Synchrony Sees Digital Mix Key to Navigating Uncertain Environment

In today’s uncertain environment, consumers want one thing: choice.

That’s because macroeconomic uncertainty over inflation and interest rates is rocking consumer behavior and affecting big-ticket spend across verticals like home, auto and more, leading consumers to scale back on nonessential retail purchases.

But as Synchrony Financials’ Q2 2024 net earnings, announced on Wednesday (July 17), shows, consumers are also increasingly embracing financing options, installments plans and other credit tools to afford items and services they may not have been able to otherwise.

Synchrony reported earnings of $643 million for Q2, marking a 13% increase from the $569 million reported in the same period last year. Earnings per diluted share also saw a notable rise, from $1.32 in Q2 2023 to $1.55 in Q2 2024. This growth is attributed to higher net interest income and increased average loan receivables, despite the challenging economic environment.

While executives stressed to investors on the call that delinquency trends were in-line with, or better, than seasonality, Synchrony’s Q2 net charge-offs of 6.42% increased from 6.31% in the prior quarter and 4.75% a year ago.

Loans 30+ days past due as a percentage of total period-end loan receivables were 4.47% compared to 3.84% in the prior year, an increase of 63 basis points and approximately 19 basis points above the average of the second quarters in 2017 through 2019, suggesting a slight deterioration in the timely repayment of loans.

“Synchrony’s differentiated underwriting and credit management tools continued to empower our dynamic responses to evolving consumer trends — strengthening our ability to deliver consistent, risk-adjusted returns for our many stakeholders,” said Brian Doubles, Synchrony’s president and CEO.

The company’s average active accounts increased 2%, to 71.0 million, up from 69.5 million.

See also: Synchrony: Personalized Financing Strategy Boosts Big-Ticket Commerce

Business Expansion and Product Enhancements

Synchrony’s strategic initiatives in Q2 2024 underscored its commitment to growth and innovation. The company expanded its portfolio by adding or renewing more than 15 programs, including notable partnerships with Virgin Red and Jerome’s Furniture.

Additionally, Synchrony extended its Verizon program, focusing on maximizing customer value for purchases made at Verizon. The launch of a partnership with Installation Made Easy enables Floor & Decor cardholders to finance both materials and installation, streamlining the customer experience.

However, the company also faced challenges with retailer share arrangements, which decreased by $77 million, or 9%, to $810 million.

“Synchrony’s second quarter results highlight our sustained, high level of execution, as we lean on our core strengths to deliver resilient earnings while positioning our business for future growth,” Doubles said. “We continued to leverage our proprietary data and insights, innovative technological capabilities, and diversified product suite to add new partnerships, expand our distribution networks and deliver enhanced digital wallet capabilities.”

Many consumers are sticking to necessities. According to the February/March edition of the PYMNTS Intelligence “New Reality Check: The Paycheck-to-Paycheck Report,” which surveyed over 4,200 U.S. consumers, 60% of respondents have scaled back on nonessential retail purchases due to price increases.

The company’s performance across various market segments presented a mixed picture against a backdrop of varied consumer spending:

Health & Wellness: Purchase volume in this segment increased by 2%, driven by growth in the Pet category. Period-end loan receivables surged by 15%, reflecting higher purchase volumes and lower payment rates.

Read more: Trending: Financial Solutions Bridge Gap Between Women’s Health and Wealth

Home & Auto: This segment saw a 3% decrease in purchase volume, attributed to lower consumer traffic, fewer large-ticket purchases and the impact of credit actions. Despite this, Synchrony’s acquisition of Ally Lending bolstered the Home Specialty sub-segment.

Digital: Purchase volume decreased by 1%, with continued customer engagement and growth in average active accounts offset by lower spend per account and the impact of credit actions.

Lifestyle: A 3% decline in purchase volume was noted, reflecting lower transaction values and credit actions.

Diversified & Value: This segment remained flat, indicating stable performance amidst economic fluctuations.

“Synchrony again demonstrated the resilience of our business through an evolving environment during the second quarter,” said Brian Wenzel, Synchrony’s executive vice president and CFO. “Our diversified portfolio of products and spend categories continued to resonate well with our customers, even as behavior became more selective in the persistent inflationary environment.”