The development of a “K-shaped” economy, as described by some economists, stands to shape how consumers in the U.S. spend their money, and therefore how payments companies make money. So, how industry executives see the impact of those economic factors has become a subject of discussion.

The economic model describes an economy in which a top, wealthier segment of consumers is on the rise, with their spending reflecting a positive upward trend, while another lower-income segment of consumers is declining, possibly showing a downward trend in spending. The divergence of the two segments creates the arms of the ‘K’ progressing in different directions.

The concept of the K-shaped economy was popularized partly by the New York economist Nouriel Roubini. He described this month, in an opinion piece related to Federal Reserve policies, what the K-shaped economy looks like and where it might lead, particularly with the effect of artificial intelligence in mind. 

Payments players, from card networks to processors, are always focused on forecasting how such economic conditions may affect consumer spending in the future, and therefore their businesses. 

Industry analyst Darrin Peller asked his guests at the firm’s Wolfe Research Fintech Forum last week how they view the impact of a K-shaped economy. Those C-suite executives’ offered various interpretations on how the economic circumstances are affecting their companies. See their commentary on the K-shaped dynamics below.

Visa Chief Product and Strategy Officer Jack Forestell:

“We're obviously living through some tumultuous times right now. But I have to say the watchwords for the consumer driving out of the data that I'm seeing are stability and resilience. You just rattled off some of the numbers. We're just seeing consistent growth performance, quarter in quarter out, month in month out. I lead our product team and our strategy team. So, I'm sometimes focused on some different metrics than some of my colleagues. One of my favorites is processed transaction volume growth, because to me, that's the most pure indication that we’ve got about how users are engaging on the platform, and that number has been incredibly resilient and consistent on a broad global basis for quite some time. So, look, there's a lot going on in the world. You might expect that to be changing the way consumers are behaving with respect to their spending patterns. Overall, we're really not seeing that. You asked about K-shaped, I don't really see K-shaped. It's probably a little bit more letter ‘E’ shaped. If I’ve got growth rates on the vertical axis, we're just seeing consistent levels. There's definitely a differentiation in the level of growth rate that we see across the spectrum. But it's a positive growth rate at the bottom end and it's a positive growth rate at the top end, and the gap between the two has been relatively consistent.

PayPal Chief Financial & Operating Officer Jamie Miller:

In the “fourth quarter, we had branded checkout growth of 1% which was a deceleration from the third quarter. And there were three main factors that contributed to that. The first is U.S. retail, and there's a couple elements there. One is just pure macro: We've talked a lot about deceleration, and really a K-shaped economy sort of effect. PayPal consumers tend to be middle income, mainstream America. Some skew lower income. And when you start to look at the disparity in terms of where people are spending less and where people are spending more, we are feeling that come through.”

Shift4 CFO Christopher Cruz: 

“The experience economy verticals, where boats are actually going, shopping, dining, staying, playing, those kinds of areas, that's where you're going to find a lot of our solutions. And what we see is definitely, the continued trend of this concept of a K-shaped economy. We can see it in our data, but actually you can see it in a lot of data. 

One of the things I often cite especially is lodging, because lodging in the U.S. is so perfectly segmented from a Chain Scale standpoint, that when you pull down data from a third-party provider – one of the well known ones would be like STR – you can see that the economy versus luxury, same store sales that they're reporting, occupancy stats, and the sort, it's pretty clear. You don't have to ask for a proprietary look from anyone — it's pretty clear, the dynamics.”