Synchrony Core Purchase Volumes Grow 11% as Charge-Offs Also Increase

For Synchrony Financial, consumer spending volumes remain robust, receivables increased — and loans past due are on the rise.

As the largest provider of private label cards, Synchrony’s results offer a snapshot of how card spending growth among prime and non-prime consumers has been faring and how they’ve been paying down those obligations.

The great digital shift is still in evidence. To that end, the company said in its latest earnings materials detailing growth across its online business that digital loans were up 17% on its online platform in the fourth quarter to $25.5 billion.

At the end of the year, as management said on the call, the company had presence at more than 460,000 merchant provider locations and 71 million active customers.

“We drove greater mobile customer engagement through a number of initiatives including both our digital wallet provisioning and the Synchrony app accounts provision for digital wallet use,” said CEO Brian Doubles. Per commentary, Synchrony’s mobile wallet sales growth through year-end was 75% in 2022 versus the previous year. The company also saw 70% growth in the number of applications using its application programming interfaces (APIs) and more than 80% growth in API transactions.

The CEO also pointed to a deepening of Synchrony’s relationship with PayPal with the launch of PayPal savings, and where Synchrony has enabled instantaneous movement of funds between PayPal balances.

Purchase Volumes Grow

Drilling down into the fourth quarter, Chief Financial Officer Brian Wenzel noted that purchase volume grew 2% to $47.9 billion, reflecting a 3% higher spend per account versus last year. On a core basis, purchase volume grew 11%. Spending was particularly strong across the Diversified and Value segments, up 15% and Health and Wellness, where growth was 15%.

“The 10% year-over-year increase in digital purchase volume reflected the growth in average active accounts and greater customer engagement,” said Wenzel. Spending on dual and co-branded cards was also string, up 21% year over year, and now accounts for 40% of the company’s “purchase line” for the quarter, said Wenzel. Dual and co-branded cards accounted for 24% of core receivables and increased 28% from the prior year.

Management noted that consumer savings rates have decreased through the past several months: Average deposit balances at the end of December were down approximately 5% from their peak in March of 2022 but still approximately 1% higher than 2021’s average rate. “The saving decline that began around the March, 2022 peak appears to have started to slow in December primarily in terms of its intensity,” said Wenzel.

Paydown Rates are Normalizing

And as consumer savings rates have decreased, the consumers’ paydown of their outstanding loans has been reverting to normal, pre-pandemic levels. Per Wenzel’s observation on the call: “Payment rate normalization trends expanded from the non-prime segments of our portfolio into the prime and super-prime segments where the average outstanding balances tend to be larger relative to period receivables.”

Against that backdrop, the company-wide delinquency rate was 3.7% compared to 2.6% last year, and Synchrony’s 90-plus delinquency rate was 1.69% versus 1.2% in the prior year. The fourth quarter net charge-off rate increased to 3.5% from 2.4% last year.

On the conference call with analysts, Doubles said that “as expected credit continued to normalize across our portfolio with full-year losses of 3%, still more than 250 basis points below our underwriting target of 5.5% to 6%.” Management guided charge-offs to be 4.75% to 5% for 2023.

Asked on the call about consumer spending, Doubles said that, broadly speaking, “the consumer is still healthy. I think they still have savings. We’re seeing really good spend patterns and great spend on our products in particular, you know, last year was a record here in terms of purchase volume. So generally we feel pretty good about the operating environment. With that said, clearly there’s uncertainty as we move throughout the year, depending on inflation and where rates go. So we’re watching that very carefully.”