DFS - Earnings call transcript Q4 2021 | Discover Financial Services

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Operator

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

Eric Wasserstrom

which Britney, you, morning's Slide earnings Relations the begin this morning, our of call. on find Investor [presentation, Financials our section of investorrelations.discover.com. Thank X good I'll and everyone. website, can] in you Welcome to

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

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

one question, by your During question. After return follow-up please question, followed you the to Q&A session, follow-up one the will to queue. be ask permitted

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

Roger Hochschild

against and Thanks, XXXX. take our the results our another call. reviewing joining for by our fourth year, Eric, John begin of the year key was thanks I'll on details perspectives of to for and team and through the then and today's highlights XXXX able quarter listeners challenges the metrics an you year. fourth our to will were again, capstone pleased to which a the Discover operating priorities business unique to that outstanding was related successfully once very I'm evident in in pandemic, the execute fluid our This was environment. quarter results

to invest strength capabilities enhancements billion future differentiated and share. tax we meaningful and per earned of our the or quarter, fourth after the for $X.X to and we achieved or as model results per the growth. billion after underscore our These continue were for For make tax $X.XX full year, $X.X share; $XX.XX

including make a few areas data to our our collections to analytics advancements examples year. and Let continue capabilities detection. me platform, from in enhancing targeting, fraud XXXX, and past we Throughout this share

customer improve insights continue modernize provide learning out personalization. our faster to and build made infrastructure platform. to also to investments in cloud machine and And We better we hybrid our

a African-American operational, center opened center X,XXX Chicago customer jobs. vibrant also care fully nearly will Once full-time South provide Chatham, in a the new on We community side.

network as our to us make volume acceptance, to expand will and remain reach. face cross-border over building committed half alliances and has service Our notions with expanded and at candidates travel Chatham our proposition been into of very partnerships. We rewards, for We Bahrain, international XXXX. new approach economic transforming inclusion important announced loan we pool of to our an how connect springboard site performing talented acquisition to our opportunity. a The in and commitment competition, selection, Portugal, areas Center and another will in the We diversity, contributed growth remain continue further diverse us we'll have long hold serve equity presentation of Slide the acceptance network that return and our In captures level. In suppliers, card a intensifying element and of that results, as to continue of industry-leading and in attractive strategic increase of payments, value expand economic Malaysia year. other investments cashback was no benefit took strong denied our acquisition already helped Chatham the annual consumers. to Jordan corporate as which of global level it last recovers. traditional late is challenges industry-leading early second business, hope fee our XXXX of our our we recovery development the pivot establish out is new account to X and to new

put to generated earnings the through significant to capital, which continue record we good year Our use.

brands, quarterly acquisition, $X.X technology by increasing in shareholders our to returned addition of and XX%. by through billion buybacks we and repurchasing stock capital investments also dividend dividends common people, In to and significant our

As we into look about the our forward XXXX, optimistic trajectory business. of I'm very

in tailwinds I'm key confident for to and will to more past to will drive banking conditions aspects strengthen integrated financial start that position, year, long-term acted this actions created digital this of John model beyond. on I'll our that and our the value year ask discuss create business, opportunities in we customers. our shareholders While long-term and year strong and an continue new now excellent macroeconomic quarterly We payments our results detail. value

John Greene

morning, everyone. Thank you, good and Roger,

took Roger's Slide I X. point review echo we our position beyond. financial and quarter I'll we begin us performance in our on actions that year XXXX the fourth last summary As results, with strong for

strong prior year. fourth Revenue, by and of leverage investments characterized receivable and marketing provision results the increased accelerating growth, in net expense, Our were increased quarter X% interest brand. from

X% million by driven on $XXX XX investments, an was XX.XX%. and average loss interest which a improvement at our flat Net unrealized X%. in revenue basis in Excluding growth net our margin, was equity total point sequentially increased interest receivables income up

up account of from and the the strong partially reflects sequentially. which lower which quarter growth drivers receivables year-over-year card, sales was a by new promotional by fourth continued charge-offs, rate though X% year-over-year XXXX, cost in XX% trend volume benefit decreased up offset X% The mix higher balances. and significant NIM in largely funding growth growth were was interest The year-over-year throughout Our versus of XX% XXXX. was these primary and continued driven were and

sustained payment but quarter has currently expect of accounts by a year, from leveled points As pre-pandemic above rate. rate We remains levels. payment the benefits slightly over the will course the of the and of portion offset The rate new last off most for sales payment the basis approximately XXX during the XXXX. that decline been significant high case was strong

receivable our card moments. robust, growth detail However, a I'll few as is in expectations for

year, benefiting over from to prior growth. Our the portfolio the were student in learning loan our in-person also loans up return student to contributed XXXX. Organic X%

product returned our share decreased underwriting and We loans continued sequentially organic high continue pre-pandemic to positioned we as payment for were Personal expansion. but year-over-year, well criteria this are to rates, flat levels. X% by driven mainly gain in

The revenue, XX%, drivers, revenue a half the having item first reflected and has year-over-year. key our our by point that discount rewards or of significant revenue increase volume our into driven One covered X. increased rate attention cost, year. growth to on January. sales Sales net was The second of XX% strong significant this to is our net the revenue discount/interchange which up through relates reward continued your and interchange I'll most volume higher of in $XXX driver XX% are million Slide

to with cashback our program. card engagement strong We member rewards benefit from continue

costs on increased rewards last volume. Our sales versus higher year

However, integrated points points the in year-over-year and and the reflects reward partners. of program our and rate X the basis merchant managing while declined discipline members substantial our benefit model This value delivering card X basis to sequentially.

XXXX, basis For the points shifts X rewards X the rate X.XX%, was of points we cost points the up expect year. our year inflation, prior to about with Consistent full mix. basis in rewards driven by basis annual X from historical trend, mostly

Slide to million expense like expenses trends on X% increased X. or spend operating I'd Total a year-over-year. speaking $XX moment about Now,

growth as live most items which here, the up of with new we the and launch our account marketing significant brand in million new went on continue range. $XXX the marketing was media driven end to top invest quarter. Focusing expense million compensation in channels $X of pushed the guided was towards marketing million year. by a charge our expense all Employee previously $XX This last mainly our across down year-over-year, campaign,

of processing largely Information a down was Excluding year-over-year, year-over-year X% higher recovery higher million bonus this, accrual. fees a driven our result comp by expense and fees. professional was as up $XX increased

on X from rate X.XX% across charge-off all prior Moving million charge-offs basis XX XXX basis down from of slightly point the personal decreased at year-over-year improvement XX, charge-offs prior improved the prior Card loan loans remained basis from products. credit Student XXX quarter. were X.X%. performance to quarter, points points but sequentially. very net Net a XXX lower. credit the and decrease increased Slide were net low year Strong charge-off a in and points year and basis the dollars XXX were down to million the continued

Moving contributed X.X%. decline, points continued losses the in rate. reserve credit rate our basis to reserve factors decrease XX to XX, for the to on allowance to Two Slide dropping

during released by loans from driven These were outlook. we X% continued our of $XX offset factors portfolio performance in from credit the quarter, the and the strong macroeconomic by the total First, million stability of the reserves quarter. partially relative the prior increase

any reserves by will future changes to trends, receivable portfolio dictated assumptions. and growth macroeconomic our credit Our our our be

Looking at a with common above extremely XX, Tier of Slide well our and ratio XX.X% capitalized XX.X%. equity target X we remain

the plan $XXX quarter on and $X.XX returning demonstrate continue to million per capital common of paid stock of in our share to dividend shareholders our a We back share. bought repurchase of as we and executed commitment

X% funding. sequential a decreased sequentially. at and representing slightly. year and deposits Looking decline with deposits funding, of in money excess while CDs, X% and decrease year-over-year liquidity consumer our savings consumer We declined consumer down increased X% market was deposits XXXX throughout managed finished by the average driven This XX% total

continue of funding XX% We the target from to will to starts. XX%

in Moving to strong our Slide XX position, on a XXXX. outlook this. some and entered the reflects very We perspectives where year we'll provide

very single payment contribution rate. We trends believe is expectations modest acquired payment substantially rates accounts, derisked growth from current This view the We high of the expect in digits. growth recently in on loan view a and with sales of loan forecast. this the based decline our combined

with of expect with We be relatively our in quarter-to-quarter full rate XXXX year the and NIM to variability. line

higher dynamics. promotional benefit degree which rate offset This normalization to and competitive expect from rising credit a to interest subject yields balances, including be be and may rates, of with deposit higher higher loan mix some rates. needs funding will by factors, of other We

total control. disciplined that growth increase at opportunities marketing XXXX this above of We'll at investments GAAP and operating to expect we levels. currently a percent Outside we level, we will to our invest continue marketing, reflecting as mid-single-digit increase expect Turning rate to year. be for single-digit will our expenses, expense costs expect see low expenses a profitable

commitment priority. leverage term remains medium positive over the Our operating a to

X.X% credit for the the We expect year. range net full losses average in of X.X% will to

As levels year. expect we credit low to of the historically net increase XXXX, charge-offs the in over course normalizes sequentially from

we Lastly, returning capital buybacks. and remain through substantial to committed share dividends shareholders to

share March $XXX share a expires account to of authorization by and driven our robust exceptionally rate, acquisition full of operating and cost announce return with Discover's In a reserve week, volumes, excellent authorization on at credit against business capital year summary, remaining this and new priorities had we sustained I'm of sales fourth excellent in excess approximately growth strong to quarter shareholders. performance million repurchase we quarter. reduction of execution with expect in repurchase As the pleased our an had next end and and the accelerating loan management XXXX. disciplined that

resulting growth, growth for significant invested prudently We sales. consumers. new strong with resonate account in to continues proposition value Our and

continue our turn With These to call and line our manage improved optimize mix deposit actively that, macroeconomic outlook core have operator, the us Q&A. back funding to I'll We costs. the and actions to for Britney, open the well. positioned

Operator

Suisse. We'll Orenbuch take Instructions]. from [Operator first Moshe with our question Credit

Moshe Orenbuch

account there? or just of to get where been you of difference Thanks credit Maybe here. on how was pretty you've talk focus in done cost? like from in you compares numbers just on raw XX%. would And and numbers have to kind anything about congratulations pre-pandemic terms Could the box strong the channel it accounts in up a that growth, of

Roger Hochschild

our the much as they saw of that on pulled gone Yes, where our I and what in we marketing the where is would kept since low number we credit, don't a terms be accounts. was pre-pandemic. cost card pretty expectation we of account disclose look others Costs that of would I But have up as say, of pandemic the say will levels forward we pre-pandemic. policies credit back. But top were XXXX, into sort of new are roughly it during per the lot

Moshe Orenbuch

revenue materialize? adjustments And if revenue rate. a to pleased rate put unlikely, make an would you there very to there? would the to follow-up, upper you Could hear the commitment operating and just your even just about how growth suggest didn't expense that single-digit expense out mid-single-digit and numbers of you would leverage as Like growth growth expectations happen it's if talk a what kind

John Greene

Hey, Yes. take Moshe, I'll that one.

performance company and see So the in marketplace. based the we'll we on that opportunities react

sure really marching past a calls, and that I the terms has in team positioned really, terms over make for towards continue we making that in the of allocations. We'll to job expense the So, done of couple feel about. operating like of we're do to that leverage good positive talked years, growth

Operator

We with question take Mark will next our DeVries Barclays. from

Mark DeVries

I now? of guidance color low gets about a Could end end? the high credit I around mean, charge-offs pretty in you what kind meaningful seeing in of for little And what normalization what more the gets you you give you're XXXX. calls think us right range and to guidance to the some that

John Greene

thanks Great. Mark, for the questions.

seeing So the performance. really, really in what is strong we're portfolio

in I the demonstrate the think numbers quarter that.

some seeing between difference expectations. performance higher account FICO within are overall and We lower FICO

what how portfolio. line credit, what had get accounts and ability of happened months, we're first of frankly, are rely themselves a months, was just of projecting we and a through built with normalization year the the models actually So good we here on will go our in a on X of here, more -- quite the that as was the we us accurately. is rates beyond call normal roll slow our pretty X we guidance we've gives in models models 'XX Once to the got designed out reflected tough assumptions. sight an based number the predict to and heavily to terms and

to out versus strong saw what higher able lower difference standpoint, positive slight the end, my lower kind end. And terms to performance, a environment is So towards give, tighten. portfolio to higher that roll we FICOs, bring end we'll of in lower And should the relatively time that decided we and continuing think us broad a the be between over we the do macro we from expect. FICO of that as range

Mark DeVries

on Just a that. follow-up

kind mean of element model push are reversion that than all the they're even like if you macro normal the low estimates your a to there use, higher a this will On relative that just kind drivers of of charge-offs some headwind? seem when is of tailwind more

John Greene

is revision there the mean Yes. piece second at There think thought other And I'll the information, say, breakout, the of, of least part -- about half can second just of in the of about we you is year. charge-offs, the level how so this in piece in a predominant of it, one the year.

that you can XX-XX split And second we'll between the think half. year. over update to So half first and continue

Operator

will We John question with take Hecht our Jefferies. next from

John Hecht

any given year, we -- as about expect and less hike thinking your guiding are rates? the in should XX% or different the and capital with just guys be policies rate zero flat this for should NIM. in into NIM I wondering input went changes, of than different Just in mix just the respect -- of go call I'm rate XXXX any to deposits raises cycle, to Understanding will beyond fluctuations think that about is this in there you're even year that to guess, shift kind betas transfers cycle we relatively but there NIM thinking a you that we're the the cause this there last range, Fed is in that the and up and in went cost we balance or little that differences your a it, was Fed cycle terms the funds any of XXXX, changes that. as quarter-to-quarter up your government card went yields of about or deposits prime a --

John Greene

Yes, there. it's actually a question pretty complex

try of So to elements, give terms we about the rather NIM view each for I'll how you than in a XXXX. thought of hit

So we normalization. impact from to do some NIM credit expect

and you in on basis there's in some do interest for We in -- going 'XX starts actions terms see that, and to impacted. between rate create NIM interest 'XX. Fed also we X funding, rate revolve could of X, And And from that stack margin debt to changes, which BT then per benefit certainly, also timing. somewhere on our expecting impact funds higher expect balances, the we'll optimize there. funding year of rate but will X we there, change get margin. total some as impact net still a some be the from We benefits upside. the plan fees and promotional bps also If a Fed The normalize, are bps we see to mix will X payment net nice year. will more, depending we're on did

gets but to a about of pieces. standpoint, lot So us from it flat, moving that there's

wide In and priced still pricing, a terms priced. where banks deposit between are gap of there's brick-and-mortar we're the

to basis close somewhere So XX points.

digital on to appropriate points XX the X most about take pricing, throughout dynamics a the do the such deposit point, make basis year. that. be changes will that over we'll At Now funding banks, lagger and and our X a We're increased past have look weeks. we'll some competitive and needs that

and order a price the in So we're up betas, to on how deposits around about the dynamics deposit get I would think specifics cycle. going to that, rather needs view funding on competitive

John Hecht

of follow-up were at entered levels as you you're in a the on years? is, kind unrelated forecast? economic any Are to Or now era. this point we new CECL ex of further we the the your bleeds of couple tied ALL post implementation you is question, during guess, where pandemic increases are last I zone for say is for allowance A where kind of room base and there changes allowance that

John Greene

Yes.

through every go single under pretty GAAP. robust make we fairly stated to process reserves sure quarter that a are So our

the were we X.XX%. did Xs, ended low I -- rate was up of, and X, charge-offs Now in posting think when we it CECL reserve we day we had seeing

at around reserve some outlook, is rate that macroeconomic we where as day X.X, my credit that performance are to X. a where we closer So to there at is look sense assuming today, opportunity it's and positive take strong

Operator

Shane our will with question Rick next take from We JPMorgan.

Richard Shane

by differing being And sort I'm what with like seeing rate. the categories we're payment done specifically all is wondering I'm rule terms impacts in by transaction revolve of actually analysis of behavior BNPL. episodic rates have guys curious if everyday What curious you other large that any factors spending if is, impacted spend payment XX-XX spend. if some versus I'm there's versus on

John Greene

payment Yes. wouldn't XX-XX an rule I say there's rate. on

in So curve didn't right. as quite XXXX, the it, call at honestly, we we looked

we 'XX so very modest decrease in derisked growth. in rate. payment the assumed our loan like did what a that We And felt guidance is

payment of transactors, we be that tended accounts kind X new revolvers been In to is portfolio the terms in behaviors FICOs. XXXX originated consistent. our rate's of that and between relatively higher in The difference

payment see versus what more up of rates. used tend we'll the in transact economy those does ends getting But and overall the revolve. liquidity to So to as that

ways. There's terms thumb. we've different month-to-month we're quarter-to-quarter. rule it So multiple dynamic frankly what seeing of no and modeled somewhat in really It's of standard

Roger Hochschild

And we customer segment. just carefully to by now, view a that pay nothing build on pretty impact merchant, buy support that, on rate. payment by to look having later any is There's

Operator

our question will KBW. And Sanjay take Sakhrani with we from next

Sanjay Sakhrani

First question, more backdrop? Obviously, on should pretty I we marketing, to are and the large just guys we've growth that earnings guess, risks in about of the bank How about sort for talking the of backdrop. Roger, banks lot think gotten target investing have and given the competitive some you targets. aggressive a competitive

Roger Hochschild

question, Sanjay. Good

As to flat was before earlier, next per I relatively pandemic. cost our the is where mentioned account, forecast year for it

of so sort on this overblown. bit The is competitive. is a little focus just think competition And I always business card

Each be channels. I money to how products, has can limits much big of effectively. put their set there And of have think some You capabilities. with they natural out players work issuer good set on

in product, So seeing have analytics. on a the I good growth our to particularly acquisition we differentiated it And XXXX as don't benefits we're side, investments high see from our very forecast. a risk

the even feel in environment. we current good So

Sanjay Sakhrani

excluding year, we -- growth guess about I of you investment the just expect income quite this forward? going over noninterest done of talk kind line course the in one has should revenue have what I John. Could well obviously, for line excluding even gains. And that The

John Greene

Yes.

interchange and which there the cost and revenue, in was year-over-year driver XX% XX% So discount then was rewards after the quarter. obviously up big

strong growth we're it with double-digits also fourth account come the the will but has people's or strong super mid there, sales, I not, sales So there's stay with benefit by kind like card that's of then of down seems and where weaker the consistent that double-digits into in and lot kind of know our expecting a wallets. not which generally run and acquisition to to if quarter. new right been positioned been XXs, don’t from

So less factor that that's also charging are using and been cash positive. more. people the There's

continue So to that'll net interchange. and discount interchange benefit sales, and

amount cash have and outside helped And of terms the other is interchange the fairly we'll the cash In positive. growth of which discount actually advance expectation net interest in of our growth, economy that income. items, similar fees to was

Operator

with take Morgan And our Stanley. we'll next question Betsy Graseck from

Your line open. is

Betsy Graseck

question, your available, because, understand thinking pre-COVID. a customer One, bit of borrowing maybe asking set just And the wages jobs capacity, I'm borrower to are theoretical a little capacity about relative it's how to question trying more rising. you of I am the but

have got that like increasing. they might to seems So we've but more borrow, capacity then inflation

things? think through those So how do you

Roger Hochschild

spend. And having decreases from not opportunities expenses, it's households, to day-to-day households It will, incomes strong by they will a complicated on. rising savings a increases greater service. other bit in other debt income costs But vary service. the for for much determine by of course, going how and will they drive debt X hand, ability And whether take are have care up, that's segment. It's some that But debt on seeing households or pent-up still many certainly, how on for hand, sales. disposable course, many of child earnings

year. credit So we, a strong consumer expect mix of demand we'd next factors, net-net, but for

Betsy Graseck

thinking how impacting Okay. And student loan then the platform and you've talk legs those of guide could got? growth XXXX drivers loan you personal, other about the see as the through that growth here, I'm you

Roger Hochschild

Sure.

bit good where our the an to, So in outside. were the to a decide we because I fewer the pursue market to What's just share. much feel wildcard I education is loans, our take enrollment. products, down of about too ability student job surprise a And think industry. brand, the making entire correlation, a There's higher bit our stronger market, think, the really education they're year-over-year, enrollments positioned a which was people we're

confident continue and But I'm So in we'll share. to will be ability I gaining more it see our peak that season. factor, think

product, little now given longer to loans, quarter-over-quarter, pre-pandemic for flat. to just said, volatility. But we as For that return criteria we're higher took credit John the a personal

return we so And would XXXX. expect growth to in that to

Betsy Graseck

there's bit activity, there growth, or legging comes transfer there link but a I balance been beginning know personal 'XX of is yet that stage? back Is personal at a and before outlook? has this more balance the a that how's take-up between card. that And transfer -- a half of loan in

Roger Hochschild

So promotional John as an I on would about having a impact new that lot talked is accounts. by balances NIM. driven of say

new you'll as ramp as well. see So you up accounts, that, but also portfolio activity

Operator

We Piper will our from question take next Sandler. Barker Kevin with

Kevin Barker

you run growth projecting that you're it can 'XX, be late your do XXXX? Given like rate foreseeable out sub-XX% achieve maybe there, close ratio rates sometime to mean future, I in whether early feel you efficiency the

John Greene

We on leverage. specifically positive commented operating

So is improve. will get that term. as that, the expectation the high My XXs can ratio within deliver obviously, the efficiency medium we into we

built in new to investment through drive cost the we working efficiency the the So plan much to structure as elements and essentially in order other contemplating growth. create and significant of then capacity marketing

that As upon those build numbers XX certainly very achievable. to high continues model that expectation is are very, itself, my

Kevin Barker

you the of on follow-up bit correctly? just I around you comments give increase And a Did little charge-offs bit just believe of cadence year. color on detail your an a you expected charge-offs, the then throughout I little more a to bit typically, us then And seasonality. for expectations I your throughout sequentially Can your it hear level? a year? give And on that mean, us the credit. you exceptionally given have you could around cadence low we're some expect at of more quite said net

John Greene

Yes.

that So it difficult made. more deeply already the be will expand to I've comments upon

that degree do seasonality are is increase more we've driver I a decent the expect seeing. half to we're first be that charge-offs of There mentioned the like of what and of to don't pretty And to sight sequentially. view got So to first we line year, that material half. some it I the going also as

the split I now. as out on somewhere deep as XX that's second go probably half half, first around right is charge-off numbers can So XX

Operator

And we with Don will Wells Fargo. next question our take from Fandetti

Don Fandetti

curious pandemic, pretty Roger, interest, I if been as that out cetera, the strategic years. It's looking consistent come the you're new areas you for any of just et of products, was at. last several there's

Roger Hochschild

business. Yes. to payment new of with provide Sezzle merchants. always of for the the easier that of connectivity some ability Certainly, versatility side we're And our our of our to in with terms you there, opportunities on saw our looking capabilities, partnership

payment for the side, opportunities. the U.S. looking and both we're on in So globally,

On the card set really side, feel about good we we the product have.

XXX% We consumer. on are virtually focused

I huge opportunity products. to is think there grow our to non-card a continue

see And in that's marketing were we significant It to I products our when pandemic. would of so liquidity marketing a investing talked Clearly, we make behind about the a put excess before more lot to deposit position. But expect XXXX. in didn't in sense something deposits.

Don Fandetti

inch And international any changes on into of kind just is your acceptance growth? push? Or your way it sort of you

Roger Hochschild

to push continue out. We

in also is just acceptance more heard the of the favorite migration partnerships. a than although working cost-effective to internationally you digital. There's It acquirers, think expanding through well. our as way around call, U.S. big that on we I much individual do network-to-network the what in focus with

secure on XX other a commerce, implementations, transit week. partnership room to everything with again, we're now partnerships, actually but net-to-net feel remote working growing up continue to in there's that from networks So recently Serbia announced and this

Operator

will we take Gabriele Dominick next Oppenheimer. question And from our with

Dominick Gabriele

base which level you before. customers through more band think has ability or an I income of to direct relationship had marketing FICO a perhaps what issuer the those reach have spur And I customer between spend this that want you one follow And Do you and on on overall X may just these marketing slightly could answers think is to the overall diminishing up have customers rates be have? returns why between there investment versus another? different at perhaps follow-up.

Roger Hochschild

per and returns focused per on marketing projecting certainly think pre-pandemic Different is a pre-pandemic. much pretty to it the different of cost projected don't to expected super was business we're our at mentioned models. to said accounts. have much it account. marketing. be we subprime, And who's more on top I Credit of we similar was I account, Yes. go pretty particularly on what issuers There's lot diminishing our Cost prime. does that where are aggressive others one new

very again, years the business is that after we products dollars lend-focused capabilities. for ours the for been marketing. We've our spend tailored have in underwriting We that, good we we're getting return a very that on about our many, clear going revolver many segment. feel And prime

Dominick Gabriele

maybe your and compete how maybe is spend be least either products? likely? could you with ultimately products what the most which categories competition somewhat everyday that card landscape And likely competitive versus to compete, reside evolving of can perhaps And compete talk and meaningfully spend are about not may credit

Roger Hochschild

Yes.

now what buy clearly, watching think I pay later. everyone's is

I earlier, closer on my to base. haven't In noticeable that we have finance. As sales mentioned traditional our it's a seen impact mind,

always cetera. So whether personal whether products competing there, there out been label private side, for on the consolidation, it's et debt loans it's have

holding on this through pandemic. surprisingly So Even seeing spend. strong category. we year, focus in that getting broad a performance of mix state actually is up we're across Travel of every given the January well,

to one we'll of category spend really to categories. fact, sort on different particularly tailored as beauties of rotating of reinforces of our an in are a individual continue And basis we as So X% the grow that opposed it products spend. think across program, of to categories

Operator

will question Blair. from take William Napoli with our we And Robert next

Robert Napoli

like really growth. I on quarter. expense growth nice John, guide loan Roger, the versus

stands, need process just would -- years? technology. -- major technology And compete where I versus going private tech expense over thought I the stack that to and there's certainly to maybe the your on public of over just the know in on the on has next in if cloud invested on at lot Discover of your mean, cloud invest you some I -- a on thoughts banks Just growth is years. side, several investment the your

Roger Hochschild

Yes, good question.

banks. some may our we range be little perspective of narrower different than of have businesses. think a course, I the big a And of

So not I going not someone focused can't like but It money. -- lose reminds competing The comment on more just investment. and weight. Certainly, some of we keep more technology. fintechs, I really on their just more until fintechs of spending me saying, spending -- to with about those it's the are competition it's eating are on I'm

agility, it's on to on it's capabilities, around is focus speed Our market.

you onetime our relatively doesn't around through last capabilities. sort was but if technology about there in items, so of once huge our look We've sort for analytics. a data flat, mean And at wasn't spend investments that you talked year, and focus

you of about get it's dollars more really spending. sheer just don't and through So there speed,

Robert Napoli

guess importance I versus I public strategy… mean, cloud the and cloud I And cloud private guess -- your of

Roger Hochschild

mix Yes, both. so great cloud so question. hybrid We're of a on focused a strategy,

cloud, your that think it’s seem there's a about resides XXX% going not great whether not I or take sometimes -- to on purist there's having on the element of companies cloud, the of your public a GL business. applications and to are particular, massive really are cloud, amounts where users of heavy make for your in critically something we our areas and speed important. storage the But the difference data analytics for

Robert Napoli

growth spend having were How and spend in, that was is on just could growth affects which your maybe the inflation But I it impact and on inflation? your if And what your strong? the you much really sneak how that strong. numbers pretty of it's business, thoughts reported, are

John Greene

I'll had impact. We've card. small take has a through been really the sales the Yes, pleased running The with Bob, inflation that.

of average, be So is kind specifically. sense ‘XX, didn't it maybe on model X%. In X% to you would X% think My ‘XX. out that we in

Operator

will We Mihir next Bank from our with of take America. Bhatia question

Mihir Bhatia

a guidance. sure some I there. I just I make just bit key want first, to back of understand to just wanted assumptions Maybe in the and about go clarify little embedded your

say in impact rate how you I in of the XXXX. many how many hikes if impact? like they rate also normalize this on or was bit little Did levels you you is am first, So this I'm terms I or in on related hikes, that too And And -- a we slightly on were like earlier of normalization to push then your the double-digits XXXX, expect decline I and I to like growth to question trying missed wondering, happen the rates, there? to to payment said think that in apologize assuming your say, it growth guidance? bit the like see a payment you basis little just rate were would to ambitious loan faster, up understand back guidance just points or in your loan comments. just low What is normalized if let's I

John Greene

Yes.

payment We X modest questions. said, guidance. So -- as we our improvement, assumed of I or so rate for in very thanks assumed rate, in the terms a hikes -- And reduction.

normalize payment to to to double-digits takes going specifics accretive described, think into get loan don't which I certainly us would were I'm just if but it growth. or at were be the rate not. not whether if it you pace that, So the to it will, to do very it

Mihir Bhatia

helpful you about then is to last marketing will currently, Okay, wanted on it's weeks go? tweaked more underwriting much the other mention And your risk quarters response or That's lower I or Have question no, the just as credit in little -- you or though. appetite a understand. all normalization your ask is maybe is the few it bit so FICOs. happening that understanding I did expected, still to in very or systems just underwriting

Roger Hochschild

haven't. losses, think we the for use currently. life by assumptions are driven I new losses not And of account No, loan note we Yes. to where it's underwriting that important is

John what marketing we and by life use all we're individual actually of loan performance credit portfolio account our But we determine of segment So of and criteria. as seeing. sort and by forecasts [indiscernible]

Operator

And we with question our will Carcache take Bill Research. Wolfe next from

Bill Carcache

concerned there Is normalizing be the about than faster to pace of any credit receivables growth? reason

John Greene

and my you why. From no, I'll perspective, tell

behaviors result left largely from change The there's into in stimulus. in that more a -- of right? openings So conditions savings amount as dollars of inflation. macros First, kind from job consumers macroeconomic have there the are economy jobs. looking their people paycheck will And the of super still more this and a for positive, are is there substantial than are the government

seeing -- a I'm not me, So frankly in XXXX. as excuse risk XXXX that

out XXXX, get around into we As there's less certainty that.

Bill Carcache

Maybe the on there's that but the top X from think on you're well a got putting that, we're X where a do rate environment around today, hand, the reserve lot normalizing the up accelerating you're above NCOs you've growth you also related that benefits day revenue higher, follow-up, levels. seeing that loan of remaining also in consternation of and then

the and you revenue on that need and the reserves the to that, about the seeing, you're the you're strong that to when risk talk so can reserve how from you risk that thinking build headwinds about rate of higher, fact benefits is growth, growth overwhelms And loan that? the and growth the loan that think that interplay

John Greene

Yes.

So into with of when me we the question. start -- reserves because your rest the it let plays

ending, of to the was the government of support of looked wanted end most for what reserves ended quarter, the see impact the we when Most So September. at the in we programs.

X number dynamics. the reserve to the We support some portfolio at we So looked down overall and reevaluate saw had reserves. see quarter that Xs we data. worth on the hoping the say, X another quarter the we'll rate. would -- I'll then We're normalized it, opportunity But change of day real view road, no and a that charge-offs to have in

very that from do of tools has In cycles put from some terms analytic of improvements the we and of the place. We've within been kind thoughtful the vintages. advanced new in in underwriting vintages through the years We're we've terms and of from with -- years got those, charge-off impacts how this underwriting. company new

charge-offs, expectations we're the expectations within and outlook. see macroeconomic is sense within of my this some in of how increase underwrite well seasons, a the going So to the well and guidance but portfolio we

Operator

from Bank. we Deutsche And with will take question our Meng Jiao next

Mengxian Jiao

of with hoping was few to in tightening competitive to competition? coming seen read-throughs outside of with environment. marketing else in whether yields, the you've some question sort to with wanted the follow of possibly as elevated up I more color competitors any sort this for offerings. seen possibly on spend or new anything a I And We've increase

Roger Hochschild

increased of higher general, spend. In question. the great Yes, competition marketing rewards, takes form the

grow. big signing as some bonuses up see putting look to they start players You'll onetime

promotional yield Some start players that we prime mentioned inability and not transactor competition those drive aggressively segment, it periods. targeting of lot I of go CARD Act, sort to after. to you tend the sort cards But not as extending that post to And may seems their reprice one be the products super is that of see earlier, given compression. a

in our this for cost flat So year compete account view ability to our on environment. next projection reflects per our

Mengxian Jiao

I be then any you wanted that seeing difference comments might other mean, specific to of in John, diverging? And you early-stage regarding sort to lower delinquency provide Just the of higher and scores. that of I further able sort seeing details sort circle FICO in back secondly, you're are between on that your difference. that

John Greene

that portfolio, that bucket on in to to of kind and outlook we're I'll one, fact the credit Yes. we we're is to about there. so of It's the company say, comfort terms entire paying the have in that growing how attention it is performance in talking is, of into the indicate the roll delinquent intended the out 'XX. And a

Operator

next our Ryan Seaport take will from Bill with Partners. We question Research

William Ryan

promotional Just a couple balances. of on things, first,

question, this company the if second Looking but a total, I the And balances? ask where of the of quarter any like curious you the a portfolio of and revenue portfolio. if as of ahead the just the percent in there? protection drop the go at of your norm, specific a I'll there's what kind then product looked as typical little there's a was bit promotional call-outs is the historic And history versus of percent duration today or will? are you like

John Greene

of kind to of into we the the balance not of tend content So the detail portfolio, go expansive about promotional kind that.

net give some So to origination that help tool use interest an we indication my as margins intend a on should activity. comments that to

product the don't stopped obviously, gets we impacted. of revenue line tool, terms time market an existing essentially a ago. some In so you the But It’s marketing protection revenue, value that set. customer to have we providing if

broad that haven't product actually very any a launch done yet. new we We that we launched, have very, marketing soft

that, is in down that will 'XX. be my So flat line to expectation

Eric Wasserstrom

us any morning. to we're there's well, Investor And great Britney, right, conclude a call our and Thank going All please all but additional to at if for joining here you us. out think Relations. have reach I here, thank follow-ups, you,

Operator

participation. today's Thank your conclude for does This you program.

You and may day. time, a disconnect have wonderful at any

Discover Financial Services (DFS) 20 Jan 222021 Q4 Earnings call transcript