Q3 2020 Synchrony Financial Earnings Call
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Good morning, and welcome to the Synchrony financial third quarter 2020 earnings Conference call. My name is branded and I'll be your operator for today at this time all participants are in listen only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded.
I'll now turn the call over to Greg Ketron, you may begin Sir.
Thanks, operator, good morning, everyone and welcome to our quarterly earnings conference call. Thanks for joining us.
In addition to todays press release, we have provided a presentation that covers the topics we plan to address during our call. The press release detailed financial schedules and presentation are available on our website synchrony financial Dot com. This information can be accessed by going to the Investor Relations section of the website, but.
Before we get started I want to remind you that our comments today will include forward looking statements.
These statements are subject to risks and uncertainty and actual results could differ materially we list.
We list the factors that might cause actual results to differ materially in our SEC filings, which are available on our website.
During the call we will refer to non-GAAP financial measures in discussing the company's performance you can find a reconciliation of these measures to GAAP financial measures in our materials for today's call. Finally, synchrony financial is not responsible for and does not edit nor guarantee the accuracy of earnings teleconference transcripts provided by third parties.
The only authorized webcasts are located on our website.
On the call. This morning are Margaret Keane, Brian Wenzel, and Brian doubles, I will now turn the call over to Margaret.
Thanks, Greg and good morning, everyone.
The global Health crisis, still looming and continued space launch asset there is a continued disruption to our online businesses and the economy.
As we continue to respond as a company we have put people at the forefront of parts decision and I'm extremely proud of our actions to address these practices.
Leave me thoughtful forward, making decisions to support our employees and family our customers our partners our community and our shareholders.
Using agile our principles, we are re in line and Reimagine. The way we work quickly advancing our most important cultural and business priorities include.
Including the successful launch of two new important programs in the midst of a pandemic.
Using safety and maximum flexibility for bites at the backdrop all of our U.S. in place can now permanently work from home sales.
Doing so has also allowed us to transform our physical footprint, we have reduced the size of some of our site in closing other sites entirely.
These changes stemmed from our employees desire to work from home their productivity in this environment will help us drive long term efficiency and profitability of our business.
As part of this asset today, we announced a restructuring charge of $89 million in the third quarter, which encompasses our new site footprint strategy. We are.
We are also being thoughtful targeted an aggressive on our cost structure as we move forward, allowing us to continue our focus and investment in future growth.
Digital innovation is paramount to the success of our program consumers are rapidly adopting technologies that enable contactless commerce and we are responding to ensure our partners are well positioned for this rapidly evolving dynamic.
Deep technology investments have enabled the company to respond quickly to partners and cardholders with resources to help them adapt to the challenges of this new environment.
We are providing enhanced innovative digital solutions for our partners and cardholders.
Further strengthening our market position.
Brian doubles will cover some of our recent digital innovation shortly.
And quickly to change how we are operating our business, where we are allocating capital and making investments is essential to our current and future success. We are.
We're confident that these actions and our long term strategy will make us stronger and even more competitive as we manage through the economic cycle caused by the pandemic I'll now turn specifically to our third quarter results and some of our recent successes, which are outlined on slide today.
Earnings were $313 million or 52 cents per diluted share. This includes the restructuring charge of $89 million or 67 million after tax, which equates to an EPS reduction of 11 cents.
It also includes an increase in provision for credit losses as a result of the Cecil implementation this year, which was $66 million or 50 million after tax.
Reduced EPS by nine cents.
The pandemic has continued to impact results this quarter prime rental will provide details on the trends later in the call and I will provide a high level overview here on a.
On a core basis, which excludes Walmart and the on the high portfolio. The impact of COVID-19 drove a 5% decrease in loan receivables and a 12% decrease in interest and fees purchase.
Purchase volume was flat and average active accounts decreased 8%.
The efficiency ratio was 39.7% for the quarter.
As a result of our liquidity and funding strategy in response to the Cove in 19 impact on our balance sheet deposits were down 2.5 billion or 4% versus last year.
This includes a strategic decision to slow overall deposit growth given the excess liquidity, we have total deposits comprise 80% of funding and our direct deposit platform remains an important funding source our bill.
Our ability to service and provide digital tools to customers make our bank attractive to deposit is and we will continue to build out additional capabilities.
During the quarter, we returned $129 million in capital through common stock dividends we are.
We also extended several programs and added new partnerships, which you can see on the slide one of our most notable renewals is with Sam's club. We are very pleased to extend our strategic partnership with a new multi year agreement that builds upon our 25 year credit card relationship.
The extension enhances reward and drive incremental value for members and small businesses and we continue to bridge the digital and physical experiences with innovative payment technologies, we have.
We have also successfully launched the Venmo program and Brian doubles will provide more detail shortly.
We are pleased with the strength of our business our ability to win program and launched innovative new products and our capacity to rapidly adapt to ensure that we are well positioned to continue to help our cardholders and partners navigate these challenging time Im now.
Im now going to turn the call over to Brian doubles to discuss venmo and are accelerating digital and product innovation.
Thanks, Margaret I will spend a few minutes talking about the exciting launch of our Venmo program.
We are pleased to deepen our long standing relationship with Paypal and venmo with the launch of the first ever Venmo card.
The car to unlock new ways for venmo as community of more than 60 million customers to shop share split purchases and earn cashback everywhere visa credit cards are accepted.
Together with Venmo are open banking npis offer a seamless payment experience for users.
Venmo customers can easily apply buy and manage their account right inside the venmo app another.
Another car enhancement is the inclusion of a personalized QR code on the card itself, which.
Which can be scan with a mobile phone camera to activate the card or in the venmo app by friends to send the payment or split purchases.
The card also sets a new standard in the industry through its intelligent auto personalized rewards program the.
The innovative dynamic rewards experience maximizes the opportunities to earn cashback.
Each month customers automatically earn cash back on the categories, where they spend the most with the top 10 categories changing based on the customers monthly spending habits.
In addition to many other features that facilitate a seamless contract experience that.
The Venmo credit card provides customers an easy way to manage their card and spending right in the mobile app.
Customers can track activity organized by spending categories split and share purchases view cash back data make payments configure alerts manage the credit card and more all in the App.
Lastly, we are also delivering a scalable platform that engages customers with real time notifications at every stage of their experience with our new Venmo program.
We are introducing car controls that empower customers to set rules to manage their account in the way that to some best including spending limits geographical limits and credit lines.
Adoption of car controls increases loyalty and top of wallet use for our partners and demonstrate synchrony social responsibility platform of promoting financial well being.
We brought together the best of both worlds, combining Paypal and Venmo digital innovation with synchrony as digital and industry expertise.
That makes a difference when it comes to deeply engaging with users from increasing credit line assignments to providing more personalized offers to reducing fraud.
Paypal and venmo continue to transform the payment experience for consumers and we're proud to be their partner of choice.
Next I will spend a few minutes on our recent digital and product innovation.
The digital transformation has been well underway for several years however, the.
However, the pandemic has drastically accelerated the adoption of the technology that enables the digital shopping experience, particularly as it relates to the digital integration at the point of sale and contactless payment.
The fact that consumers are seeking and rapidly adopting contactless solutions is creating greater demand for our partners to deliver safe and efficient shopping experiences and to provide attractive financing options of point of sale.
We are well positioned to address these evolving behaviors.
Our agile approach has enabled us to support our partners as they strive to quickly meet these new demands.
We have continued to invest in our digital assets and capabilities.
Quickly recognizing in the early days of the pandemic that we needed to accelerate many of our efforts to support our partners as they continue their digital transformation.
We have reallocated resources and agile teams to fast track key digital initiatives for our partners.
Among the most critical digital innovations is one that is empowering fast and simple integration for our partners. Our next generation Native software development kit or SDK for partner integration.
And and user testing and research the new patented side by technology offers a modern look and feel and allows our users to seamlessly apply managed pay and redeem rewards without ever leaving the partners' native app.
Further enabling ease of integration for our partners is our expansive application programming interface or apiay platform for full credit lifecycle capabilities.
We offer a full suite of servicing that applies with accountant herd management. The company by Apiay is powering the apply and buy experience digitally and at the point of sale.
Giving customers choice at the point of sales also critical and we continue to invest and develop in order to meet customer demand to complement our existing revolving credit offerings, we've rolled out an installment product concept Pat.
We are currently in market with multiple payment solutions partners and will be continuing to expand in 2021.
To further enhance the contactless card holder experience, we're also leveraging QR code technology.
Using this technology cards can be activated by scanning a QR code from the partners App or in the case of Venmo, a QR code printed on the plastic can be scan to initiate sending a payment or split purchases.
In Carecredit, we've customized QR codes at providers offices, which directs the patient to apply for a carecredit account in the comfort of their own device we are.
We also have the ability to deliver a safe and easy way for customers to pay in store and at the point of sale without meeting the physical card through Barcodes delivered via side pie within the retailer's App. The current technology has been enabled in the Lowe's up and is driving sales and app downloads.
Further we are bringing in store experience to our customers personal device for applications and payments we have.
We have a patent pending technology that provides an efficient contactless experience for customers using our own smartphones. The technology enables the transfer of data between the business and customers mobile devices and store.
For example, if a customer shops in store and wants to open the line of credit the business can suddenly application to the customers mobile device through email or QR code the diary.
The direct to device technology. It was brought to market with our Verizon heard earlier this summer and we are working with our partners to scale this innovation across industries.
We're also integrating our financing offers throughout the entire digital shopping experience.
In today's world consumers on our websites on their own terms to be a multitude of entry points and every page is essentially now landing page.
Content, including access to credit and financing options need to be optimized to drive conversion for our partners and connect the audience to the information needed to make an educated purchase and financing decision.
We've had a long tradition of credit integration within the home page of our larger clients and have continued to invest in best practices for path to purchase site integration.
We've increased presence across the shopping journey with prominent placement of the financing offer on product pages, the shopping cart and during the checkout process. These.
These digital solutions allow the consumer to engage in financing at the point in which they are making a purchase decision and significantly increases the sales conversion rate for our partners.
We are complementing these leading digital integrations with path to purchase data analytics and research by industry.
This data inclusive of heat mapping the user experience helps our clients identify where consumers are seeking information on financing and credit and has resulted in an increase in conversion rates and applications.
We will continue to invest in our digital capabilities as they are paramount to driving digital sales penetration in.
An increasingly important component to the success of our programs.
In retail card digital sales penetration was 47% in the third quarter and digital applications were approximately 60% of our total applications.
The mobile channel alone grew 29% compared to the same quarter last year, excluding Walmart.
Further more than 65% of total payments made on our cardholders accounts are done digitally.
We are committed to providing partners and customers with enhanced innovative digital options for.
From applying on their own devices provisioning, a new card into their digital wallet transacting with contactless cards and making payment.
Customers will continue to adapt to this new way of Commerce, and we are committed to providing the digital and product innovations to support this evolution.
And with that I'll turn the call over to Brian one goal.
Thanks, Brian and good morning, everyone.
As mortgage said earlier, we are determined to keep our employees safe and help our partners customers and communities succeed during this difficult time.
Despite continued uncertainty and volatility we are grounded in guided by our values and I'm. So proud of how our people have continually shown resiliency dedication and empathy to helping those we serve as.
As always I also want to thank those who are helping us to keep us safe and healthy during this unprecedented time.
Now I'll turn to our financial results for the third quarter.
I'll start on slide six of the presentation.
First I want to cover some of the trends we are seeing from the impact of code 90 from a purchase volume standpoint, and thought it was important to provide an update on the performance of accounts that receive forbearance.
Slide six shows year over year purchase volume growth for the total company and by platform dating back to January.
As noted in our second quarter earnings call purchase volume growth was strong for the total company and by platform with double digit growth in January and February leading into March as we move.
As we move through March and government restrictions increased travel entertainment and many discretionary activities were significantly curtailed and a high number of non essential businesses were closed there was a.
There was also a significant curtailment of elective healthcare services.
As a result purchase volume decreased significantly with April declining 27% for the total company.
In looking at April by sales platform retail car declined 21% payment solutions declined 41% and care credit declined 60%.
Sure credit was impacted the most with the significant decrease in spending for elective implant procedures in dental and medical services. During this period.
Retail card performed better due to the higher concentration of digital volume as well as having programs that benefited from an increase in spending for essential products such as grocery supplies in home related expenditures.
As consumers became more comfortable under stayed home orders and reopening of business has continued over the summer and into the fall we saw a recovery purchase volume as we move through the second and third quarters.
In September overall purchase volume increased 5% over the prior year and each of the three sales platform saw significant recovery in purchase volumes from the Apple trough with retail card up 7% share credit of 5% and payment solutions down only 4% compared to a year ago.
Looking at some of the other key business drivers for the quarter, New accounts declined 70% a significant improvement over the second quarter, where in new accounts declined by 36%.
The decline in new accounts, while improving does reflect the impact of the crisis as well as underwriting refinements we implemented per.
Purchase volume by account increased by 8% during the quarter again, a significant improvement from the 8% decline in the second quarter.
There is also a 4% increase in the average balance per account due to the combination of portfolio mix from our digital and retail partners as well as lower volume on new accounts.
We're encouraged by these trends theres, a tremendous amount of uncertainty ahead, including whether further stimulus measures will be enacted and when industrywide forbearance actions fully abate. However.
However, our business mix, which includes a strong digital component as well as segments that are positioned to benefit such as home related products and veterinary services has helped to dampen some of the effects of the economic downturn the ultimate.
The ultimate impact is still largely uncertainty given the duration and magnitude pandemic is still largely unknown at this point.
Moving to slide seven we highlight the impact and performance of accounts that were granted forbearance compared to accounts not in forbearance.
Through September Thirtyth, we granted minimum payment forbearance to a cumulative total of approximately 2 million accounts were $3.8 billion in account balances at the time of forbearance.
We have seen approximately 94%. These accounts the forbearance through September thirtyth, the approximately 119000 accounts or $227 million account balances remaining in forbearance through.
Through mid October these numbers have been relatively stable.
Of the accounts enrolled and forbearance approximately 92% of the balances are either current or less than 30 days past due.
When you look at some of the performance characteristics you will see trends that are not surprising credit line utilization is higher payment rates are lower and from a credit perspective, 59% enrollees had a FICO score of 660 or below.
From a trend perspective, we continue to see a substantial decline in number of accounts enrolling in forbearance from the peak in late March to early April where we saw nearly 40000 accounts and rolling per day to approximately 3500 accounts per day in September.
Looking at payment behavior for September 66% of accounts that are rolled in forbearance were making payments.
8% of the accounts payable balance in flow and other 58% were making payments the 34% of the world accounts not making payments.
In looking at performance post program, we see a higher incident rate of accounts going delinquent and accounts that did not enter the forebears program.
For accounts, which are current at the time the entered the forbearance program.
We see those accounts entering delinquency post program at a rate of 3.3 times non forbearance accounts.
For accounts, which were delinquent when they entered the forbearance program.
We see those accounts entering delinquency post program at a rate of 6.5 times non forbearance accounts.
It should be noted that the current status of these accounts is reflected in our delinquency statistics and it has not had a material impact on our 30, plus delinquency measures, which continued to improve during the third quarter.
I will cover our delinquency performance later in the presentation.
Our intention is to cease enrolling accounts into or extending existing accounts in the forebears program at the end of October and stand ready to provide other forms of assistance to impact. The cardholders. We will continue to closely monitor the performance of accounts, who receive benefits from the forbearance program.
Moving to the financial results on slide eight.
This morning, we reported third quarter earnings of $313 million or 52 cents per diluted share.
This included a restructuring charge related to our previously announced strategic plan to evaluate our cost structure has it.
As a result of our shift in business mix and impact on the pandemic.
The result was a series of actions, which included an exit or reduction in a number of our lease properties and certain employee related actions, both on a voluntary and involuntary basis the charge.
The charge was recorded in third quarter totaled $89 million or $67 million after tax and reduced EPS by 11 cents.
Decrease in the provision for credit losses, as a result of the implementation Cecil was $66 million or $50 million after tax which reduced EPS by nine cents in the third quarter.
Tobey 19 continue to impact our growth in several areas as noted on slide nine on a core basis, which excludes the Walmart Yamaha portfolios loan receivables were down 5% in interest and fees on loan receivables were down 12%.
On a core basis purchase volume was flat and average active accounts were down 8% compared to last year.
Jewel in co branded card accounted for 36% of the purchase volume in the third quarter and declined 5% from the prior year.
Our loan receivable basis accounted for 23% of the portfolio and declined 7% from the prior year.
As I noted earlier the impact to COVID-19 moderated as we move through the second and third quarter and specifically two of our three sales platform saw a year over year increase in September.
While we are seeing positive trending the duration and magnitude. The pandemic is still largely unknown and it remains difficult to assess the stability in trends will provide a more precise forecast of the impact at this point.
Our sales decreased $117 million or 12% from last year.
Our sales as a percentage of average receivables was 4.6% for the quarter, reflecting the seasonality, we typically see in the third quarter as well as improved performance in certain elements of the sharing arrangements from some programs mainly significant improvement net charge offs compared to last year.
On a year over year basis. The Rs, 8% was also impacted by the discontinuance of the Walmart program last year, which operated RC percentage below the company average.
The provision for credit losses increased $191 million or 19% from last year.
The increase is primarily driven by the reserve increase for the projected impact of the COVID-19 related losses in the prior year reserve reduction related to Walmart that totaled $326 million, partially offset by lower net charge offs.
The reserve build for the third quarter was $344 million and largely due to the projected impact of over 19 related losses, which are covered in greater detail later in the presentation.
Other income increased $46 million, mainly due to lower loyalty costs, resulting from the discontinuance of the Walmart program and a decline in purchase volume.
Other expense was flat to last year with restructuring charge and expenses related to our code 19 response being offset probably by the cost reductions from the Walmart sale also.
Also reducing other expenses was the impact from lower purchase volume and average active accounts experienced during the quarter and reduction in certain discretionary spend.
Moving to our platform results on slide 10 as a.
As I noted earlier the sales platforms continued to be impacted in varying degrees due to COVID-19 and read.
In retail card core loan receivables were down 6% with the Cobi 19 impact being partially offset by strong growth in our digital programs.
Other metrics were down driven by the sales of Walmart portfolio and the impact from Cove in 19.
As Mark noted earlier, we're excited to launch the demo program at launch and the Verizon program last quarter as well as renewing and extending the key relationship with Sam's club this quarter.
The strength of power sports and payment solutions helped to offset the impact of Kobin 18.
Core loan receivables declined 1% interest and fees on loans decreased 10% driven primarily by lower late fees purchase.
Purchase volume decreased 6% in average active accounts decreased 7%.
We signed a number of new programs and renewed key partnerships. This quarter as noted on slide three we can.
We continue to drive growth organically through our partnerships and networks and over 4000, new merchants during the quarter.
These networks, along with other initiatives such as driving higher card reuse, which now stands at approximately 30% of purchase volume excluding oil and gas continued to build a solid base of business for the future.
Although care credit was impacted the most by Koby 19 earlier. This year, we continue to see some encouraging signs in the trends during the third quarter as providers continued to increase the degree of elective and plant services received.
Receivables declined 7%, primarily due to the negative impact of Tobin 18.
Interest and fees on loans decreased 8%, primarily driven by lower merchant discount as a result in the Cline and purchase volume, which was down 3%.
Average active accounts decreased 8%.
As Mark noted earlier, we're excited launched three new health systems during the quarter, which brings the total number of health systems. We currently operate in Tonight.
We continue to expand our care credit network and the utility of our card as we added nearly 2000, new provider locations to our network during the quarter and network expansion has helped to drive a reuse rate to 59% for purchase volume in the third quarter.
I'll move to slide 11, and cover our net interest income and margin trends.
Net interest income decreased 21% from last year, primarily driven by a 22% decrease in interest and fees on loan receivables due to the impact of Kobin 18, and the sales the Walmart portfolio on a cost.
On a core basis interest and fees on loans decreased 12%.
The net interest margin was 13.80% compared to last year's margin of 16.29% largely driven by the impact of Cowen 18 on loan receivables and increase in liquidity and lower benchmark rates.
Specifically the mix of loan receivables as a percent of total earning assets declined approximately 640 basis points from 84.7% to 78.3% driven by higher liquidity held during the quarter.
This accounted for 124 basis points of that interest margin decline.
A 193 basis point decline in loan receivable yield primarily driven by lower benchmark rate and the sales of Walmart portfolio.
The impact from lower prime rate movements accounted for approximately 75 basis points of the decline.
The remaining reduction of approximately 120 basis points and loan receivable yield is primarily attributable to higher payment rates, resulting in lower revolve rate and lower leafy incidents.
The total reduction in loan receivable yields accounted for 164 basis points of the reduction in our net interest margin.
The investment Securities yield declined as a result of lower benchmark rates and accounted for 29 basis points of net interest margin decline.
These impacts were partially offset by an 81 basis point decrease in total interest bearing liabilities cost to 1.90% primarily due to the lower benchmark rate lower deposit pricing despite.
This provided a 68 basis point benefit to our net interest margin.
Excluding the main impacts of Tobin 18 has had on our net interest margin the decrease in loan receivables and the increase in liquidity. The net interest margin would be trending closer to 15%.
Next I'll cover our key credit trends on slide 12.
In terms of specific dynamics in the quarter I'll start with the delinquency trends.
The 30, plus delinquency rate was 2.67% compared to 4.47% last year.
The 90, plus delinquency rate was 1.24% compared to 2.07% last year.
Higher payment trends are helping drive the improvement in delinquency rates.
Focusing on the charge off trends.
The net charge off rate was 4.42% compared to 5.35% last year.
The reduction in net charge off rate was primarily driven by the Walmart sale and improving credit trends.
Excluding the impact of the Walmart portfolio net charge off rate was approximately 45 basis points lower than last year.
The allowance for credit losses, as a percent of loan receivables was 12.92% post Cecil implementation.
Excluding the effects of seasonal the allowance under the Triple method would have been 8.25%.
The reserve build in the third quarter was $344 million under Cecil and $278 million under the age of low method.
The overall reserve provisioning was higher than expected due to the event following team, which accounted for most of the reserve build in the third quarter.
More specifically our reserve build was driven by two main factors.
First an increase in the provision for accounts that receive forbearance benefits second a projected diminished effect from stimulus.
In summary, the third quarter credit trends continue to be strong and better than our expectations with forebears, providing a degree of benefit in delinquency trends.
We do expect overall credit trends will be impacted by cold 19, as we move forward.
Moving to slide 13 ill cover our expenses for the quarter.
Overall expenses were flat to last year totaling $1.1 billion for the quarter research.
Restructuring charge and expenses related to our COVID-19 response were offset primarily by the cost reductions from the Walmart sale, the lower purchase volume and average active accounts experienced during the quarter and reductions in certain discretionary spend.
Efficiency ratio for the third quarter was 35.7% versus 30.8% last year.
The ratio was negatively impacted by the restructuring charge and expenses related to our response to COVID-19, excluding those impacts efficiency ratio would have been 370 basis points lower or approximately 36% for the quarter.
Excluding the impact of the restructuring charge and the COVID-19 related expenses. The increase in ratio was mainly driven by the decrease in revenue that resulted from lower receivables and lower interest and fee yield.
Moving to slide 14.
Even the reduction of our loan receivables and strengthen our deposit platform. We continue to carry a higher level of liquidity during the third quarter.
While we think it is prudent to have higher liquidity levels, given the level of uncertainty and volatility we are actively manage our funding profile to mitigate excess liquidity.
As a result of this strategy there was a shift in the mix of our funding during the quarter our debt.
Our deposits declined by nearly $2.5 billion from last year.
We also reduced the size of our securitized and unsecured funding sources by 3.1 billion and $1.4 billion respectively.
This resulted in deposits being 80% of our funding compared to 76% last year was securitized and unsecured funding each comprising 10% of our funding sources at quarter end.
Total liquidity, including Undrawn credit facilities was $27 billion, which equated to 28% of our total assets. This is up from 20.5% last year.
Before I provide details on our capital position. It should be noted that we elected to take the benefit of the transition rules issued by the joint Federal banking agencies in March which has two primary benefits one.
First it delays the effect of the transition adjustment for an incremental two years and second allows for a portion of the current period provisioning under Cecil to be deferred and amortized with the transition adjustment.
With this framework, we ended the quarter at 50.8% Cetone under the Cecil transition rules 130 basis points above last year's level of 14.5%.
The tier one ratio was 16.7% under the Cecil transition rules compared to 14.5% last year, reflecting the preferred stock issuance last November.
The total capital ratio increased 230 basis points as well.
10.1% also reflecting the preferred issuance.
And the tier one capital plus reserve ratio on a fully phased in basis increased to 27.3% compared to 20.7% last year, reflecting the increase in reserves as a result of implementing Cecil and the preferred stock issuance.
During the quarter, we paid a common stock dividend of 22 cents per share.
Earlier this year, we announced that given the current economic uncertainty and being as prudent as possible. We made the decision to halt further share repurchases until we have greater visibility on the magnitude and the impact of 19 wells we have in the economic environment. We will continue to evaluate this as we move forward.
Overall, we continue to execute on the strategy. We outlined previously we're committed to maintaining a very strong balance sheet with diversified funding sources and operate with strong capital and liquidity levels.
In closing given the number of uncertainties that continue to exist regarding the severity and duration of the COVID-19 pandemic and.
And countering impacts extremists has had and could have going forward remains difficult to assess the ultimate impact at this time and provide specifics around key outlook drivers.
As I did last quarter I want to provide a framework to help considered the impacts on our key outlook drivers.
Regarding loan receivables growth Cody.
Hi, Good 19 has had an impact on purchase volume, but we've seen positive trending in improvement in purchase line as long as.
As long as the pandemic does not worsen and businesses remain open we expect this trend to continue or to be stable.
What continues to help our trends in resiliency is growth in digital diversity inside our platforms and financing an essential areas such as home and health care.
We will continue leveraging our capabilities and expertise to help our partners and providers during this difficult period.
This overall direction and purchase volume will be a key influence in our receivables growth rate.
We've also seen higher payment trends, which has also impacted our loan receivables growth is also favorably impacts credit trends as evidenced in our lower delinquency rates and net charge offs.
The offset to this is lower revolve and fees are non accounts negatively impacting loan receivable yields and the net interest margin.
When the effects of stimulus industry wide forebears program subside and delinquencies begin to increase we expect payment rates to decline and provide a positive impact loan receivable growth.
Our net interest margin has also been impacted by a number of other factors, including a higher level of liquidity and a reduction in the size of the yield from receivables due to lower benchmark rates lower revolving fees and the impact of forbearance as.
As we move forward, we will continue to look for ways to deploy our higher level of liquidity and the impact of forbearance should abate.
Should the current trends continue we do believe that interest margin has stabilized and should improve prospectively.
As I indicated earlier, we do expect payment rate the decline and believe the revolve rate will increase as well as fees, which will also be a benefit to the net interest margin.
Regarding our assays, we expect an impact from higher credit costs in the future while some.
While some programs are benefiting from lower net charge off levels. Currently we expect net charge off levels to increase and the impact to flow through the our assays.
Ultimately out of credit cost impact and timing will be determined somewhat by the expected deterioration in credit.
Stimulus actions and industry wide forbearance assistance abates.
While we expect the net charge off rate to increase in the near term. It should be noted that overall portfolio quality credit trends as we entered into this pandemic were strong and continue to improve throughout the year into the third quarter.
Also the tools and capabilities, we have highlighted previously help us better navigate the economic impacts from COVID-19.
As we move forward reserve bills may be somewhat elevated in comparison to the outlook. We provided in January when taking into account seasonality until.
Until we gain more visibility into the duration of severity of the current pandemic, we cannot provide more specific guidance.
Regarding the efficiency ratio activity levels will impact revenue and expense levels and we will mitigate some of this impact through the recently announced strategic plan to reduce our operating expenses.
We expect the cost savings from this plan to be in the $150 million to $250 million range for 2021.
As a plan is executed we expect the cost save run rate to increase throughout 2021.
2021, we expect to see even higher cost saves from this plan.
In closing the business remains fundamentally strong and resilient and were going through the situation with a strong balance sheet capital and liquidity position.
With that I'll turn the call back over to Margaret.
Thanks, Bryan I'll provide a quick wrap up and then we'll open the call to key M&A.
Clearly the corolla virus pandemic at meaningfully impacted our business in several ways, including key areas that test cricket volume and loan receivables as.
As we have said the ultimate impact on this practice remains difficult to quantify right now, but what I can tell you is that our ability to rapidly adapt to the evolving environment positions us well, we are confident in the fundamentals guardians of our company and our ability to manage through this cycle just as we have managed to.
Other cycle from the only 90 year.
Our partner centric business model and add to our approach to our operation and back then our unwavering a rapid deployment of innovative solution to support our partners anchor.
We remain focused on execution today with an eye towards the future, making investment selling capability launching program and making the fundamental changes necessary to emerge from this pandemic in a stronger position. Thanks.
Thank you for participating on the call today, and I Hope you and your family stay healthy and I will now.
Ill now hand, the call back to Craig to open up the M&A.
That concludes our comments on the quarter, we will now begin the Q and a session. So that we can accommodate as many of you as possible I'd like to ask participants to please limit yourself to one primary and one follow up question.
If you have additional questions the investor relations team will be available after the call operator, please start Q and a session. Thank you.
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And from Jefferies. We have John Hecht. Please go ahead.
Morning, guys, thanks very much.
Just related to the provision expense.
It seems like I guess the question is is this more of a general.
The increase in the allowance tied to just general uncertainty or is it more of a precise provision tied to certain elements you're seeing in the deferral program.
Yes, good morning, John So so the provision that the way to.
The way to think about the bridge division for the quarter is when you look at the macroeconomic environment. When you look at growth. When you look at our kind of precision not all netted out to roughly flat to a small provision when we looked at two specific elements as we closed the quarter one being the forbearance accounts that have come off program given the delinquency.
Great. They had when we evaluate those counts we thought there needed to be a higher provision associated with those particular accounts.
Beyond what was included in the base reserve. So there is an incremental call. It 220 $200 million to $225 million associated with those accounts that are in delinquency today that were in the forbearance program, where our current today that may roll into forbearance and the residual piece really went to our view on the stimulus and the fact that.
That.
Our view the timing of the stimulus as well as the efficacy of the stimulus would be delayed so there.
So there is an incremental provision of roughly $75 million associated with.
With the stimulus delay.
Okay. Thanks for that detail and then.
And then.
The set pay product.
Thats consistent with the last.
Consistent with the lot of the consumer demand, we're seeing now in the marketplace. Maybe if you could just give us a sense of the growth potential growth trajectory of that product and then you will the will be called the economics, meaning the yield and the anticipated.
Losses, and so forth be consistent with the overall credit program.
Thanks, John Thanks for the question I'd say.
I'd say two things one we wanted to address the market, we already had in spotlight products out there, which meet our return hurdles. So we are being very far.
Thoughtful on cognizant and looking at how these products work, but I would tell you that what we're looking to do really with SAP payers to offer the customer choice between our different product set and hopefully do this in a way that's online size the customers, making the purchase particular bank purchase and the opportunity to do that pay product and well.
Looking to do that in light of our overall portfolio with returns and that we have in the business. Today. So we're not looking to minimize or reduce our returns because of that product. Yes look I think everyone's looking at these products as a big part of the market.
[laughter].
There's lots of sales out there that these products are still a really small subset of the market, but I do think we sell competitively it was important to really position ourselves to her.
Our product with.
For consumers, but you know I don't think down the road you going to see this as a big part of who we are but im not a product to really help our partners grow their business.
Well John Thanks, very much part of the reason for that is having a lot of our partners while they.
While they want to offer this product to market his point.
And have choice for the consumer.
We've spent a lot of time.
Working with our partners to get re used on the car and Brian talked about that earlier and so we have some some partners, who say look I want I want to offer our evolving product to get that second and third purchase.
And thats been something we've been working on for well over five years, now and they're not as enamored with the one and done product, but look at the end of the day, we want to be able to offer choice at the point of sale.
Okay that makes sense. Thank you guys very much.
Next Gen entity Doug.
[noise] from credit Suisse, we have Moshe Orenbuch. Please go ahead.
Great. Thanks, maybe just a follow up on that reserving question, Brian So as we think about it going forward.
Should we think that the the reserve would be at a comparable percentage. If there is no kind of macroeconomic changes or there are other things.
And as we go into 2000.
The fourth quarter and into Twentytwenty one too.
To consider in terms of that rig.
Reserve build for the decrease.
Good morning, Moshe So the way I would think about it.
It is we feel that we're adequately reserved at the end of at the end of September for both.
The four banks can't specifically, but the overall portfolio.
So many macroeconomic trends don't move.
Significantly and to be honest with you to make sure that pandemic stays in check with where it is today.
The real the real impact of reserves will be growth in the portfolios any shifts in the portfolio, we see between the platforms.
Got it thanks and thanks.
We thought the.
From the standpoint of kind of new account generation. You know you said the number of new accounts is down from.
A little over 6 million to just a little over 5 million, maybe as you kind of.
As you kind of think about the various factors there.
Basically where we are in the economy, the two launches that you.
That you've got an all of the initiatives can you.
Can you talk a little bit about that.
That metric, what thats going to look like.
In the fourth quarter and into 2021 and the point.
Might mean.
For.
The growth.
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Yes.
Thanks, much as Margaret.
I'd say two things one you know where were I would say in September we did start seeing store traffic start really coming back and I think our pace, we still originate.
Originate a lot of accounts in store, so having that in.
In store traffic come back I think it's going to be very helpful. I think as we continue to market.
Market, our new programs, where well see positive trend there I think the real question Mark is really has holiday play out right now.
Our view is.
Consumers are saying they want to shop, and they want to do something fun and the out there. So I think holiday is going to play into this as well and then the only maybe.
Negative or downside to that would be you know we did we do tighten credit during this period. So we are being careful that we don't want to just open up there.
The philosophy around some new accounts, so were really being soft on cap on how our underwriting.
But you know I think the trends we started seeing in September with more store traffic should help our new account volume as we go into the fourth quarter.
And just anything about the new programs impact.
Well you know.
Yeah, I mean, I would say Verizon is is it is tracking very well.
They were slower to open stores. So we're just starting to see store traffic down from.
From them they were more online, but we are really seeing that pick up and we are really pleased with how Verizon is playing out.
Then on the other hand, you know is still in a in kind of a softer launch so.
So where were really still testing and piloting that product, but again the results. So far have been extremely positive.
You haven't applied for the card or I guess, you can't if I get off hand, but for those who have gone off hand back the call right. We've got a really really positive feedback in terms of the value prop Hammacott works, how easy it is to activate how easy it is to purchase with it so I and we anticipate.
Then our product to be a big part of our growth story as we go into 2021, yes, the way I would frame it for us.
For the quarter Moshe that you know the fourth quarter, both rising demo wont have a large impact is really be more into his are progressing to.
Into 21, and mortgage point really about stores opening up the biggest wildcard with regard to new accounts in the fourth quarter will ultimately be.
The channels right we see.
Some differences in new accounts per your digital channels versus your in store so.
So so that could be very favorable trend for us we hope in the fourth quarter.
Thank you.
Thanks, much have a good day.
From Bank of America, we have the here back to you. Please go ahead.
Hi, Thanks for taking my questions and good morning, just wanted to start with maybe could you just give us CECO assumptions just on GDP unemployment.
I'm sure it's here and maybe exiting next year.
Sure. Good morning, so so the baseline measure that we use.
Which is really coming off of the Moody's August baseline metric, which as you know unemployment at that point being 9.9% at the end of this year, 7.9% and 21 at four and a half and 22 and as we've gone through and done our modeling off of that.
The way in which we interpret it we actually have redistributed that unemployment there so effectively.
On a plane that we have at the end of the year is 9.7%.
Down from the second quarter, 9.1% in 2021 up slightly from our previous estimate and six point.
3% in 2022, so so we have a little bit slower.
Recovery back into 2021 is we think things have pushed out which partially as we talk.
As we talked about some of the stimulus and other metrics and then the GDP assumptions, we have been in line with with the Moody's.
The baseline model to be honest with you, which is which had a linked quarter, 5.4% decline in the third and 0.7 in the for us.
Great. Thank you and then I just said I wanted to just start maybe just go back to the discussion on you know I think by now Bailey.
So on the book.
Wanted to see asked about the impact of the repeal QAD business I understand that it's a small part of the market right now overall, but you were starting to see it.
With more and more retailers and you know just as an example, we about one of your partners launched being full and it shows up right along side be about credit on the checkout screen. So it seems like there is some cannibalization risk now I understand be employees, new but some of the other being build products have been around for a while so I was curious how you how are you viewing.
Those products and have you seen any impact from those products on the retail card platform that you already have thank you.
I'd say no we've not really seen a big impact on our portfolio our with our partners.
I think that's why we have set pay out there and I do think having customer choice is going to be the thing that we want to really deal we want to do that mobily as well so that customers whether in the shopping cart to make a choice.
In terms of pay Pal.
We now that we have a great partnership with pay Pal They had a product that they had already launched in the UK and wanted to accelerate that launch here in the last we see that as a cross sell opportunity for us I find said earlier. So you know again, we feel like we're positioning ourselves in the marketplace be successful we're not at this.
Point really seeing a huge impact of these.
Products against our our overall performance.
Thank you.
Thanks have a good day.
From Jpmorgan, we have Rick Shane Please go ahead.
Hey, Thanks for taking my questions. This morning.
I'm curious to.
How the change in the way that consumers are interacting with businesses.
It's with your business model and when I think about that historically you guys probably had a higher percentage of in store card present transactions as you moved to your mobile App are you.
Went to a highly secure tokenized transaction.
And now you probably have many more customers shopping online card not present, but.
The business model is historically had lower interchange and so on.
And so I'm wondering from an economic perspective is there greater.
Fraud risk and is there a way within the business model to offset that economically.
Yeah, well I think it's important to now most of our transactions a private level transactions, which don't target a change so for us that's not an issue.
I think what's really important for us as you know in shrink from a profit perspective that we have the right customer applying we put a number of tools in place to really drive.
Dr. fraud, and make sure were offering the customer the right product to that right customer I would say generally speaking fraud is something that we continually battle every every financial institution is African sales battle.
Particularly as more and more people have been compromised in terms of their identities and really it's our responsibility really put the tools in place to make sure that were doing the best job hospital to reduce staff fraud, I don't know, Brian if you'd add Brian doubles, if you'd add anything arm and the only one thing the only thing I would add Rick and what we've talked about this in previous calls.
This is where we're really leveraging data share with our partners are.
Our partners know quite a bit about their customers right now how long they've been a customer either through a mobile or digital channel even simple things like if we can match the ship to address with the address that they're putting into the d. apply to apply for a credit line.
Those things are enormously helpful.
In helping us authenticate.
The customer and reducing fraud rate. So that's something that we've rolled out across all of our large partners and retail card and we're rolling it out now to even some of the smaller partners to share that data in an effort to reduce fraud, but also make better credit decisions around line sizes and.
Get a better credit outcome as well.
Got it up and Margaret I think that that's exactly my point, which is with no interchange.
On the traditional transaction, what I was sort of trying to understand and it sounds like you are managing it more on the fraud side trying to determine if there's some way on the card not present transactions over the line, whether or not you can capture some additional economics I got that sorry, sorry about that but yes, we you know.
Second what Brian was timeless describing.
Got it okay. Thanks, guys.
Thanks, Rick.
Have a good day.
From Morgan Stanley we have Betsy Graseck. Please go ahead.
Hi, good morning.
Morning Betsy.
So I like to call it the singer traffic versus the foot traffic I know on the prior question you answered it from the foot traffic point of view, but I just wanted to get a sense as to how you're thinking about the thing.
The finger traffic.
In terms of generating that new account.
And then how have you seen that finger traffic in a change over the course of the pandemic how.
Have you seen any behavior change in terms of free.
Frequency of purchase average size of purchase just line utilization that you know the people are willing to maintain.
Maintain especially in the latter you know.
More recent couple of months I should say just wondering if the behavior is cheap.
Changing at all.
Well you know Brian touched on a lot of that and I'll have Brian doubles add a little color to this but you know 60% of our applications for for retail coverage at a rate globally. Our online. So that that is a big step up from where we were in now and each quarter as 10 growing our view is that that will continue to do that in addition to latch considering using.
Our apps to make payments increased credit lines, and really transactor that level. So we expect that to continue to grow and to be a big part of what were working on with our partners I would say that you know what were always trying to do is create this digital class out both in the retail card payments.
Solutions and Carecredit business. So it's not just the retail card side, it's actually all three platforms and.
And back in March we really pivoted, our agile teams to really accelerate some of our development on the mobile side. So you know I would say I don't think we're seeing a difference in terms of spend or how they stand now I.
I think the reality is that people don't know.
No sorry, I always want to go into the store so online as they kind of take a big a part of how they transact and I'd say the second are just just as we move forward to haul contact less even in store purchasing I think will become a bigger part because consumers really don't want to touch panel south.
Those are the areas that we continue to invest and I don't know Brian doubles, if you'd add.
Yes, well I'll add things I would add that is one of the things we've done very focused on and actually one of the areas that we accelerated back in March is really integrating our financing offers throughout that customer shopping journey and we showed you a little bit of that on the slide.
And that looks very different by partner. So if you think about side pie or SDK that plugs into the larger partners apps that we've been doing for a number of years now.
And that works really well with large partners so either the decide pie proud.
Product or having the larger partners plug right into our platform, which is what we're doing on demo.
The work that we accelerated back in March and April, which really matters more to our smaller to mid sized partners is really getting integrated into their digital properties across the point of sales and not just one you're checking out in the shopping cart, but.
When you're looking at the product when you entered the home page and we've seen conversion rates go up significantly when we have that have multi point integration across all of their digital properties and.
And so thats really what we've been focused on is helping no.
Not at not just our large partners, but small to mid sized partners. Good.
Getting the financing offer presented in multiple places throughout that shopping journey and it.
And again that that's been really important to our par.
Through our partners because obviously you know times like these they're a they're accelerating their digital transformation and trying to drive sales and thus the certainly helps them do that and how.
Penetrated do you feel you are with your current customer set in that offering.
Well it really varies I'd say, we're very penetrated in the larger partners.
And we're making really good progress in the small to mid sized partners, but a lot of this is it's really a joint partnership it depends on you know that their level.
Their level of how far advanced they are in their digital transformation.
And we're building tools to easily plug in there in a in a scalable way.
And then my follow ups just as on liquidity you highlighted in the deck that the liquidity is up significantly year on year makes sense I'm wondering how much of that will you sit on to fund future loan growth or will you be redeploying that into securities. There's clearly you know excess capital debt.
Could drive buybacks as well going forward. So I'm just wondering how you're thinking about this excess liquidity that you've got.
Yes. Thanks, Thanks, Betsy as we think about as we enter the fourth quarter, it's really too.
Fund the portfolio growth that we would seasonally anticipate.
As we move into 2021, we hope it funds loan growth, we said earlier with regard to buybacks, obviously, we like to have the cash to and we most certainly have the capital to execute the buyback.
Execute the buybacks, but really.
Thats not on our horizon until probably at least the back half of the year. When we have a better view of what the economy is going to do so so our plan really is to deploy it relative to our growth.
Growth in the assets in managing that the liability side equation I don't anticipate us really going to try to chase and base.
One basis points of yield in the investment portfolio to be honest with you.
Got it thanks.
They expect to have a good day.
From Wolfe research, we have built a catchy. Please go ahead.
Thanks, Good morning, everyone. Margaret there was a period post Walmart where are you guys eliminated concerns over renewal risk by pushing the earliest renewal date to 2022, which seemed really far away at the time, but now with 22, we're getting closer and RFP is happening in some cases, roughly a year ahead of contractual maturity.
Dates some investors have started to ask whether we could see you guys do something similar to what you did post Walmart, but possibly renewing your largest partnerships and sort of.
Eliminating that renewal risk for several years into the future can you discuss whether that's something that you're considering or are we more likely to see renewals happen on more of a case by case basis.
Look we're always trying to read anything else trial, Yeah. I think this is really the relationship and partnership that we've built over the years and I think you just start happening clamps, probably renewed Sam club well the mark.
While the multi year deal last year at and.
And we just renewed it again with another multiyear deal. So you know we're always looking at ways to extend our partnerships and usually that conversation comes about as people are thinking about new value props or big investments have insight into the program in some way and you know I would I would just tell you the way I think about.
Renewals thats like a daily part of our job and we need to make sure that we're having those conversations where it makes sense. So you know that that you see it happening real time with with what happened with Sam's club.
I think the one thing I'd add on to Mars point is if you look at these investments so in the case of Sam's or there's a value prop contract on top of you know we did last year and we price in a very disciplined level regular price through the cycle and price through a very difficult cycle or so so the extent that we get an opportunity to expand and extend that a attractive risk.
<unk> profile, we most certainly would take that opportunity.
Take that risk off the table, though.
Thank you. That's that's very helpful. If I can as a follow up.
When we look at the levels of capital that you guys are running at and the amount of.
Building that you've done to the extent that there potentially could be some sort of stimulus that it seems like you're not really counting on that as a.
Big benefit.
Is there a building that you've done to date.
Yes, historically you guys have expressed your your belief that you could run at capital levels comparable to your peers, which we see it sort of the two and a half 11% range on a normalized basis.
Is it reasonable to think that you guys can get seats, you went down to that range.
As we look ahead to kind of the other side of this.
Yeah, Bill So first of all let me just make sure we're clear in stimulus. We still have steam is baked into our reserves is just at a lower level and the timing is different than what you'd see in a base Moodys model Jay I think last week. They may have even moved out to 2021 their stimulus, but we have spent a lot of time with it. So there is some level of stem is.
With regard to the capital level, Yes, nothing has changed in our view.
With regard to how we think about the long term capital position of being able to get down to it to our peers during.
During this period of time, we continue to run stress cases.
And are very comfortable with our ability given the resiliency of the business given the earnings profile of the business the our sales.
That we can get down to that level. So there is no change with regard to the long term view on capital the timing, which we begin to deploy a greater amounts of capital back to the shareholders will be it really be dependent upon the economy in the visibility.
Got it very helpful. Thanks for taking my questions.
Thank you have a great day.
From Stephens, we have Vincent Caintic. Please go ahead.
Hey, Thanks for taking my questions first on your expenses. So it's helpful to get your guidance for 130 to 50 million for 2021 more.
On that and also just thinking about your your push up digital here I'm sort of wondering if if you can sort of talk about your digital investments and it seems like you're pushing more than usual or two.
To accelerate your partners digital transformation.
Sort of the level, we should expect in terms of.
Investments going forward do you want to make more investments or does this taper off after a little bit of profit.
Hi, Thank you.
But we've been making investments for a number of years, particularly in our technology platform and we'll continue to do that as we see the need we think that strategically we have to be the best in the business in terms of digital capability and both both you know I think both in the front end, which we've talked a lot about that even on the back end.
And so when we looked at kind of pivoting back in March we actually stopped doing some things that didnt really make sense, given the pandemic and redeploy those resources to accelerate some of the things that were already on our road map. So it wasn't like we created new thinking they actually had these plants. They would just further out an example.
To give you as we're doing a lot of work on digital collections right now in terms of really getting us to be state of the art. There. So thats. An example, where we took resources that were kind of working on that but we put more resources on it.
I'd say that from an expense point of view, we took a really comprehensive look at our overall expenses and said, okay. How do we how do we tightened where do we time some of that we talked about in terms of our footprint, which was a positive one but you know when we did this journey on expenses, we basically said.
We're going to do this expense reduction in order to ensure we can still invest for the future because I think sometimes the mistake.
You make as you tightened so much that you really dilute the future and what we didn't want to do is really have that happen. So we've been hard at work, making sure. We continue to invest while tightening where we can sell and that's really the plan that we have executed upon we have work to do going into 2021, but we feel like we were able to pivot.
Pretty quickly and really align our cost base to the size of our business going forward to ensure that we keep the returns that we want to achieve for our shareholders. So we're feeling we've executed well here, we saw things to do of course spot you know.
We're well into the execution of the expenses coming out.
Okay. That's very helpful. Thank you.
Just with the excess deposits that you were talking about just wondering how much more.
Much more aggressive your way.
You are willing to get on rate cuts or do you feel comfortable here. Thank you.
Yeah. Thanks, Thanks for the question so.
You know, we'll continue to evaluate that that that market. We led the market down. This year you know so we reduced to 115 basis points on our high yield savings on or 40 basis points on Cds.
With six and seven movements here is as we think macroeconomically going forward.
You know there will be some pressures we have to have some higher price Cds coming up for expiration as we move through the fourth quarter and into the first quarter. So so there will be some pressure to to.
To redeploy those dollars from consumers. We also think there's an opportunity as we think some of the larger institutions may continue to try to reduce our rates are there may be some inflows, but at the end that today, we hope to to grow the business next year and we'll need those deposits. So it's a very.
It's a very tricky balance we can move down a little bit more we think but we want to be very cautious because what we don't want to do is if we would have to raise deposits next year have to then pay.
Pay more in price in order to get those deposits. So it's really a fine balance between trying to find that that appropriate floor in and were in line with competition.
There could be a little bit more room, but I wouldnt expect something significant.
Okay, Great and we have time for one more question.
Thanks, I was from KBW just from KBW, we have Sanjay Sakhrani. Please go ahead.
Thanks, Good morning.
Most of my questions have been asked and answered, but just on the Sams club renewals now congratulations on that I know, it's been a world wind up the last couple of years I'm. Just curious how should we think about the economic impact of the renewal are there any appreciable impact on the our assays going forward and then any others that we need to contemplate.
You know we always look at this in terms of the returns and we're pretty happy.
Happy with where we landed on the renewal in terms of our reinsurance I wouldn't see a big economic impact I think theres a real positive here is that you know we've been able to work closely with Amazon to laugh yeah.
Yeah say 15, 18 months on really helping them execute against their digital strategy and we'll continue to do that and I think more importantly, the exciting part is very we launching a new value prop, which you know both of us out was really need itself.
We are excited to work with them on that as we go into 2021, but I don't think you'll see an appreciable difference in the economics.
Okay, Perfect and then I guess I have a follow up on the buy now pay later industry questions.
Maybe a question for you Margaret and Brian doubles, if we think about the Industrys impact thus far do you feel like having an appreciable impact in terms of loan growth do you feel like it's cannibalizing your customers across all your relationships or or is it just a different cost.
Customer base, that's sort of.
Where you're seeing the uptake in Lipskins and this products well I think first first let's put in perspective I think the overall dollar sales on those products somewhere between eight and 10 billion, which is really not that appreciable. When you look at the overall market you know most of what's being put out.
Put out there are smaller ticket for payment type things.
For reach for retailers, you know I think where we really have a market and are have a a solid customer base is really on the bigger ticket size and that's where I think we've been able to do things like we're doing with Amazon. So you know our view is you know were going to be in this market. When I look at the right way to do that you know the only.
The thing I tell you it's still early days on the overall economic returns on these particular smaller ticket one I'm not sat pay is a product that were testing piling. We're having good success I think it's really about two things, giving customer choice and then second helping to merchants complete this out because right now the mountain.
Alright, thank for merchants and our partners to help them grow their sales, which is what we're really trying to work on I don't know Brian doubles, if you'd add anything there no.
No I think I think it does it come down to a choice and our partners all have a view on which products that they want to offer in some cases, it's a revolving.
Credit product that has an installment component could be sub pad or in some cases, if it's smaller ticket to markets plant they wouldn't be more interested in the buy now pay later product our goal at the end of the day to be very integrated across all of our partners digital properties and offer a wide range of financing products because it won't be a one.
One size fits all it's been a it's going be a combination of both.
Revolving credit longer term installment and shorter term by now pay later products.
Thank you.
I guess subject.
Yes, thanks, everyone for joining us this morning, the Investor Relations team will be available to answer any further questions. You may have and we hope you have a great day.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.
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