Bread weathers financial woes from recent bill payment outage

Bread Financial’s rocky conversion to a cloud-based credit card processing system last summer weighed slightly on its results in the third quarter, but the company is still optimistic about its outlook, including for buy now/pay later loans.

The card issuer said Thursday that its map service failurewho caused a backlash on social media where some customers were unable to pay their bills online, may result in slightly lower results over the next two quarters.

To protect consumers from late payment fees due to the issue, Bread extended the window when payments were due and deferred categorizing accounts as overdue, which could push recognition of some losses for the period. beyond the third trimester.

Bread Financial, which said delinquencies reached 5.7% of its outstanding loans, expects the rate to stabilize around 6%. The credit card issuer recently tightened its underwriting criteria in response to rising inflation and economic pressure on consumers.

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“We’ve done everything we can to make sure consumers have the ability to make payments, and that’s extended the payment window and some aging of accounts,” Bread CEO Ralph Andretta said. to analysts on a conference call to discuss results for the quarter ended September 30. .

Adjusted revenue for the quarter was $979 million, up 15% from the third quarter of 2021, but net income of $134 million was down 35% from the prior year due to a higher provision for credit losses, the company said.

Credit sales totaled $7.7 billion, up 4% from the same period a year earlier. Spending increased 13%, including $125 million spent on Bread’s core technology upgrades.

Average loans were $17.6 billion at the end of the quarter. Delinquency rates recently reached 5.7% of outstanding loans. The company expects this rate to stabilize around 6%.

Andretta told analysts he expects Bread’s average receivables to reach $20 billion in 2023.

On Thursday, Bread unveiled a new credit card-issuing deal with World Market that will target the retailer’s 6.5 million loyalty program members. Andretta also pointed to other recent wins, including renewing a card-issuing deal with clothing retailer Buckle.

Andretta told analysts he was bullish on Bread Pay, the company’s buy now/pay later loan product, which launched earlier this year after Bread name change of Alliance Data Systems. Companies that have signed up for Bread Pay include fitness equipment maker WaterRower and dozens of other small and medium-sized businesses, Andretta said.

More than 125 merchants are now offering Bread installment loans at the point of sale through the company’s partnership with fintech Sezzle buy now/pay later, and the pace of signups is exceeding expectations, Andretta said.

Using technology from digital card issuer Marqeta and other digital wallet providers, users can apply for an instant BNPL loan by scanning a QR code at checkout without needing to download a mobile app, which, according to Andretta, is a first on the market. Rival fintechs that offer BNPL loans, including Klarna and Affirm, typically drive consumers to their mobile app to initiate a point-of-sale purchase.

Bread has a few key competitive advantages over some BNPL fintechs whose growth rates have recently slowed, according to Andretta.

The company’s recent modernization efforts build on Bread’s decades of experience and discipline in lending to middle-income households during economic ups and downs and “a lot of fintechs don’t have that,” it said. Andretta said.

Bread’s subsidiary Comenity Bank also provides a reliable source of funding that many fintechs lack.

Comenity’s high-yield savings accounts and certificates of deposit, offered online as Epargne Pain, continue to grow. The company amassed $5 billion in retail deposit balances, up 70% from the same period a year ago, Andretta said.

Direct-to-consumer deposits accounted for 27% of Bread’s total interest-bearing loans at the end of the third quarter, and the company aims for these deposits to reach 50% of its funding.

Andretta also said that despite perceptions that BNPL fintechs have superior data analytics capabilities, Bread is “data rich” and has recently invested millions of dollars in data and analytics technology to examine the customers, cutting across its dozens of retail partners.

“We have this data lake of information on how consumers have reacted in the last two recessions. I would say [BNPL fintechs] don’t have that level of sophistication,” Andretta said.

Bread recently tightened its underwriting criteria in response to rising inflation and economic pressure on consumers, and said it plans to provide appropriate payment options for stressed consumers.

“We’re hoping for a softer landing over the next year. But again, every recession is a little different,” Chief Financial Officer Perry Beberman told analysts.

In a note to investors Thursday, equity analyst firm Jefferies called Bread’s third-quarter results positive, touting the effects of the company’s recent investments in technology, marketing and product innovation.

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