PayPal boosts Synchrony earnings
Consumer financialservices firm Synchrony Financial reported Friday higher earnings for the third quarter, as it significantly increased its assets.
The Stamford-based company’s revenues rose about 9 percent year over year, to $4.2 billion, boosted by its acquisition of PayPal’s $7.6 billion consumer credit portfolio and loan receivables growth. Profits increased 21 percent, to $671 million.
With their deal, Synchrony and PayPal extended their 14-year co-branded credit card program agreement. Synchrony will serve as the exclusive U.S issuer of PayPal Credit’s online consumer-financing program through 2028, supporting its goal of becoming a major digital-payments player.
“This was a strong quarter for us,” Synchrony CEO and President Margaret Keane said Friday on a call with investment analysts. “We continued to generate organic growth and renew and extend important relationships, while also adding new programs, extending the utility of our cards and focusing on digital innovations to further improve the customer experience.”
Expansion of the PayPal alliance helps Synchrony to offset Walmart’s decision in late July to pick Capital One as the next exclusive issuer of its private label and cobranded credit card program. The deal would end Synchrony’s two-decade run as store-card provider for a $10 billion Walmart portfolio.
With the Walmart partnership set to end in July, Synchrony is considering two options. It could sell the Walmart portfolio to Capital One, which could generate about $2.5 billion for a possible share-buyback program. Alternatively, the company in early
2019 could start converting qualifying Walmart accounts to general-purpose credit cards. Unchanged accounts would remain Walmart cards that could be used with the retailer for the next three years. Today, dual-cards comprise about
50 percent of Synchrony managed Walmart holdings.
“We continue to work closely with Walmart to support the program and will do everything on our end to ensure a successful program transition next year,” Keane said.
As an upshot of the PayPal deal, the company’s allocation for loan losses increased by 11 percent in the past quarter, totaling about $1.45 billion.
Net charge-offs — which refer to debts the company does not expect to recoup — accounted for 4.97 percent of loan receivables in the past quarter, compared with 4.95 percent a year ago.
Synchrony officials said they expect charge-off rates to run between 5.5 percent and 5.8 percent for the year.
Among other major deals in the past quarter, Synchrony renewed partnerships with Lowe’s, JCPenney, Associated Materials and Generac and signed deals with new partners Fred Meyer Jewelers and Eargo. It also expanded its network for its CareCredit cards, which cover outof-pocket medical expenses.
Company shares closed Friday at $31.36, up 5.8 percent from their Thursday finish.