In Mercator Advisory Group’s most recent report, Consumers and Cash: A Love Story, we examine the changing nature of consumer spending patterns in the United States and its shift towards control and money management.
Reduced consumer spending translates into less overall payment transaction activity and signals the larger financial services market shift towards providing services rather than isolated payment forms as the future growth engine of the industry. This month, the Federal Reserve in St. Louis expands this view to discuss the impact of an economy dependent on consumer spending.
Standard economic-growth theory suggests that an economy must continuously invest in new capital goods and structures in order to grow, become more productive and raise citizens’ living standards over time. Empirical evidence confirms the prediction that economies that invest a higher share of their incomes (or that have access to relatively inexpensive investment goods, which presumably results in more investment) tend to grow at faster rates. If consumer spending “crowds out” investment spending, the economy may not grow as fast.
As we pointed out in our analysis, growth patterns of electronic payments in the United States indicate a ratcheting down effect and we anticipate that more investments will be made in developing platforms that can enhance the payment experience, help consumers and businesses manage money more efficiently, and provide added value that solves problems for specific spending segments.
Click here to read more from Federal Reserve Bank of St. Louis.