What Consumer Spending is Signaling to Retailers

How consumers spend their money through the holidays can often be a bellwether for trends in the months and years to come. With that in mind, the SpendTrend team at Fiserv took a deep dive into consumer spending patterns from Q4 of 2022. It found that increases in credit usage, contactless payments, and omnichannel interactions are shaping a future more intricately connected to experiences.

Our analysis measures proprietary payment data from Fiserv operating systems, including the Clover point-of-sale and business management system for small to midsize businesses and the Carat global commerce platform for large enterprises. Analyzing all card-based forms of payment to measure actual same-store sales activity between Oct. 1 and Dec. 31, 2022, we tapped into brick-and-mortar and online sales at nearly 2 million merchant locations to form a representative sample of commerce in the United States.

Here are four trends we found to be most relevant as well as the implications for retailers:

Retail Experiences Are Driving Consumer Spend

Businesses that sell experiences, notably in the travel, leisure and entertainment space, saw more than 20 percent spending growth in Q4 as shoppers increasingly began to purchase experiences in lieu of physical goods. To capitalize on this trend, retailers can consider selling experiences that fit well within their existing business models. Some examples might include a sporting goods store offering a tennis camp for kids, a grocery store marketing cooking classes, or even membership programs that allow loyal customers to tap into special events.

Credit is Climbing 

Driven by a decrease in disposable income, inflationary pressures, and historical lows in personal savings rates, U.S. consumers are reaching for their credit cards more often, sending credit usage climbing (+6.5 percent) faster than debit (+2 percent) to end 2022. In retail, debit usage in particular stalled in Q4, dropping 4 percent compared to the prior year.

With purse strings tightening, many consumers are also looking for creative ways to stretch their buying power. While credit provides the customer one avenue, some are turning to special offers, such as gift card promotions, to get more bang for their buck. Others are adopting flexible payment options, such as buy now, pay later (BNPL). Businesses that offer their customers more payment choices at checkout are able to create better experiences for their clientele.

Contactless Growth in Retail 

It took time, and maybe even a pandemic, but contactless payments in the U.S. are sustaining momentum — albeit a decade behind many international markets. Retailers saw usage of contactless payments grow 56 percent. Contactless payments are most popular for smaller ticket items, with the average contactless ticket size being $80 at retailers, compared to $99 for all other transactions.

The adoption of contactless payments is an important security evolution that both benefits a business and signals a shift in how consumers plan to engage at checkout. Modern consumers expect to be able to tap a card at the point of sale or use their mobile device to pay with a digital wallet.

Omnichannel is Driving Retail Growth 

Interactions that give customers a unified digital and physical purchasing experience, such as in-app, order ahead, and pick up in-store options, are more than fads. Today’s businesses are tasked with selling seamlessly across all channels, engaging shoppers at multiple points in their customer journey, and packaging each touchpoint into a refined brand experience.

In fact, declining foot traffic is the biggest challenge within retail, with brick-and-mortar spend down 1.6 percent at retailers in Q4. Conversely, omnichannel spend among large national merchants grew 11.3 percent during the same time period. Retailers that want to succeed should expand their engagement channels beyond the four walls of their physical store, whether that means selling in-app or online, through marketplaces, or even through social media platforms.

As retailers prepare for the future, taking an in-depth look at current payment trends provides a critical viewpoint into what's to come. Consumers are increasingly shopping across channels, looking for contactless options, and want flexibility in how they pay. By better anticipating how, when and where customers want to shop, each business positions itself to create the best possible experience for its customers.

Dan Parzych is senior vice president and head of analytics products and innovation at Fiserv, a leading global provider of payments and financial services technology solutions.