Discover Financial Services’ credit card loan portfolio is beginning to grow again amid higher consumer spending on gasoline, restaurants, retail and travel.
Discover Card sales volume rose 25% from a year earlier in the fourth quarter to $51 billion, Discover announced Wednesday.
The Riverwoods, Illinois-based company's overall loan growth rose 4% in 2021, and credit card payment rates remain elevated above prepandemic levels, the company said.
In a conference call with analysts Thursday, Discover CEO Roger Hochschild brushed off concerns that the booming buy now/pay later consumer finance trend is hurting Discover’s ability to grow loan volume.
“There’s nothing to support a view that buy now/pay later is having any impact on payment 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 during an interview. “Over time, I think the consumer’s desire to spread out payments — especially for big-ticket items — is real.”
He declined to comment on the card network's
There is an opportunity for Discover to focus on making installment loans for big-ticket items without cannibalizing credit card volume, Hochschild 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 any of our volume,” he said.
The notion that younger adults are eschewing credit cards is incorrect, according to Hochschild.
“I totally reject the idea that younger consumers can’t manage credit — it’s a myth. We’re seeing higher take-up rates for credit cards in the latest generation of students,” he said.
New credit card accounts were up 11% in the fourth quarter over the same period a year earlier, and for the full year card accounts were up 13% over prepandemic conditions in 2019 Discover said.
Discover’s credit card interchange revenue rose 43% to $345 million in the quarter.
Charge-off rates for delinquent accounts fell to 1.4% from 2.4% a year earlier, enabling Discover to release $1.4 billion in credit reserves, the company said.
Transaction volume over Discover’s Pulse debit network rose 18% year over year, an increase attributed to higher general post-pandemic spending. Discover’s Diners Club card volume rose 17% quarter over quarter, reflecting a moderate improvement in global travel spending, according to Discover.
Discover’s revenue for the three months rose 4% year over year to $2.9 billion and its profit rose 34% to $1.06 billion.
