Bread Financial's rocky conversion to a cloud-based credit card processing system last summer dragged down its results a bit during the third quarter, but the company is still bullish on its prospects, including in buy now/pay later lending.
The card issuer said Thursday that its
To protect consumers from incurring late-payment fees due to the glitch, Bread extended the window when payments were due and postponed categorizing accounts as delinquent, which could push recognition of some losses for the period beyond the third quarter.
"We did everything we could to ensure that consumers have the ability to make payments, and that extended the payment window and some aging of accounts," Bread CEO Ralph Andretta told analysts during a conference call to discuss results for the quarter ended Sept. 30.
Adjusted revenue for the quarter was $979 million, up 15% versus the third quarter of 2021, but net income of $134 million was down 35% from a year earlier 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. Expenses rose 13%, including $125 million in spending on upgrades to Bread's core technology.
Average loans were $17.6 billion at the end of the quarter. Delinquency rates recently ticked up to 5.7% of outstanding loans. The company expects that rate will stabilize at around 6%.
Andretta told analysts that he expects Bread's average receivables to reach $20 billion in 2023.
On Thursday Bread disclosed a new credit card-issuing deal with World Market that will target the retailer's 6.5 million loyalty-program members. Andretta also underscored other recent wins, including the renewal of a card-issuing agreement with the apparel retailer Buckle.
Andretta told analysts he's bullish on Bread Pay, the company's buy now/pay later loan product, which rolled out earlier this year following
More than 125 merchants now offer Bread installment loans at the point of sale through the company's partnership with the buy now/pay later fintech Sezzle, and the pace of enrollments is exceeding expectations, Andretta said.
Using technology from the digital card issuer Marqeta and other digital wallet providers, users may apply for an instant BNPL loan by scanning a QR code at checkout without the need to download a mobile app, which Andretta said is a market first. 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 couple of key competitive advantages over some BNPL fintechs whose growth rates 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 the fintechs don't have that," Andretta said.
Bread's Comenity Bank subsidiary also provides a reliable funding source that many fintechs lack.
Comenity's high-yield savings accounts and certificates of deposit, offered online as Bread Savings, continue to grow. The company has amassed $5 billion in retail deposit balances, up 70% over 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 those deposits to reach 50% of its funding.
Andretta also said that despite perceptions that BNPL fintechs have superior data-analysis capabilities, Bread is "data rich" and has invested millions of dollars recently in data and analytics technology to scrutinize customers, cutting across its dozens of retail partners.
"We have that data lake of information of how consumers reacted during the past two recessions. I would argue [BNPL fintechs] do not 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 that it plans to provide appropriate payment options to stressed consumers.
"We're hoping for more of a soft landing as we move through next year. But again, every recession looks a little different," Chief Financial Officer Perry Beberman told analysts.
In a note to investors on Thursday, the equity analysis firm Jefferies rated Bread's third-quarter results as positive, touting the effects of the company's recent investments in technology, marketing and product innovation.
