Discover Says Buy Now/Pay Later Won’t Cannibalize Credit Cards | PaymentsSource
Discover Financial Services’ credit card loan portfolio is starting to grow again amid higher consumer spending on gas, restaurants, retail and travel.
Discover Card sales volume increased 25% in the last quarter of the year to $51 billion from $41 billion a year earlier, Discover reported Wednesday.
The River Woods, Ill.-based company’s overall loan growth increased 4% in 2021, and credit card payment rates remain elevated above pre-pandemic levels, it said. the society.
In a conference call with analysts on Thursday, Discover CEO Roger Hochschild brushed aside concerns that the booming buy-it-now/pay-later consumer credit trend is hurting Discover’s ability to increase the volume of loans.
“There is no evidence that buy now/pay later has an impact on payout rate,” Hochschild told analysts.
But Discover also doesn’t want to miss out on opportunities in the BNPL arena.
“We are actively looking for opportunities to extend BNPL financing to customers through credit and debit cards,” Hochschild said in an interview. “Over time, I think the consumer desire to spread out payments – especially for big ticket items – is real.”
He declined to comment on the map network partnership with Sezzle point-of-sale installment loans to Discover merchants, noting that the effort is still in its early stages.
There’s an opportunity for Discover to focus on big-ticket installment loans without cannibalizing credit card volume, Hoschchild said.
“The vast majority of BNPL loans are subprime, going to people who don’t have access to credit cards, so it’s not replacing our volume,” he said.
The idea that young adults avoid credit cards is incorrect, according to Hochschild.
“I totally reject the idea that young consumers can’t manage credit — it’s a myth. We are seeing higher rates of credit card use among the latest generation of students,” he said.
New credit card accounts were up 11% in the fourth quarter from the same period a year earlier, and for the full year, card accounts were up 13% from pre-pandemic conditions in 2019, Discover said.
Discover’s credit card interchange revenue soared last quarter, rising 43% to $345 million from $242 million.
Rates of delinquent account write-offs in the quarter fell to 1.4% from 2.4% a year earlier, allowing Discover to free up $1.4 billion in credit reserves, the company said.
Transaction volume on Discover’s Pulse debit network increased 18% in the quarter from a year earlier, an increase attributed to higher overall post-pandemic spending. Discover’s Diners Club card volume increased 17% quarter-over-quarter, reflecting a moderate improvement in global travel spending, according to Discover.
Discover revenue for the fourth quarter was $2.9 billion, up 4% from $2.8 billion in the same quarter a year earlier. Profit was $1.06 billion, up 34% from $799 million a year earlier.