering in place. More specifically, our data show more consumer spend on goods for their homes, health and personal enrichment, while significantly less spend on luxury retail, fashion and sports- and outdoor activity-related expenses.
At the same time, even as consumers continue to spend in these areas, they want to do so while conserving their cash and paying their bills over a longer period of time. In fact, our data shows a 20% shift in payment mix towards credit card usage over debit card usage, as well as a 40% increase in the number of installments selected at checkout, increasing payments from 5 months to over 7 months.
What Does This Mean For Merchants?
Consumers have spoken loud and clear: They need more ways to responsibly manage their cash flow and credit line. With the ongoing economic impact of the COVID-19 pandemic, more and more consumers are forced to choose between overspending and depleting their already limited resources or giving up on their desired purchases.
And if they need to seek financing options, they often have to undergo cumbersome registration, application and approval processes, face payment plans that incur high interest, and pay unreasonable late fees. This also negatively impacts merchants, yielding high cart abandonment rates and losing possible billions in revenue.
For consumers to continue to spend and foster economic growth at this volatile time, it’s up to merchants to provide more flexibility with payment options. There are certainly a number of “buy now, pay later” tools that can support consumers and merchants alike, but it’s critical to select the tools that won’t add more long-term debt to consumer balance sheets.
Consumers need to be better equipped to control and use the credit they have and take ownership of what they’re spending. By providing more opportunities to use credit over a longer period of time, without needing to add new lines of credit, merchants can meet today’s consumer budget conscious needs while hopefully increasing sales, conversions and building customer loyalty.
Brad Paterson is CEO of Spliti.