DFS - Earnings call transcript Q3 2021 | Discover Financial Services

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Operator

Good afternoon. My name is Ashley and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2021 Discover Financial Services Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. Instructions]. [Operator Instructions]. [Operator I Mr. and turn call the Thank will to over you now Eric Relations. Investor Wasserstrom, of Head Please go ahead.

Eric Wasserstrom

of which Ashley, Welcome financial I'll two to you, section today's earnings Thank and Relations call. begin good of our on website, in can find you morning, Investor everyone. our the presentation, investorrelations.discover.com. Slide

forward-looking that in refer contains results to actual Third certain today are to discussion press presentation. cause notices statements that release appear subject materially. may Please statements to Quarter earnings Our forward-looking risks our our regarding and that uncertainties and differ

today Our for formal time Roger Financial comments, Greene, include Officer. call and Chief be will a will CEO, question-and-answer remarks from our our there Hochschild session. our After conclude we John

question, return one question, During After follow-up the question. to followed by the we ask Q&A session, please follow-up request queue. that one you

pleasure Now turn over to call Roger. the it's my to

Roger Hochschild

substantial our were Eric. billion to competitive unique In competition, in had these and strong to model our accelerate In supporting the benefits continued period And entrants a of Payments These results generating the advantages and thanks you, an results us and investment technology, Banking new integrated consumers enabled environment believe model, Underlying be many with by advancements. important of intensifying in Thank value by capital. this significant our our of and for quarter our differentiating strength proposition while source quarter to We continues position analytics our merchants, characterized call. advantage which and per our Digital brand. reflected joining we X account growth. of share. acquisition, another or $X.XX third to earnings results of today's financial respects, listeners our the after-tax $X.X

a sales our The first Total year-over-year marketing, since dropped strong travel due XXXX and driven concerns sales bit was variant, improved categories. continued related to they increased, return growth, in Delta sales by with receivables trends. up to and that. while across Even levels to were all XX% steadily and the is in strong acquisition investment momentum August brand has travel over which our

see opportunities increased our to this. and continued marketing for attractive account also of advantage We to take investments acquisition

new up XXXX, the strength This are value competitive and model, account no and our XX% remains so customer our useful over intensified, value transparent reflecting of industry-leading now service has environment proposition the anchored fees, in annual While rewards. onshore proposition.

nearly spending, rewards our some discount While up in their only offerings peers was costs of by higher driven all consumer cost, and increase rewards to of our substantial X our were had reinvigorate this year-over-year, revenue. strong points at evidenced basis as

supports we of rates accounts Given these will our investing payment the opportunities for as environment our modest robust in expectations stronger long improvement supports continue in account in growth receivables growth new profitable our and dynamics, as view XXXX. and so

second The strong. exceptionally key remained trend which was credit,

increase the of the the continued X% pandemic. through demonstrating full business. quarter. approach management losses and last the year trends a and disciplined the additional with outlook during growth expectations delinquency and and in a year-over-year, the credit volume continued our XXXX, rate saw delinquencies. a use meaningful our And will increase in affirmed XX% increase impact the The to record contributed of third levels year's low debit both releases Our charge-off payments is Both debit over to and that reserve below net quarter be low supported favorable expansion recovery the third for economic an of

also has some started improvement year. Diners with recovery global from Our from to the prior see the volume XX% business up

continue Payments more good discuss international reach. I our to Integrated and results capital-generated. opportunities model expand will be our to continue Banking value John profitable proposition for in to and Digital attractive about future we As aspects financial long-term the global economy I'll summary, our supports prospects key for our continues In feel our to very is recovers, growth. detail. customer of ask and highly to now relationships look

John Greene

And this everyone. continued results quarter Once Roger. execution our and that morning, strong good you, reflect again, economic Thank recovery.

financial Page things X Looking summary X, at results our are call to on out. want there I key

net First, on is our $XXX total our due from this, revenue expense investments, quarter. their X% unrealized revenue market excluding up of for is interest the year, equity adjustments loss million including a up prior X% to

charge-offs very a down which of year, million Net supported XXX quarter. Second, the credit strong is prior million release from this were a continuation $XXX performance. reserve

spend, I'll operating year go results full were outlook other investing the slides. following increased the over related continue the growth with higher Lastly, area details to expenses in our largely on in for of quarterly marketing recovery. we economic our

above a programs rates Looking through card XX% as savings federal We growth the X% from have anticipate were return levels year-over-year rate year-over-year factors volume remain decrease. and acquisition. on We in pre the X% ended XXXX cash approximately to strong by bit Card XXX was up growth The up and The was quarter quarter. we're receivables household XXXX. were as of payment flows and COVID over XX% historical X% with remain Slide prior this X%, Year-to-date over XXXX. loans at offset points will ongoing That levels. up loan account continued the elevated. ending consumer and up year said, the -pandemic payment rates most saw mostly rate and payment contribution expect the increase sequentially. and these the levels. sales was primary prior X. quarter we started up was driver also prior moderate over high-payment year, up to growth to by robust basis accelerate support over The XX% have to third and Sales driven that and the accounts loans rates savings their new from over

decreased schools X% high by returned the payment other our X% loans learning from student have most X% normal products. originations to year driven the as at rates. lending with in-person Looking Organic increased loans model. Personal prior up

to have criteria underwriting and this to we Our periods. in expect -pandemic return level, a returned future growth in product pre

mix and point costs. points interest balances. interest driven was was XX up the cost mix. partially maturities margin of mix XX.X% sequentially, margin yield lower The prior the from by from This driven lower higher Net The primarily prior net basis balance points lower Yields offset XX was rate rate increased on money as lower offset consumer to loan promotional flat and Moving continued to was quarter. charge-offs year-over-year, increase primarily lower by loans promotional an basis rate Card due by and pricing. benefit XX decline from largely the driven quarter, funding from funding year, savings X% basis prior [Indiscernible] prior margin by charge-offs quarter. were consumer by market in increased X. interest deposits of the was quarter-over-quarter the declined up declined lower CDs. basis points interest higher one personal of and slide to balances. were Compared Average sequentially to and the

continue a market of in saw also We spend consumers slight money liquidity. decline to savings deposits levels excess and as

coupon to billion fixed a XX Late since October $XXX a treasury execution executed funding and ABS continue issuance first security optimize consisting and X-year our $X.X lowest stack. we a rate a also show by XXXX, of up coupons our in ABS September, a and team. We of coupon our good with our with points. were million security timing XXX points, ever basis fixed These basis X-year

this and This volume. Net equity rewards total was restaurants increased revenue or both the costs investments. at sales strong X% non-interest million in unrealized Looking XX partially XX Slide PayPal, XX%, which driven was on the excluding offset X, prior to year, sales last. XX% loss high revenue increased up due interchange or by discount on income was by over category, the and million and year

XX% while and strong We were XX our charge-offs continue primarily fee fee year-over-year lower partnership higher and driven sales or PayPal, Loans fees. up with recovered. non-sufficient to as funds income cash benefit activity by was through from advance restaurant XX% late million dining up sales

year. total focus from XX higher accrual X, Slide driven while our year. The at on expenses or XX% operating growth in for compensation our by current reflect a investing million details managing Employee bonus $XXX increased Looking up costs. the future the were prior million operating

Excluding included primarily a expense prior XX recoveries lower prior lower year. higher another credit from combined compared year Marketing legal supporting credit expense down year-to-date The recovery with reflected an have up growth. headcount. their million account due economic was is compensation losses. costs [Indiscernible] in million, and increased benefits Professional increase their Other fees, employee associated $XX new recoveries conditions of $XX X% XX% fees million the fees these in to strong were driven and from quarter bonuses, up accrual. of strong were to reopening

XXX at of a was X. points XXX from decreased low dollars Credit rates by slide on card, net strong charge-offs private Total sequentially. across net were their all strong quarter-over-quarter. performance loans, to million net year student basis Moving charge-off The personal million performance, XX as X.XX% down trend the down prior charge-off products evidenced credit points XXX basis sustained and were Total a and loans. continued. year-over-year and record

credit for losses XX. slide the to Moving on allowance

loans partially $XXX credit The a these largely the prior from XX The macroeconomic X% basis reserve outlook. quarter. we performance reserve drop reflects increase from a continued quarter, to by rate and offset and of This in points strong million reserves the release was X.X%. released stable our impact

Our economic still than slightly Quarter, rate in approximately but of less of These economic strong over dysfunctions outlook. the assumptions an growth just X%. X.X% by at those used were GDP and include unemployment a year-end, reflect Second positive

increased to our of had XX, We slide XX% to payable as above common million XX% per Slide at of towards from of our our target. to our was up our Deposits mix. total for announced, These X reflect in be we make we the on XX.X%, year. to actions now make returning shareholders. our common capital $X.XX equity XX% continue XX. $XXX deposits dividend progress Wrapping share. and, XX of previously funding up having up stock XX% funding, XX.X% commitment to funding, Looking period prior Tier On by well repurchased our the goal

Our positive while to expenses. and strong loan the supported trends for outlook has significant Investments remain trends. against our operating Credit in improving reflecting contained underwriting execution profitable for performance from accounts approach continued we've summary, strategic management. credit and we our increase XXXX growth have for well-positioned growth favorable, reflects changed and conditions macroeconomic new and remained not objectives. In financial

look With model call in that, back invest Lastly, our to I is to call Payments conference We Digital for for allowing and our to Q&A. us Integrated line and shareholders. the return on forward our providing highly the to open January. Operator, XXXX turn growth Banking to capital capital-generative, outlook will our for Ashley,

Operator

pick please question Evercore your handset you [Operator for from Instructions] Pancari sound up John that We ahead. do take we'll And go please first optimal our remind you quality. with ISI,

John Pancari

revolve. on Good see think just typically starting Wanted can signs give to little if I'm through rates color see guess expectations. expect see Thanks. to And an you morning. we XXXX, a how know think there. until that could do to if of you your I rate payment material them likely to you accounts through us starting but I to you then see decline remain that's elevated some not inflection see to 'XX? payment of wanted or you're XXXX more

Roger Hochschild

to I did has And it payment But the It to step did at was trends, that Great. month terms surprise. down. in increase which The we from September I expectation see will for forecasted been question. a a of of here and the down data, the rate ticked what is as we're July high was in quarter, mildly. frankly look my that bit Alright. seeing persistently the looked August, in then continue the fourth -- of as revolve, Thanks

payment implications from really normalized don't think rate. it September will a of holiday do to on think towards has holiday expect what into Certainly, How the then continue Some governments about in strong of we the the seen growth, with rate a growth. step that until of programs as that? headwind I account do to that is the happen has and to strong ending a we bit XXXX, acquisition But, it to we've look season that'll XXXX. support But season. frankly, sales is do And with and do some I

John Greene

which offset to impact. some that rate date of payment helped has

bit declining the very, we rates the balance to sales and -- very that So and strong, of XX, from and feel XX growth. 'XX both have overall, then a new of then related accounts comfortable strong tailwind we'll execution payment

John Pancari

Got it.

to be you know on you front, marketing expect I Okay. the in Thanks, John. half. higher then account And indicated acquisition the costs that second

imply So And there pressured could as continued little could expectation for then of if a light they acquisition the can upside marketing quarter. us trend account XXXX drive you and detail does how that you into pressure fourth more your on give some payment bit rates? around see in that you

John Greene

Yes.

to So we've marketing we spend from opportunity the a new quarter had a that. with drive standpoint, great frankly, see year profitable a as accounts. we And, and money great

in the the I actually marketing last originally guidance of mildly that The the lower would approximate provided what anticipated, third levels quarter we on and came call spend total had was we XXXX expense. than

bit under of account oriented largely opportunities, in terms kind that, I stuff because think it'll of of but be some not a little targeting. basically process

us pick provide up the a certainly we trajectory fourth third quarter positive spend for account will certainly, will growth. XXXX. good quarter new So feel we'll and It from the generate like in money

John Pancari

taking for questions. Great. Thanks my

John Greene

you. Thank

Operator

our ahead. Please Goldman question we'll take Nash Ryan go And Sachs. from next with

is open. line Your

Ryan Nash

Hey. everyone. Good morning,

Roger Hochschild

Morning.

Ryan Nash

about talked those it, you of having your you're how competitively, competition impact biggest you new where you responding this to do it? intense how and believe is expand entrants. the the seeing about Thanks. you Discover are points on just impact and Roger, business maybe what and positioned for is you Can think on

Roger Hochschild

Sure, thanks question. for the

well. intense. actual my lapse card of comment I We think it that the to have enough sums XXXX. growth I intense The were think and business was a up in in good always really is the in lucky competition face competition,

new per based of for growth in which to we're or it's issuers what desire account. excited have growth more refreshing And a And resulted on extraordinarily than on what used I accounts. are our vary about so some It'll others. focus cards cost facing. a than But of of their I'm show good proposition see. I value But strong differentiated think has clear, generation continued

that see would credit invest In seeing personal by the that are go. remain But loans space. accounts new what very the focused competitors on we scenario entrants, new cards to we're core willing to underwriting less our terms we very, in come the in of around long-term, in say used and disciplined where I competition aggressive and and in

Ryan Nash

us bit, a to about that needed the we steps you. go-forward there Got follow-up to in And marketing increase that -- question should second, ask if of strategy up about today and just be activity could a you'd marketing, it. John, a the are asked versus in balance and on -- we level rate? as Thank I terms question And more investments to with comments was Are be hitting the can John So made? the run it prior, the Quarter you go-forward increasing is then a little is there Fourth think where pre [Indiscernible] help levels, what as it relates understand continued transfer maybe -pandemic basis? as

John Greene

Sure.

see XX, growth. are On determined opportunities determined new we we marketing drive -- frankly at be as do credit look environment and to opportunity will that a profitable based strong as, continued see a account very we the the spent, on benign

intend continues to help to then you point that we'll What here spend As opportunity the what on in should of about in XXXX. leave we'll fourth-quarter talk opportunities continue January suggest XXXX persist, But call, dollars. marketing is would we 'XX trajectory I the to in we inform that terms this with And the there. I'll concentrate spend

impacts a increased of In balance that terms impact of terms the of executed did in early quarter the in from transfers, we transfers third and we 'XX see to balance some margin. part mild of

It's historically and will generate and continue to acquisition prime we space disciplined look continue revolver remain on profitably. accounts of those what balance see good put and us account at a the been a for to source can take We will that transfer.

Ryan Nash

taking for Thanks my questions.

John Greene

Thank you, Ryan.

Operator

ahead. take Don next Fandetti go question Wells we'll our from with And Please Fargo.

Don Fandetti

you Hi, and long-term, United good payments any network? a talk more little bit in on, own we're debit debit around of you a given business. seems question there the Can time potentially direct-to-bank morning. evolving I It you Pinterest. and Roger, have guess, the there's like about over longer-term a see how buying your are to going going implications States that lot over PayPal a

Roger Hochschild

I schemes and on tend question. lot existing Sure. always, there. Great A would out to rely of are There though, new methods payment them say, payments.

MasterCard majority relatively when lot PayPal, their efficient major have, networks, think the caps very that Apple Visa their margin, as existing debit debit vast volume X to processing as So very thin. operate. you you frankly about right for the are look And the launched of low Even banks quite is a complex at now, how the them and of is economics given wallet. incredibly processed networks. And payment and and interchange

we goes the quite near frankly, And So look or proposing be the lot at I on pay for of anything Even medium-term side. potential. payments. that what might it see the even while see the looks in are other now debit the their increase Fed like a don't in what players markets, later here leveraging in an you're starting debit to buy on has volume

Don Fandetti

see se going and don't away by really replaced per the direct-to-account being payments debit U.S.? You in

Roger Hochschild

of devices, identity. management both The that you complex quite No. robust There's the in merchant ecosystem payments a of risk networks is place. have are acquirers. major fraud and think of in and processes There about controls point-of-sale lot if terms

see And so, think will change low probability. is that to a that suddenly, I

Don Fandetti

you. Thank

Operator

Graseck next Morgan go our Please We'll Stanley. from take question with Betsy ahead.

Betsy Graseck

that following I and you network into new, seeing? we're it Is on to revitalized I but take new, up capabilities, it there and debit that. Hi. guess, that into for your call opportunity interest Roger, expand wouldn't debit just an Hey, in debit that

Roger Hochschild

series work a a technologies, assets card through can of Yes. a unique and other merchants and of closely with numbers proxy connectivity number provide to we whether network Great Fintechs have that. around question, of set or Betsy. Certainly

So many they relationship the ago we a now, Actually that Marqeta of in and Sezzle. was but of what our that core discussions others years the are some are in market that's of with were the or of either do with with. beginning lot

on assets So we look signature one debit with the and advantage I the to that we an think pulse have monetize. combined or our network

Betsy Graseck

that's right? about what between the trajectory? you in acquisition, of your managing expected understand been technology Because lower then account expected, and efficient marketing next about more of heard call growth a if and as targeting at than you've credit Can of the or something, don't earlier at Part normalization. thinking loan is know thinking coming least help is and us more you're dance And getting than get more spend the years couple how you I we we're Okay. that at over I account coming lower it's acquisition. what, efficient to consensus or or function than cloud doing account in

very a one got the on in that So hand, direction. positive you've running

the we've talked but a that You headwind about the same monetizing a being payment bit got rates normalizing. to credit at little of time,

you So personal the or that? should likely levers marketing as to to loan some to how it side from is growth, generate more on loan about come we is loan how credits side, for managing you're an normalizing, pull there the more think opportunity student or

John Greene

take I'll one. this Betsy,

lot to that So there's a question.

terms in closed as give Let out what view me we're third just seeing we quarter. the a of

will expect relationship a certainly As growth. rate September My drive that to the and there payment sense sales August That I between is is the down to and loan help that is continue. we payment rate from activity. today stepping mentioned,

has persistently activity high industry. I the the sales rate, think, across So payment driven

incremental partly you terms acquisition would disproportionately say benefited, the sales, we Now, to point in due mentioned. I driving of slightly

And 'XX. there's normalizing. continue sense is third So my 'XX dynamics, will credit but is credit that X through into normalization dynamic

positive on So credit. today I'm I said where

we in of factors the bit we're addition think But mentioned little account pretty today. the those loan terms growth, that So view. not 'XX come full and later all aggregate point to targeting, give I for our in in positive specific front a position the positive on January us in when you well

Betsy Graseck

or could you on the mentioned that being are then And You Okay. acquisition account process-oriented you driving improvements talking what touch efficient? about specifically there? what's more

Roger Hochschild

A lot again. Roger enhancements that we're seeing leveraging are advanced the it's analytics. of Betsy, So the

really we're we that's helping from continue as also swap with focus with upside the beginning investments so area. And as already the better on on of And that combined but underwriting we serving plenty both think those side making Marchex targeting stock. as to there's in as swap well are to in end well, outs

Betsy Graseck

All right. you. it. Thank Got

Operator

And Research. we'll from take our Please question Bill Carcache with next Wolfe go ahead.

Bill Carcache

Roger and morning, John. you. Thank Good

John Greene

Good morning.

Bill Carcache

earlier, I modest could payment on follow to in incremental just that -- get conviction growth in -- support loan you either growth. to that XXXX, were And levels mid-single-digit robust normalized, rates on double-digit be rate to see XXXX we payment your expectation? a of the spending Do wanted think to get growth Is loan you if point, you in back year. by we more from John, just to this could normalization maybe enough next XXXX? clarify, the wanted you did say to up end did tailwind think reasonable

John Greene

we're looking rate rate expect to the is that XXXX we that happens, horizon normalize. normalized to when And return levels. at for savings So to payment

view rate. we So to rate. watch should That's, metrics is the savings at. payment of And that the one help one frankly, look inform continuing

it informed for account way providing a did it been detail modeled, in track hold all see It prepared the has has going we're mentioned January. important what factors talked -- payment on to growth this But by explicit had 'XX growth we that we loan in In been just and with because more shared growth. Let bill the more about me but the will in anticipated. expanding than delivering robust I XXXX, off for we're here new -- Sales has important rate, growth. as remarks, be details. those put January headwind, completely not activity been higher terms We 'XX. in still mildly The on originations of for loan until for

Bill Carcache

can't concerned to on customers that I for I one their debit If follow about into the credit can group turn largely separate up term and is risk. other that do this a players partners, about are the lending into longer that the CEO know it's competitive pricing point. just by on speak installment qualify that risks they'll threat thinks BNPL side group there's BNPL is then who Thanks. the posed more of using margins and over certain eat cards. Can what's we for thinking you're BNPL And competitive there's more we've question that us heard guess a that And and little happening which a you study you've your the different time time. frame about with that And of to how threat? Understood. the cards bit now had credit BNPL Sezzle, to one players.

John Greene

market Sure. versus on buy-now pay-later, more dollar established. to not out within sales the and study be in a I'll spreading more finance, of cosmetics. challenge had and while market-clearing there I worth start have of time Part the terms I'd segments traditional the with payments yet to done think way, mature people we many say the it, from economics years yet them for is are multi-thousand $XX financing purchase, by they've which is of

certainly the of to access credit. are end continue significant many or So I evolve. see to think do debit are all different there those characteristics, lower not have But have customers segments either preferring amounts it who you'll at

pay, who they pressure take unwilling You're starting see to merchants rates card. pay some in what from above are to

Roger Hochschild

loans our now, if respond it unique not our leveraging leveraging again, earlier, now, and I network. we as for we're issuer, see we believe partially seeing are revolving does us may opportunity talked side certainly any think right would we I say on and on our model right Over noticeable impact the an time, opportunity assets. So emerge. to well-positioned be on there about proprietary payment as But that

Bill Carcache

John, and you Roger questions. I taking Thanks, appreciate my

Roger Hochschild

Bill. Thanks,

Operator

We'll Sanjay take from KBW. Sakhrani with next question go our ahead. Please

Sanjay Sakhrani

that up on competition. to the you think going like Good landscape going when some just to morning. 's customers. time going of at about last of given you transactor-oriented, about do Ryan a same? think I'm think Thanks. little Roger, on on was competitively. people you up a it's go-forward it's you're or a questions you think crisis look Do I to if the post-financial lot guess, transactor I the basis, period, follow how as unfolded competition be want that this be what time you curious setting up different competitive

Roger Hochschild

varied. the am revolvers lucky multiple to has across and Everything transactors. from board over an be to enough intense I Sanjay, on focus prime of to able back cycles competition it look

certainly underwriting. Express of the focused revolver lot transactors because segments and of most banks from been but A focus are value in challenging in other on in America Not The those customers. think spend much what has I stay that terms will requires so on profitable a of very model. card, based they prime space business. proposition historically the it

For rich really rolling out transactors it's about our rewards program.

space. us most So see we in that expect Prime revolver impacts will be what the to competition across but the spectrum,

Sanjay Sakhrani

what see pretty don't consistent? to really of any intensifying anticipated, that you relative you And commits

Roger Hochschild

it's sort normalized getting would low since would say of Yeah, but during I levels. is say, significantly more back to now the intensified I pandemic, the

Sanjay Sakhrani

on year's here broadly just to follow-up quarter, NIM, Got about next as history. talking today pretty just it. And high speaking, not until but know sit we one then, NIM. your John, we're levels guidance with relative next just I

how As the tailwind because you do should this growth we the Thanks. a be curious forward. that or going counteracting the comes, of about just I'm rates start think envision the some progression BT to for increased? does NIM that

John Greene

Thanks, Sanjay.

secured term What funding NIM side offerings. deposits it XX%, of from higher unsecured and is tried costs you frankly, back and do shore look of sheets subjected up XX%, If combination go the then from targeting debt. liability and that was based rest and we've to to, see you'll the historically, unsecured balance security at the

of that create cost. funding the So will in terms stability

In terms of related impacts some is NIM. revenue we'll and the Peaky minuses line. What to say pluses to

But of normalization. a just NIM. of You'll see impact sustained bit you funding in it from also will credit see that normalize, does credit, if terms I talked about.

balance we're year end So sheet too position that has we're say economic of 'XX stability how would be what to I overall, ended how created we've experienced investors. higher funding the we historically. And to to compare the in NIM than 'XX. at the see position impacts -- going a and more benefit But looking terms and

Sanjay Sakhrani

you. Thank Understood.

Operator

take will America, with Mihir the Bank question of Bhatia next We from ahead. please go

Mihir Bhatia

about in quarterly you Good are a We're fourth-quarters? - the may I talked thinking to morning, give talk just you given XXXX full-year a XXX just but levels, marketing about top just basis basis? I just first big versus that quarter. a guidance or quarters want talking a clarify -- basis Maybe ish have be understand fourth to looking you pretty could you don't to But X a marketing understand exact for fourth on taking so expense quarterly on be you on if bit year, of relative quarter, million. would a you and maybe for thank that. Thank the the want the the stock you yet. numbers, basis. expense you. little know question. increase want we the you make quarterly clarify I should my for not on backup Jon the to at when you sure XXXX

John Greene

a XXXX, we talking referenced basis. So thanks. full When year we're

came Fourth increase quarter do We to third in folks anticipated. the on will XXX. we expect would quarter and little the bit So quarter. in then we third lower of that math than a the force it quarter, from fourth

the it, be to, remove somewhere frankly, this, ambiguity [Indiscernible] to, some so XXX. XXX in of it on range So call will

Mihir Bhatia

you. Thank

John Greene

of level to it that but away. give I the just to specificity, hesitate confusion, put given I wanted

Mihir Bhatia

and taking just we credit a And on the that. consumer side just performance. back longer-term step Maybe appreciate Sure. credit

assumption the economics? I credit just what think about guess understand the are portfolio about think through normalized new I talk accounts, you kind your is to I'm really for cycle rate rate what is making? trying card loss as what underwrite can you you loss of longer-term

John Greene

Yeah.

So we -- the do but would a that's we through confirm do use current loss use losses, we so through not and cycle something not the rate cycle disclose.

Mihir Bhatia

you. Thank Okay.

John Greene

Thanks.

Operator

next ahead. Citan with take we'll from Aaron Avec And (ph) Citi. our Please go question

Unidentified Analyst

in the in of it relative did by your accelerated terms of cardholders Is quarter through consistent or the Thanks. there? falling to or any spending The that pace show of signs bit little a XQ cadence, rising XXXX.

John Greene

we And a driven October. talked see on that thing But was even a particular, pandemic. was continuing to in sales I think bit into of by with about lot in we the robust downs and very ups seen going soft a around We've travel what that August. volume, continue occurred of

Unidentified Analyst

relative loan comments there, personal And uncompetitive models thanks. seeing is personal pressures loan we're to market that different forward, entrants the the Is the the the book competitive more to would past years. something that Okay, was? existing where as just of couple to from pricing types mainly this in you marking pressure in on is new where of expect or lot a of of then that coming down a continue of going market

Roger Hochschild

the to easiest requirements. A lot into servicing the from new outside fund easiest have of coming Personal is entrants. probably loans are bank of it a and

of go lot a where entrants with the that's so And will new new models.

through when will disciplined its flush the of are will the other we as that on well to or see A either returns have pricing. to lot challenges. that they but below go We get both way they performance times not want we credit, targeted as don't And want hit.

last growth to are but that You not over long. tends sometimes returns, do too for get you prioritizing

Operator

take with go Will Please next from Mark DeVries Barclays. questions ahead.

Mark De Vries

Yes. Thanks.

had your on student what when in space in some Just lending quarter. seeing you're headwinds the competitors the about question noted has a

Just how up? that shaping is

John Greene

We believe peak were feel And share. that pretty seven volumes year-over-year. gained we about we roughly good up season percent

still of Although sort we're processing.

a of major saw very We it's prime our to competitor product it get we a last back clearly, front cardholders. good about and underwrite great that in generation very in disciplined So the but year, we're into market. of next one a step way excited brand way really

Mark De Vries

And then follow-up on it. a Got just question polls. Okay.

pretty -- at Roger, a than Some faster benefits there scale to is start that which volumes meaningful some meaningful as get some there. volumes? and becomes point know, had more grows you contribution you've the strong you and earnings and the from

Roger Hochschild

comes We would of percent of the earnings out segment. increase to payments our the love that

think increase also I earnings one the we banking from working of are segment. challenges hard pretty our to

with PIN-debit while either. competitive. excited it's for Pulse, seen from out, merchant day from expanding there It's of about routing growth still -- we're in, we've day to a at standing traditional we're Visa card-not-present. battling also the We're very level lot MasterCard So not

very But And focused business. particularly we're on that been so that's growing helpful.

Mark De Vries

Thank you. Got Okay. it.

Operator

from our next question with Please ahead. Credit Orenbuch And go we'll take Suisse. Moshe

Moshe Orenbuch

to there, a of that is about are the you consumer back card, Is is seeing? come way there differences what's to nature just any consumer? in you're different are using talk new to the the either Maybe acquisition. there type Thanks. Great. there account particularly channels any in that of or Is the

Roger Hochschild

channels. pandemic. a to but Moshe. we've smaller the migration that's think Not many seen since they piece, been Clearly trend mail I to don't prior becomes for digital smaller continued years dramatic Direct really, now. and a anything

fine-tuning we've seen we I the ability greater continually the of a measure top channels. to of is final digital are spend. results guess So what

that when do more online, TV and can that's better with a attribution. to you As even moves it tracking from shifts job spend video, digital,

we of so spend, areas we our how one advanced the of analytics. leveraging are repositioning some that's And and we're

Moshe Orenbuch

you. thank you, Got

of As you this. mentioned, transfer balanced using part as

talked whether all and kind about, X of seen at yields you've with terms balances. You some retention what that at are of those above any can you they in anything share little in on bit a are of us there of terms or update X are

Roger Hochschild

of back debt Sure. credit on transferred trend, around. increases, during a there a Clearly, focused were in of lot on demand, it moving pandemic. consumers issuers Probably collapse one I line much balanced paying the pulling there but real the were think more down bigger was versus

loans come demand and So back. starting that's you in to transfers, softening a balance personal saw for

the lot tends or a us, percent. a offers zero John have yield. either that's For percent transfer of very are environment, And this a good we modeled those, return a And be pretty high as acquisition offers our effective as The very fee to from as provides sticking. above itself, pointed most funding that zero portfolio at see we something a of carefully. balanced out, well for given

Moshe Orenbuch

Great. much. Thanks so

Operator

our with Gabriele Oppenheimer, ahead. And take go we'll please from next question Dominick

Dominick Gabriele

think comments to the a from your getting economic together? assumptions around you for third Thank taking but positive worse guess slightly two 'XX third just quarter you quarter the I -- for outlook incrementally quarter, outlook, pieces then economic we into trends, from questions. becoming the square being so can the credit just about the around those early if second my much Great.

Roger Hochschild

in to, event. to had GDP of When quarter, second modeled economists we the the normalized updated down, levels we higher when returning And frankly, the saw level GDP levels Happy employment Dominick. normalized a come pushed growth to sooner. those, Yeah. and employment returning

So a at that about view multiple that we're thinking of of We most look was detail because it's reserves. take the frankly can one to people the that get how provide transparent a inputs.

the in important that here quarter items in third been and Now, it's of other performance terms are super was, our thinking the portfolio first, strong.

COVID. work Second, the government's related of programs was the to of ending many

ran day were of we most expect need magnet happen and of the that begin that of sure portfolio. is X. third and to we and do that to impacts next was balance see So we do models, we continue ended the the in reserves impact got September. quarter are seasoning multiple lot -- August macros multiple that of be things where will future And comfortable the like out see the to with look stated. the step points where what of us enough If into is macros even the broad But we reference sheet into the make very and mild year. were seasoning perhaps to favorable. lead broad on But very, scenarios, on ended back the the would up of to quarter fairly fourth quarter, to first through What we the the we'd some positive. those to a those in There's

a So XXXX. we'll the in fourth see call how they in and make sustain and

Dominick Gabriele

across how Are you any rates. could the customer awesome? products the you're than just normalize know -- one so which you for on have, normalization space certain thanks or color Thank there as base the And levels I -- would given that expect products your even normalize. you don't other, all if that. NCO maybe let's XXXX seeing much. to trajectory either faster versus of be along you Great, in product of would consumer products you what products can to other provide for Perhaps think in hierarchy about the well as

John Greene

in a That's that to be difficult Yeah. do economic subject to environment. will thing it the

there so coverage historically there. seem output it financial they period if high. least our additional to the portfolios So the be of student priority Credit to of cards loans, the that tougher payment. gyrate as much we situation, contracts, the in a co-sign the is given long much duration those with don't The ones get be terms tend loans know personal that of of economic will provides place that of

shop economic these to the the in has prioritized So happened environment. really to the personal environment, cash payment you the in terms sense because card, card the my get then subject of it's been difficult of hierarchy card loans days. has And terms in digital what to a without is of

look I So for stability there.

Dominick Gabriele

appreciate Great. much. I Thanks it. so

Operator

please Seaport And our from with will final Bill Ryan question go Research, come ahead.

Bill Ryan

file place X/X of your historically Credit the is coming existing the out-of-market of card Discover roughly file. from A about talked morning. remember business. since the personal marketplace book business the XXXX. questions. out existing you I of in I third But your of but Lot believe been new couple the good you've today, and other it. loans on entrants One from you other or Thank in the

view the we kind up employee as into higher And from Or you new A stepping As something making bonus underwriting verification, the retention year? Thanks. is transitory little compensation if wondering to far next bonuses are was into you little could accruals. about you're should a bit lot to going relative seeing but to payment above. as to entrants, are take you're income, a back talk might a of onetime? expense approach Is transfer yield of companies efforts. all second, talked the bit this and granular the about, bit going do compromises it, on just it, what little this I willing credit, they more

Roger Hochschild

with I'll accrual. bonus the start

to changes any made bonus haven't We program. our

are performance So to in versus -- reflects for year that changes then stronger how this at financial there are translates. extent your cool, last bonus year and the

them. have many We've processes. of companies, cycles. these and over or came tend into personal labor-intensive of of multiple say them of I to there manual and terms fewer loans get they In sight In are the hard line seen is to practices general, go would space, it very

might again, thing ticket would I'd we much verification be the is The return appropriate a employment I say, if we than be to average if And may extent vast different one profiles. surprised majority So their spectrum They they of lend did do. it the do. lower. have broader

different is to models. hard we new entrants many generalize focus again, prime that segment, consolidation. it may But across debt the have so on the And primarily different

Bill Ryan

you. Thank

Eric Wasserstrom

all please you Thanks all again, reach questions, team. to thank for Well, be joining day Excellent. you have address if them. have a and day. great the around further out to IR us, We'll and any

Operator

conclude program. does you and this Thank Okay, for participation. your today's

at disconnect anytime. may You

Discover Financial Services (DFS) 21 Oct 212021 Q3 Earnings call transcript