Welcome to the May installment of Payments Post, where we’re highlighting the news that got Glenbrook talking. The common thread that emerged in May was the American consumer.
We observed a burst of news highlighting technology reshaping how American consumers make purchases and verify their identity. At the same time, other articles underscored how American consumers are struggling to fulfill financial obligations against the backdrop of continued economic uncertainty. Let’s consider these forces and potential implications for the future of payments.
On the technology front, since its introduction in 2020, we’ve been watching the evolution of Amazon’s pay with your palm rollout across Whole Foods, Amazon Go, and other merchants across the US. While the tech itself is not new and paying with your palm is experiencing traction in many parts of the world, the recent announcement that Amazon One will be rolling out at Coor’s Field in Denver to verify the age and identity of spectators purchasing alcohol caught our attention. This combination of biometrics and payment is novel in the United States.
We can envision a future in which our palms are tied to payment credentials, identity documents, and merchant-specific rewards programs. As we progress away from tapping cards (or handing over cash) at the point of sale towards increasingly bumping our phones against the terminal (or another phone), it’s easy to imagine that the next step could be waving our palms. But as with any new technology, there are potential pitfalls. Not everyone has a palm to wave or can move their palm towards a reader, for example. Merchants and their hardware providers will have to consider these cases. And it’s not implausible that fraudsters are already designing their own counterfeit palm technology. That said, Pay by Palm edges us one step closer to the obsolescence of the physical wallet. Amazon One remains on our radar as an instigator for fundamental change in consumer-merchant interaction.
Against the backdrop of merchant innovation, we saw signs that the American consumer is struggling with continued economic headwinds. The New York Fed reported that American household debt recently hit $4.8 trillion in January, a 3.7% increase year over year. Part of this was an 11% (annualized) rise in revolving credit card balances, accompanied by increasing delinquencies. The New York Fed estimates that 4.1% of credit card loans were delinquent at the end of 2022. That figure was 3.2% a year prior. That’s a concerning trend.
Drill down into age demographics, and the picture is more alarming. Millennial and Gen Z consumers are doing worse than their older counterparts: the credit card delinquency rate for 18 to 29-year-olds has surpassed 8% for the first time since the pandemic. The reintroduction of student loan payments could further burden some young Americans’ finances. Add in an increasingly uncertain labor market, and the next few months become pivotal to understanding the future financial health of the American consumer and the institutions that extend credit to them. We’re seeing evidence that those institutions have been increasing loan loss reserves to weather the impact of loan write-offs.
As we keep an eye on the POS to see how it evolves technologically, we will also carefully watch the health of the average American wallet, whether it’s an old-school leather trifold or hidden in the consumer’s hand.
