Before 2020, electronic payments spending trends were generally predictable and cyclical for each calendar year. For example, leveraging The Strawhecker Group’s Acquiring Industry Metrics (AIM) platform, a significant correlation was found (0.99) when comparing average small to medium business performance (SMB) account size trends between 2018 and 2019. As the world rolled into 2020, the market disruption caused by the global pandemic resulted in a decrease in per merchant spending relative to 2019. The average SMB account size did not recover to 2019 levels until July and August of 2020. The 2020 recovery was largely aided by government relief policies such as stimulus payments. The depressed per merchant location spending of early 2020, and subsequent increase to expected levels in 2021, resulted in impressive 2021 year-over-year growth measures. What does this mean for 2022?
Recent trends suggest that the positive 2021 year-over-year (YOY) growth metrics are likely to stabilize. Per account change could even be negative starting Q2 2022, however an optimistic outlook has 2022 ending with growth. Signs of slowing growth are found in the March 2022 spending performance. Still positive compared to 2021, but the growth differential is slowing year-over-year. In other words, there is a deceleration of SMB account size growth in Q1 2022.
Using the most recent and historical trends, forecasts of YOY growth in Q4 2022 are likely to be within roughly -2% and +5% (50% tolerance) compared to 2021. 2020 performance was omitted from forecast analysis due to performance anomalies associated with the market’s pandemic response.
The SMB account size trend analysis included all eCommerce and non-eCommerce spending. Isolating SMB per account eCommerce spending reveals continued growth in early 2022, which is expected to continue throughout 2022. Account size doesn’t tell the whole story; how are average ticket values trending?
Trending average ticket size supports a new norm within payments. Before 2020, average ticket size trends were stable at around $72 per transaction. After a peek in April 2020 to over $90 per transaction, the average ticket decreased but remained above pre-2020 levels, near $84. This stabilizing trend above pre-2020 supports a “new norm” in average ticket size levels that will likely continue into 2022. CPI is another comparable data point that provides an additional view.
When comparing year-over-year average ticket growth to the Consumer Price Index (CPI), there are four distinct observations:
- YOY average ticket change prior to March 2020 was minimal and tracked closely with CPI
- During the peak pandemic period (March 2020 through April 2021), the increase in average ticket was significant and reached its peak (>30% YOY) in April 2020
- As the calendar moved past April 2021, the change in average ticket normalized and is negative in certain months.
- Post-April 2021, CPI increased at >5%, indicating recent changes in CPI have had little growth impact on average ticket size through March 2022
Historical trends in average merchant size show that the SMB sector experienced high YOY growth in 2021 vs. 2020. The growth in account size is attributed to several factors, including:
- A depressed 2020 with a subsequent rebound in 2021
- Increase in average ticket size after the initial pandemic plunge that leveled out at significantly greater than historical levels
Recent 2022 trends suggest that the positive influences of 2020 and 2021 are likely to stabilize and result in potentially negative SMB merchant account size growth. However, inflation is a wild card. Continued increases in the inflation rate may impact the forecast positively if the average ticket size increases in tandem. Inflation is just one factor influencing spending measures; others include decreases in real income and other economic trends not addressed in this article.
Portfolio managers need to be aware of the trends addressed in this article and plan accordingly.
Are you able to provide product offerings to assist merchants and their customers throughout lower growth periods, such as Merchant Cash Advance or Buy Now, Pay Later? Adding additional products will increase a merchant acquirer’s value proposition. Have you considered a focused strategy for adding accounts from high-growth industries, quality eCommerce merchants, or retention?
Without a focused approach to address a potential decrease in per account spending throughout the remainder of 2022, and adapting to the “new norm,” acquiring portfolio managers have several headwind challenges to accomplishing above-market growth. TSG AIM platform can set your portfolio baseline and track efficacy of growth strategies.
Let’s discuss how AIM can support and develop your strategy.
By Josh Istas, Senior Director of Analytics