- US government negotiations for a second round of coronavirus stimulus payments remain unclear.
- The confusion may impact retailers and issuers as the holiday season approaches.
- Insider Intelligence publishes hundreds of insights, charts, and forecasts on the Payments & Commerce industry with the Payments & Commerce Briefing. You can learn more about subscribing here.
On Tuesday, President Trump announced that negotiations for a second round of Economic Impact Payments (EIP) will be postponed until after the November 3 election, per PYMNTS.
For context, the first round of payments was released in April, as the coronavirus pandemic left many unemployed and subsequently plunged US spending. However, the president later backtracked on his initial statement, saying that he's ready to approve a new bill for EIP, although White House chief of staff Mark Meadows refuted this Wednesday morning, confirming that negotiations are off. A final decision has yet to be made on whether another round of stimulus payments will be released in the coming weeks.
Delaying stimulus payments may worsen US consumer spending rates. As the pandemic continues—with the potential for a second wave in the upcoming winter months—consumer spending could plummet. US consumer spending grew 8.7% month-over-month in May, likely due in part to the first round of stimulus checks, after declining nearly 13% month-over-month in April.
However, as stimulus payments began to wind down, consumer spending growth slowed, posting a sharp dip in July as extended unemployment benefits ran out as well. Consumer spending rates and personal income may continue to dip even lower without government aid in sight, which could spell trouble for retailers and payments players as the holiday season approaches.
Because stimulus payments could uplift the entire payments ecosystem, the confusion over what's next could sow challenges.
A second release of stimulus payments would be important for retailers in the coming weeks. Retailers benefited from the boost in consumer spending resulting from the first round of stimulus payments: Walmart posted strong results, for example, as US same-store sales grew 9.3% year-over-year while its ecommerce sales jumped 97% YoY in its fiscal quarter ending July 31, 2020.
Though retail spending growth has slowed down since then, another stimulus in the coming weeks would likely help it pick back up. Those benefits could carry through the busy holiday season, which might further boost volume for these sellers—and a lack of stimulus could put a dent in spending at a critical time.
Payment providers may feel the effects of a stimulus payments boost. Card issuers were hit hard as consumers turned away from spending to save and avoid debt during the pandemic's peak: Bank of America's combined debit and credit card spending fell 11% in Q2, with credit spending seeing a higher overall decline, for example.
Because stimulus payments might encourage card spending for consumers—and give customers income to pay down balances, in turn decreasing the risk of charge-offs and delinquencies—future uncertainty could hurt card issuers looking to avoid another downturn.
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