Synchrony Financial

NYSE:SYF

Earnings Call Transcript 2020-Q3

[Operator]

Good morning and welcome to the Synchrony Financial Third Quarter 2020 Earnings Conference. My name is Brandon, and I’ll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note this conference is being recorded.

I will now turn the call over to Greg Ketron. You may begin, sir.

[Greg Ketron, Director, Investor Relations]

Thanks, operator. Good morning, everyone, and welcome to our quarterly earnings conference call. Thanks for joining us. In addition to today’s press release, we have provided a presentation that covers the topics we plan to address during our call. The press release, detailed financial schedules and presentation are available on our website, synchronyfinancial.com. This information can be accessed by going to the Investor Relations section of the website.

Before we get started, I want to remind you that our comments today will include forward-looking statements. These statements are subject to risks and uncertainty, and actual results could differ materially. We list the factors that might cause actual results to differ materially in our SEC filings which are available on our website.

During the call, we’ll refer to non-GAAP financial measures in discussing the company’s performance. You can find a reconciliation of these measures to GAAP financial measures in our materials for today’s call. Finally, Synchrony Financial is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized webcasts are located on our website.

On the call this morning are Margaret Keane, Brian Wenzel and Brian Doubles. I will now turn the call over to Margaret.

[Margaret Keane, Chief Executive Officer]

Thanks, Greg, and good morning, everyone. With the global health practice still looming and continued racial injustice, there is a continued disruption to our lives, businesses and the economy. As we continue to respond as a company, we have put people at the forefront of our decision, and I'm extremely proud of our actions to address these crisis.

We've made thoughtful forward-looking decisions to support our employees and families, our customers, our partners, our communities and our shareholders. Using agile principles, we have realigned and reimagine the way we work, quickly advancing our most important cultural and business priorities, including the successful launch of two new important programs in the midst of a pandemic.

Using safety and maximum flexibility for employees as a backdrop, all of our U.S. employees can now permanently work from home. Doing so has also allowed us to transform our physical footprint.

We have reduced the size of some of our sites in closing, other sites entirely.

These changes stemmed from our employees desire to work from home. Their productivity in this environment will help us drive long- efficiency and profitability of our business.

As part of this effort, today, we announced a restructuring charge of $89 million in the third quarter, which encompasses our new site footprint strategy. We are also being thoughtful, targeted and aggressive on our cost structure as we move forward, allowing us to continue our focus and investment in future growth.

Digital innovation is paramount to the success of our program. Consumers are rapidly adopting technologies that enable contactless e-commerce, and we are responding to ensure our partners are well positioned for this rapidly evolving dynamic. Deep technology investments have enabled the company to respond quickly to partners and cardholders with resources to help them adapt to the challenges of this new environment.

We are providing enhanced, innovative digital solutions for our partners and cardholders, further strengthening our market position. Brian Doubles will cover some of our recent digital innovation shortly.

Shifting quickly to change how we are operating our business, where we are allocating capital and making investments is essential to our current and future success. We are confident that these actions and our long-term strategy will make us stronger and even more competitive as manage through the economic cycle caused by the pandemic.

I'll now turn specifically to our third quarter results, and some of our recent successes, which are outlined on slide 3. Earnings for $330 million or $0.52 per diluted share, this includes the restructuring charge of $89 million or $67 million after tax which equates to an APS reduction of $0.11. It also includes an increase in provision for credit losses. As a result of the CECL implementation this year, which was $66 million or $50 million after tax which reduced EPS by $0.09.

The pandemic have continued to impact results this quarter. Brian Wenzel will provide details on the translator and the call. And I will provide a high level overview here. On a core basis, which excludes Walmart and the Yamaha portfolios, the impact of COVID-19 drove a 5% decrease in loan receivables and a 12% decrease in interest and fees.

Purchase volume was flat and average active accounts decreased 8%. The efficiency ratio was 39.7% for the quarter. As a result of our liquidity and funding strategy in response to the COVID-19 impact on our balance sheet deposits were down 2.5 billion or 4% versus last year. This includes a strategic decision to slow overall deposit growth, given the excess liquidity we have.

Total deposits comprise 80% of funding, and our direct deposit platform remains an important funding source. Our ability to service and provide digital tools to customers makes our bank attractive to depositors and we will continue to build out additional capabilities.

During the quarter we returned $129 million in capital through common stock dividends. We also extended several programs and added new partnerships, which you can see on the slide. One of our most notable renewals is with Sam's Club. We are very pleased to extend our strategic partnership with a new multi year agreement that builds upon our 25 year credit card relationship.

The extension enhances reward and drive incremental value for members and small businesses. And we continue to bridge the digital and physical experiences with innovative payment technologies. We have also successfully launched the Venmo program and Brian doubles will provide more detail shortly.

We are pleased with the strength of our business, our ability to win program and launch innovative new products, and our capacity to rapidly adapt to ensure that we are well positioned to continue to help our cardholders and partners, navigate these challenging times. I'm now going to turn the call over to Brian Doubles to discuss Venmo, and our accelerating digital and product innovation.

[Brian Doubles, President]

Thanks Margaret. I will spend a few minutes talking about the exciting launch of our Venmo program. We are pleased to deepen our long standing relationship with PayPal and Venmo with the launch of the first ever Venmo card.

The card unlocks new ways for Venmo a community of more than 60 million customers to shop. Share split purchases and earn cashback everywhere VISA credit cards are accepted, together with Venmo our open banking API's offer a seamless payment experience for users, Venmo customers can easily apply, buy and manage their account right inside the Venmo app.

Another card enhancement is the inclusion of a personalized QR code on the card itself, which can be scanned with a mobile phone camera to activate the card, or in the Venmo app by friends to send a payment or split purchases.

The card also sets a new standard in the industry through its intelligent, auto personalized rewards program. The innovative, dynamic rewards experience maximizes opportunities to earn cashback. Each month customers automatically earn cashback on the categories where they spend the most with the top 10 categories changing based on the customer's monthly spending habits.

In addition to many other features that facilitate a seamless contact experience. The Venmo credit card provides customers an easy way to manage their card and spending right in the mobile app. Customers can track activity organized by spending categories, split and share purchases, view cashback status, make payments, configure alerts, manage the credit card and more all in the app.

Lastly, we're also delivering a scalable platform that engages customers with real time notifications. At every stage of their experience with our new Venmo program. We are introducing card controls that empower customers to set rules to manage their account in the way that fit them best, including spending limits, geographical limits and credit lines.

Adoption of card controls increases loyalty and top of wallet use for our partners and demonstrate Synchrony's social responsibility platform of promoting financial well-being.

We brought together the best of both worlds, combining PayPal and Venmo's digital innovation with Synchrony's digital and industry expertise. That makes a difference when it comes to deeply engaging with users, from increasing credit line assignments, to providing more personalized offers, to reducing fraud. PayPal and Venmo continued to transform the payment experience for consumers, and we're proud to be their partner of choice.

Next, I will spend a few minutes on our recent digital and product innovation. The digital transformation has been well underway for several years. However, the pandemic has drastically accelerated the adoption of the technology that enables the digital shopping experience, particularly as it relates to the digital integration at the point-of-sale and contactless payment.

The fact that consumers are seeking and rapidly adopting contactless solutions is creating greater demand for our partners to deliver safe and efficient shopping experiences, and to provide attractive financing options at the point-of-sale. We are well-positioned to address these evolving behaviors. Our agile approach has enabled us to support our partners as they strive to quickly meet these new demands. We have continued to invest in our digital assets and capabilities. Quickly recognizing in the early days of the pandemic that we needed to accelerate many of our efforts to support our partners as they continue their digital transformation. We have reallocated resources and agile teams to fast track key digital initiatives for our partners.

Among the most critical digital innovations is one that is empowering fast and simple integration for our partners. Our next-generation native software development kit, or SDK, for partner integration. Rooted in user testing and research, the new patented SyPi technology offers a modern look and feel and allows our users to seamlessly apply, manage, pay and redeem rewards without ever leaving the partner's native app.

Further enabling ease of integration for our partners is our expansive application programming interface, or API platform, for full credit life cycle capabilities. We offer a full suite of servicing APIs, with account and card management, accompanied by API's powering, the apply and buy experience digitally and at the point-of-sale. Giving customers choice at the point-of-sale is also critical, and we continue to invest and develop in order to meet customer demand.

To complement our existing revolving credit offerings, we have rolled out an installment product called SetPay. We are currently in market with multiple payment solutions partners, and we'll be continuing to expand in 2021.

To further enhance the contactless cardholder experience, we are also leveraging QR code technology. Using this technology, cards can be activated by scanning a QR code from the partner's app, or in the case of Venmo, a QR code printed on the plastic can be scanned to initiate sending a payment or to split purchases.

In CareCredit, we have customized QR codes at providers' offices, which directs the patient to apply for a CareCredit account in the comfort of their own device. We also have the ability to deliver a safe and easy way for customers to pay in store and at the point-of-sale without needing the physical card, through barcodes delivered via SyPi within the retailer's app. The current technology has been enabled in the Lowe's app, and is driving sales app downloads.

Further, we are bringing in-store experience to a customer’s personal device for applications and payments. We have a patent-pending technology that provides an efficient contactless experience for customers using our own smartphones. The technology enables the transfer of data between the business and customers' mobile devices in store.

For example, if a customer shops in-store and wants to open a line of credit, the business can send the application to the customer's mobile device through e-mail or QR code. The direct-to-device technology was brought to market with our Verizon card earlier this summer, and we are working with our partners to scale this innovation across industries.

We are also integrating our financing offers throughout the entire digital shopping experience. In today's world, consumers enter websites on their own terms via a multitude of entry points, and every page is essentially now a landing page. Content, including access to credit and financing options, need to be optimized to drive conversion for our partners and connect the audience to the information needed to make an educated purchase and financing decision.

We've had a long tradition of credit integration within the homepage of our larger clients, and have continued to invest in best practices for path to purchase site integration. We've increased presence across the shopping journey with prominent placement of the financing offer on product pages, the shopping cart and during the checkout process. These digital solutions allow the consumer to engage in financing, at the point in which they are making a purchase decision and significantly increases the sales conversion rate for our partners.

We are complementing these leading digital integrations with path to purchase data analytics and research by industry. This data, inclusive of heat mapping the user experience, helps our clients identify where consumers are seeking information on financing and credit and has resulted in increasing conversion rates and applications. We will continue to invest in our digital capabilities, as they are paramount to driving digital sales penetration, an increasingly important component to the success of our program.

In retail card, digital sales penetration was 47% in the third quarter, and digital applications were approximately 60% of our total application. The mobile channel alone grew 29% compared to the same quarter last year, excluding Walmart. Further, more than 65% of total payments made on our cardholders' accounts are done digitally.

We are committed to providing partners and customers with enhanced innovative digital options from applying on their own devices, provisioning a new card into their digital wallet, transacting with contactless cards and making payments. Customers will continue to adapt to this new way of commerce, and we are committed to providing the digital and product innovations to support this evolution.

And with that, I'll turn the call over to Brian Wenzel.

[Brian Wenzel]

Thanks, Brian, and good morning, everyone. As Margaret said earlier, we are determined to keep our employees safe and help our partners, customers, and communities succeed during this difficult time. Despite continued uncertainty and volatility, we are grounded and guided by our values, and I'm so proud of how our people have continually shown resilience, dedication, and empathy to help those we serve. As always, I also want to thank those who are helping to keep us safe and healthy during this unprecedented time.

Now, I'll turn to our financial results for the third quarter. I'll start on slide six of the presentation. First, I want to cover some of the trends we are seeing from the impact of COVID-19 from a purchase volume standpoint and thought it was important to provide an update on the performance of accounts that receive forbearance. Slide six shows year-over-year purchase volume growth for the total company and by platform dating back to January.

As noted in our second quarter earnings call, purchase volume growth was strong for the total company and by platform with double-digit growth in January and February, leading into March. As we move through March and government restrictions increased, travel, entertainment, and many discretionary activities were significantly curtailed and a high number of non-essential businesses were closed. There was also a significant curtailment of elective healthcare services.

As a result, purchase volume decreased significantly, with April declined 27% for the total company. And looking at April by sales platform, Retail Card declined 21%, Payment Solutions declined 41%, and CareCredit declined 60%.

CareCredit was impacted the most with a significant decrease in spending for elective and planned procedures in dental and medical services during this period. Retail Card performed better due to the higher concentration of digital volume as well as having programs that benefited from an increase in spending for essential products, such as grocery, supplies, and home-related expenditures.

As consumers became more comfortable under stay-at-home orders, and reopening of businesses continued over the summer and into the fall, we saw a recovery in purchase volume as we move through the second and third quarters.

In September, overall purchase volume increased 5% over the prior year and each of the three sales platforms saw a significant recovery in purchase volumes from the April trough, with Retail Card up 7%, CareCredit up 5%, and Payment Solutions down only 4% compared to a year ago.

Looking at some of the other key business drivers for the quarter, new accounts declined 17%, a significant improvement over the second quarter where new accounts declined by 36%. The decline in new accounts, while improving, does reflect the impact of the crisis as well as underwriting refinements we implemented.

Purchase volume by account increased by 8% during the quarter, again, a significant improvement from the 8% decline in the second quarter. There is also a 4% increase in the average balance per account due to the combination of portfolio mix from our digital and retail partners as well as lower volume and new accounts.

While we're encouraged by these trends, there's a tremendous amount of uncertainty ahead, including whether further stimulus measures will be enacted and when industry-wide forbearance actions fully abate.

However, our business mix, which includes a strong digital component as well as segments that are positioned to benefit, such as home-related products and veterinary services, has helped to dampen some of the effects of the economic downturn. The ultimate impact is still largely uncertain given the duration of magnitude of pandemic is still largely unknown at this point.

Moving to slide seven, we highlight the impact and performance of accounts that were granted forbearance compared to accounts not in forbearance. Through September 30th, we granted minimum payment forbearance to a cumulative total of approximately 2 million accounts or a $3.8 billion in account balances at the time of forbearance. We have seen approximately 94% of these accounts need forbearance through September 30, being approximately 119,000 accounts or $227 million account balances remaining in forbearance. Through mid-October, these numbers have been relatively stable.

Of the accounts in enrollment forbearance, approximately 92% of the balances are either current or less than 30 days past due. When you look at some of the performance characteristics, you will see trends that are not surprising. Credit line utilization is higher, payment rates are lower, and from a credit perspective, 59% of enrollees had a FICO score of 660 or below.

From a trend perspective, we continue to see a substantial decline in the number of accounts enrolling in forbearance from a peak in late March to early April, where we saw nearly 40,000 accounts enrolling per day to approximately 3,500 accounts per day in September.

Looking at payment behavior for September, 66% of the accounts that enrolled in forbearance were making payments. 8% of the accounts pay their balance in full, another 58% were making payments, leading 34% of the enrolled accounts not making payments.

In looking at performance post program, we see a higher incident rate of accounts going delinquent and accounts that did not enter the forbearance program. For accounts which were current and timely entered the forbearance program, we see those accounts entering delinquency post-program at a rate of 3.3 times non-forbearance accounts.

For accounts which were delinquent when they entered the forbearance program, we see those accounts entering delinquency post-program at a rate of 6.5 times non-forbearance accounts.

It should be noted that the current status of these accounts is reflected in our delinquency statistics, and has not had a material impact on our 30 plus delinquency measures, which continued to improve during the third quarter. I’ll cover delinquency performance later in the presentation.

Our intention is to cease enrolling accounts into or extending the existing accounts in the forbearance program at the end of October, and saying ready to provide other forms of assistance to impact the cardholders. We will continue to closely monitor the performance of accounts who receive benefits from the forbearance program.

Moving to the financial results on Slide 8. This morning, we reported third quarter earnings of $313 million or $0.52 per diluted share. This included a restructuring charge related to our previously announced strategic plan to evaluate our cost structure as a result of our shift in business mix and impact on the pandemic.

The result was a series of actions, which included an exit or reduction in a number of our leased properties and certain employee-related actions, both on a voluntary and involuntary basis. The charge was recorded in the third quarter totaled $89 million or $67 million after-tax and reduced EPS by $0.11. The increase in the provision for credit losses, as a result of the implementation of CECL, was $66 million or $50 million after tax, which reduced EPS by $0.09 in the third quarter.

COVID-19 continued to impact our growth in several areas, as noted on Slide 9. On a core basis, which excludes the Walmart and Yamaha portfolios, loan receivables were down 5%, and interest and fees on loan receivables were down 12%. On a core basis, purchase volume was flat, and average active accounts were down 8% compared to last year.

Dual and co-branded cards accounted for 36% of the purchase volume in the third quarter and declined 5% from the prior year. On a loan receivable basis, it accounted for 23% of the portfolio and declined 7% from the prior year.

As I noted earlier, the impact of COVID-19 moderated as we move to the second and third quarter, specifically two of our three sales platforms saw a year-over-year increase in September. While we're seeing positive trending, the duration of magnitude of pandemic is still largely unknown, and it remains difficult to assess the stability and trends or provide a more precised forecast of the impact at this point.

RSAs decreased $117 million or 12% from last year. RSAs as a percentage of average receivables was 4.6% for the quarter, reflecting the seasonality we RSAs decreased typically see in the third quarter as well as improved performance in certain elements of the sharing arrangements from some programs, mainly significant improvement in net charge-offs compared to last year.

On a year-over-year basis, the RSA percent was also impacted by the discontinuance of the Walmart program last year, which operated an RSA percentage below the company average. The provision for credit losses increased $191 million or 19% from last year. The increase is primarily driven by the reserve increase for the projected impact of the COVID-19 related losses and the prior year reserve reduction related to Walmart that totaled $326 million, partially offset by lower net charge-offs.

The reserve build for the third quarter was $344 million, and largely due to the production impact of COVID-19-related losses, which I'll cover in greater detail later in the presentation. Other income increased $46 million, mainly due to lower loyalty costs resulting from the discontinuance of the Walmart program and a decline in purchase volume.

Other expense was flat to last year, with restructuring charge and expenses related to our COVID-19 response being offset primarily by the cost reductions from the Walmart sale. Also reducing other expenses was the impact from lower purchase volume and average active accounts experienced during the quarter and reduction in certain discretionary spend.

Moving to our platform results on Slide 10. As I noted earlier, the sales platforms continue to be impacted in varying degrees due to COVID 19. In Retail Card, core loan receivables were down 6%, with the COVID-19 impact being partially offset by strong growth in our digital programs. Other metrics were down, driven by the sale of the Walmart portfolio and the impact from COVID-19.

As Margaret noted earlier, we're excited to launch the Venmo program after launching the Verizon program last quarter, as well as renewing and extending the key relationship with Sam's Club this quarter. The strength of powersports and Payment Solutions helped to offset the impact of COVID-19. Core loan receivables declined 1%. Interest and fees on loans on loans decreased 10%, driven primarily by lower late fees. Purchase volume decreased 6%, and average active accounts decreased 7%.

We signed a number of new programs and renewed key partnerships this quarter, as noted on Slide 3. We continue to drive growth organically through our partnerships and networks, and added over 4,000 new merchants during the quarter. These networks, along with other initiatives, such as driving higher card reuse, which now stands at approximately 30% of purchase volume, excluding oil and gas, continue to build a solid base of business for the future.

Although CareCredit was impacted the most by COVID-19 earlier this year, we continue to see some encouraging signs in the trends during the third quarter, as providers continue to increase the degree of elective and planned services. Receivables declined 7%, primarily due to the negative impact of COVID-19. Interest and fees and loans decreased 8%, primarily driven by lower merchant discount as a result in decline in purchase volume, which was down 3%. Average active accounts decreased 8%.

As Margaret noted earlier, we're excited to launch 3 new health systems during the quarter, which brings the total number of health systems we currently operate into nine. We continue to expand our CareCredit network and the utility of our card, as we added nearly 2,000 new provider locations to our network during the quarter. The network expansion has helped to drive a reuse rate to 59% for purchase volume in the third quarter.

I'll move to slide 11, and cover our net interest income and margin trends. Net interest income decreased 21% from last year, primarily driven by a 22% decrease in interest and fees on loan receivables, due to the impact of COVID-19 and the sale of the Walmart portfolio. On a core basis, interest and fees on loans decreased 12%.

The net interest margin was 13.80% compared to last year's margin of 16.29%, largely driven by the impact of COVID-19 on loan receivables, an increase in liquidity and lower benchmark rates. Specifically, the mix of loan receivables, as a percent of total earning assets, declined approximately 640 basis points from 84.7% to 78.3%, driven by higher liquidity held during the quarter. This accounted for a 124 basis points of net interest margin decline, a 193 basis point decline in loan receivable yield, primarily driven by lower benchmark rates and the sale of Walmart portfolio.

The impact from lower primary movements accounted for approximately 75 basis points of the decline. The remaining reduction of approximately 120 basis points in loan receivable yield is primarily attributable to higher payment rates, resulting in lower revolve rate and lower late fee incidents.

The total reduction in loan receivable yield accounted for 164 basis points of the reduction in our net interest margin. The investment securities yield declined as a result as a result of lower benchmark rate and accounted for 29 basis points on net interest margin decline.

These impacts were partially offset by an 81 basis point decrease in total interest bearing liabilities cost to 1.90%, primarily due to the lower benchmark rates and lower deposit pricing. This provided a 68 basis point benefit to our net interest margin.

Excluding the main impacts of COVID-19 has had on our net interest margin, the decrease in loan receivables and the increase in liquidity, the net interest margin will be trending closer to 15%.

Next, I'll cover our key credit trends on slide 12. In terms of specific dynamics in the quarter, I'll start with the delinquency trends. The 30-plus delinquency rate was 2.67%, compared to 4.47% last year. The 90-plus delinquency rate was 1.24% compared to 2.07% last year. Higher payment trends are helping drive the improvement in delinquency rates.

Focusing on the charge-off trends, the net charge-off rate was 4.42% compared to 5.35% last year. The reduction in net charge-off rate was primarily driven by the Walmart sale and improving credit trends. Excluding the impact of the Walmart portfolio, net charge-off rate was approximately 45 basis points lower than last year. The allowance for credit losses as a percent of loan receivables was 12.92% post-CECL implementation. Excluding the effects of CECL, the allowance under the ALLL method would have been 8.25%. The reserve build in the third quarter was $344 million under CECL, and $278 million under the ALLL method. The overall reserve provisioning was higher-than-expected due to the impact in 2019, which accounted for most of the reserve build in the third quarter.

More specifically, our reserve build was driven by two main factors. First, an increase in the provision for accounts that received forbearance benefits; second, a projected diminished effect from stimulus.

In summary, the third quarter credit trends continue to be strong and better than our expectations, with forbearance providing a degree of benefit in delinquency trends. We do expect overall credit trends will be impacted by COVID-19 as we move forward.

Moving to slide 13. I'll cover expenses for the quarter. Overall, expenses were flat to last year, totaling $1.1 million for the quarter. Restructuring charge and expenses related to our COVID-19 response were offset primarily by the cost reductions from the Walmart sale, the lower purchase volume and average active accounts experienced in the quarter and reductions in certain discretionary spend.

Efficiency ratio for the third quarter was 39.7% versus 30.8% last year. The ratio was negatively impacted by the restructuring charge and expenses related to our response to COVID-19. Excluding those impacts, efficiency ratio would have been 370 basis points lower, or approximately 36% for the quarter. Excluding the impact of the restructuring charge and the COVID-19-related expenses, the increase in ratio was mainly driven by the decrease in revenue that resulted from lower receivables and lower interest and fee yield.

Moving to slide 14. Given the reduction of our loan receivables and strengthen in our deposit platform, we continue to carry a higher level of liquidity during the third quarter. While we think it is prudent to have higher liquidity levels, given the level of uncertainty and volatility, we are actively managing our funding profile to mitigate excess liquidity.

As a result of this strategy, there was a shift in the mix of our funding during the quarter. Our deposits declined by nearly $2.5 billion from last year. We also reduced the size of our securitized and unsecured funding sources by $3.1 billion and $1.4 billion, respectively. This resulted in deposits being 80% of our funding, compared to 76% last year, with securitized and unsecured funding, each comprising 10% of our funding sources at quarter end.

Total liquidity, including undrawn credit facilities, was $27 billion, which equated to 28% of our total assets. This is up from 20.5% last year. Before I provide details on our capital position, it should be noted that we elected to take the benefit of the transition rules issued by the joint Federal banking agencies in March, which has two primary benefits.

First, it delays the effect of the transition adjustment for an incremental two years; and second, allows for a portion of the current period provisioning under CECL to be deferred and amortized with the transition adjustment. With this framework, we ended the quarter at 15.8% CET1 under the CECL transition rules, 130 basis points above last year's level of 14.5%.

The Tier 1 ratio was 16.7% under the CECL transition rules, compared to 14.5% last year, reflecting the preferred stock issuance last November. The total capital ratio increased 230 basis points as well to 18.1%, also reflecting the preferred issuance. And the Tier 1 capital plus reserve ratio on a fully phased-in basis increased to 27.3% compared to 20.7% last year, reflecting the increase in reserves as a result of implementing CECL and the preferred stock issuance. During the quarter, we paid a common stock dividend of $0.22 per share.

Earlier this year, we announced that given the current economic uncertainty and being as prudent as possible, we made the decision to halt further share repurchases until we have greater visibility on the magnitude and the impact COVID-19 will ultimately have in the economic environment. We will continue to evaluate this as we move forward. Overall, we continue to execute on the strategy we outlined previously. We are committed to maintaining a very strong balance sheet, with diversified funding sources and operate with strong capital and liquidity levels.

In closing, given the number of uncertainties that continue to exist regarding the severity and duration of the COVID-19 pandemic, and the countering impacts that stimulus has had and could have going forward, it remains difficult to assess the ultimate impact at this time and provide specifics around key outlook drivers.

As I did last quarter, I want to provide a framework to help consider the impacts on our key outlook drivers. Regarding loan receivables growth, COVID-19 has had an impact on purchase volume, but we've seen positive trending in improvement in purchase volume.

As long as the pandemic does not worsen and businesses remain open, we expect this trend to continue or to be stable. What continues to help our trends and resiliency is growth in digital, diversity inside our platforms, and financing in essential areas, such as home and healthcare. We will continue leveraging our capabilities and expertise to help our partners and providers during this difficult period.

This overall direction in purchase volume will be a key influence in our receivables growth rate. We've also seen higher payment trends, which has also impacted our loan receivables growth. This also favorably impacts credit trends as evidenced in our lower delinquency rates and net charge-offs.

The offset to this is lower revolve and fees are non-accounts, negatively impacting loan receivable yields and the net interest margin. When the effects of stimulus and industry-wide forbearance program subside and delinquencies begin to increase, we expect payment rates to decline and have provided a positive impact to loan receivable growth.

Our net interest margin has also been impacted by a number of other factors, including a higher level of liquidity and a reduction in the size and yield from the receivables due to lower benchmark rates, lower revolving fees, and the impact of forbearance.

As we move forward, we will continue to look at ways to deploy a higher level of liquidity and the impact of forbearance should be. Should the current trends continue, we do believe the net interest margin has stabilized and should improve prospectively.

As I indicated earlier, we do expect payment rate to decline and believe the revolve rate will increase as well as fees, which will also be a benefit to the net interest margin.

Regarding RSAs, we expect an impact from higher credit costs in the future. While some programs are benefiting from lower net charge-off levels currently, we expect net charge-off levels to increase and impact the flow through of the RSAs. The ultimate amount of credit cost impact and timing will be determined somewhat by the expected deterioration in credit, as stimulus actions and industry-wide forbearance assistance abates.

While we expect net charge-off rate to increase in the near-term, it should be noted that overall portfolio quality and credit trends, as we entered into this pandemic, were strong and continue to improve throughout the year into the third quarter. Also the tools and capabilities we have highlighted previously to help us better navigate the economic impacts from COVID-19.

As we move forward, reserve bills may be somewhat elevated in comparison to the outlook we provided in January when taking into account seasonality. Until we gain more visibility into the duration of severity of the current pandemic, we cannot provide more specific guidance.

Regarding the efficiency ratio, activity levels will impact revenue and expense levels and we will mitigate some of this impact through the recently announced strategic plan to reduce our operating expenses. We expect the cost savings from this plan to be in the $150 million to $250 million range for 2021. As a plan is executed, we expect the cost save run rate to increase throughout 2021. Beyond 2021, we expect to see even higher cost saves from this plan.

In closing, the business remains fundamentally strong and resilient and we're going through the situation with a strong balance sheet, capital and liquidity position.

With that, I'll turn the call back over to Margaret.

[Margaret Keane, Chief Executive Officer]

Thanks, Brian. I'll provide a quick wrap up, and then we'll open the call for Q&A. Clearly, the coronavirus pandemic has meaningfully impacted our business in several ways, including key areas such as purchase volume and loan receivables. As we have said, the ultimate impact from this crisis remains difficult to quantify right now. So what I can tell you is that our ability to rapidly adapt to the evolving environment positions us well.

We are confident in the fundamental resilience of our company and our ability to manage through this cycle, just as we have managed through other cycles for nearly 90 years. Our partner-centric business model and agile approach to our operations and investments are enabling the rapid deployment of innovative solutions to support our partners and cardholders.

We remain focused on execution today, with an eye towards the future, making investments, building capabilities, launching programs and making the fundamental changes necessary to emerge from this pandemic in a stronger position. Thank you for participating on the call today, and I hope you and your families stay healthy and safe.

I'll now turn the call back to Greg to open up the Q&A.

[Greg Ketron, Director, Investor Relations]

That concludes our comments on the quarter. We will now begin the Q&A session. So that we can accommodate as many of you as possible, I’d like to ask the participants to please limit yourself to one primary and one follow-up question. If you have additional questions, the Investor Relations team will be available after the call. Operator, please start the Q&A session.

[Operator]

Thank you. We will now begin the question-and- answer session. [Operator Instructions] And from Jefferies, we have John Hecht. Please go ahead.

[John Hecht, Jefferies]

Good morning, guys. Thanks very much. Just related to the provision expense. It seems – well, I guess, the question is, is this more of a general increase in the allowance tied to just general uncertainty, or is it more of a precised provision tied to certain elements you're seeing in the deferral program?

[Brian Wenzel]

Yes. Good morning, John. So the provision – the way to think about the provision for the quarter is when you look at the macroeconomic environment. When you look at growth, when you look at our kind of precision, that all netted out to roughly flat to a small provision.

When we look at two specific elements, as we closed the quarter, one being the forbearance accounts that have come off program, given the delinquency rate they had when we evaluate those accounts, we thought there needed to be a higher provision associated with those particular accounts beyond what was included in the base reserve. So there was an incremental, call it, $200 million to $225 million associated with those accounts that are in delinquency today that we're in the forbearance program or current today that may roll into forbearance. And the residual piece really went to our view on the stimulus. And the fact that our view, the timing of the stimulus as well as the efficacy of the stimulus would be delayed. So there's an incremental provision of roughly $75 million associated with the stimulus delay.

[John Hecht, Jefferies]

Okay. Thanks for the detail. And then the SetPay product, that's consistent with a lot of the consumer demand we're seeing now in the marketplace. Maybe if you could just give us a sense of the growth potential, growth trajectory of that product? And then will the – call it, the economics, meaning the yield and the anticipated losses and so forth, be consistent with the overall credit program?

[Margaret Keane, Chief Executive Officer]

Thanks, John. Thanks for the question. I'd say two things. One, we wanted to address the market. We already had installment light products out there, which meet our return hurdles. So we are being very thoughtful and cognizant and looking at how these products work. But I would tell you that what we're looking to do really with SetPay is to offer the customer choice between our different product set. And hopefully, do this in a way that's online.

So as the customer is making the purchase, particularly a big purchase, they have the opportunity to do the SetPay product. And we're looking to do that in light of our overall portfolio with returns and – that we have in the business today. So we're not looking to minimize or reduce our returns because of that product.

Look, I think everyone's looking at these products as a big part of the market. There's lots of sales out there. These products are still a really small subset of the market. But I do think we felt competitively, it was important to really position ourselves to have that product with – for consumers. But I don't think, down the road, you're going to see this as a big part of who we are, but another product to really help our partners grow their business.

[Brian Wenzel]

Thanks, John. Thanks very much. The reason for that is I think a lot of our partners, while they want to offer this product, to Margaret's point, and have choice for the consumer, we've spent a lot of time working with our partners to get reused on the card, and Brian talked about earlier. And so we have some partners who say, look, I want to offer a revolving product to get that second and third purchase. And that's been something we've been working on for well over 5 years now. And they're not as enamored with the one-and-done product. But look, at the end of the day, we want to be able to offer choice at the point-of-sale.

[John Hecht, Jefferies]

That makes sense. Thank you guys very much.

[Brian Wenzel]

Thanks John. Have a good day.

[Operator]

From Credit Suisse, we have Moshe Orenbuch. Please go ahead.

[Moshe Orenbuch, Credit Suisse]

Great. Thanks. Maybe just a follow up on that reserving question, Brian. So as we think about it going forward, should we think that the reserve would be at a comparable percentage if there's no kind of macroeconomic changes? Are there other things kind of as we go into 2000 – the fourth quarter and into 2021, to consider in terms of that reserve build or third quarter decrease?

[Brian Wenzel]

Good morning Moshe. So the way I would think about it is, we feel that we're adequately reserved at the end of September for both the forbearance count specifically, but the overall portfolio, assuming macroeconomic trends don't move significantly. And to be honest with you, to make sure that pandemic stays in check with where it is today, the real impact to reserves will be growing in the portfolio and any shifts in the portfolio we see between the platforms.

[Moshe Orenbuch, Credit Suisse]

Got it. Thanks. And I thought the – from the standpoint of kind of new account generation, you said the number of new accounts was down from a little over 6 million to just a little over 5 million. Maybe as you kind of think about the various factors there, obviously, where we are in the county, the 2 launches that you've got in all of the initiatives, can you talk a little bit about that metric? What that's going to look like in the fourth quarter and into 2021? And I might mean for the growth that you want to see?

[Margaret Keane, Chief Executive Officer]

Thanks, Moshe. It's Margaret. I'd say two things. One, we're -- I would say, in September, we did start seeing store traffic start really coming back at a bigger pace. We still originate a lot of accounts in-store. So having that in-store traffic come back, I think, is going to be very helpful. I think as we continue to market our new programs, where we'll see positive trend there.

I think the real question mark is really how does holiday play out? Right now our view is consumers are saying they want to shop, and they want to do something fun and be out there. So I think holiday is going to play into this as well. And then the only maybe negative or downside to that would be, we did -- we do tighten credit during this period. So we are being careful there. We don't want to just open up the faucet, if you will, to new accounts. So we're really being soft on capital on how we're underwriting. But I think the trends we started seeing in September with more store traffic, should help our new account volume as we go into the fourth quarter.

[Moshe Orenbuch, Credit Suisse]

And just anything about the new programs impact either in the third quarter or March?

[Margaret Keane, Chief Executive Officer]

Well, yeah, I mean, I would say Verizon is tracking very well. They were slower to open stores. So we're just starting to see store traffic from them. They were more online, but we're really seeing that pick up, and we're really pleased with how Verizon is playing out. Venmo, on the other hand, still in a softer launch. So we're really still testing and piloting that product. But again, the results so far have been extremely positive. If you haven't applied for the card or, I guess, you can apply, you got to get off it. But for those who've gotten off the card, we've gotten really, really positive feedback in terms of the value prop, how the card works, how easy it is to activate, how easy it is to purchase with it. So we anticipate the Venmo product to be a big part of our growth story as we go into 2021.

[Brian Wenzel]

Yeah. The way I'd frame it, for the quarter, Moshe, the fourth quarter, both Verizon and Venmo won't have a large impact, it's really be more into progress into 2021. And Margaret's point really about stores opening up the biggest wildcard with regard to new accounts in the fourth quarter will ultimately be the channels, right? We see some differences in new accounts per your digital channels versus your in-store. So that could be a very favorable trend for us, we hope in the fourth quarter.

[Moshe Orenbuch, Credit Suisse]

Thank you.

[Brian Wenzel]

Thanks, Moshe. Have a good day.

Operator: From Bank of America, we have Mihir Bhatia. Please go ahead.

[Mihir Bhatia, Bank of America]

Hi. Thanks for taking my questions, and good morning. I just wanted to start. Maybe could you just give us your CECL assumptions just on GDP, unemployment assumptions this year, and maybe exiting next year?

[Brian Wenzel]

Sure. Good morning. So the baseline measure that we used, which is really coming off of the Moody's August baseline metric, which has unemployment at that point being 9.9% at the end of this year, 7.9% in 2021 and 4.5% in 2022. And as we've gone through and done our modeling off of that, the way which we interpret it, we actually have redistributed that unemployment curve. So effectively, the unemployment we have at the end of the year is 9.7%, down from the second quarter, 9.1% in 2021, up slightly from our previous estimate and 6.3% in 2022. So we have a little bit slower recovery back into 2021, as we think things have pushed out, which partially, as we talked about, some of the stimulus and other metrics. And then, the GDP assumptions we have in line with the Moody's, the baseline model, to be honest with you, which had a linked quarter 5.4% decline in the third and 0.7% in the fourth.

[Mihir Bhatia, Bank of America]

Great. Thank you. And then, I just had -- I wanted to just talk maybe -- just go back to the discussion on, I think, buy now, pay later, the installment product. And I wanted to see -- ask about the impact on the retail card business, I understand that it's a small part of the market right now, overall. But we're starting to see it at more and more retailers.

And just as an example, PayPal, one of your partners launched Pay in 4, and it shows up right alongside PayPal credit on the checkout screen. So it seems like there's at least some cannibalization risk. Now, I understand Pay in 4 is new, but some of the other BNPL products have been around for a while. So I was curious, how you -- how are you viewing those products? And have you seen any impact from those products on the Retail Card platform that you already have? Thank you.

[Margaret Keane, Chief Executive Officer]

I'd say, no, we've not really seen a big impact on our portfolio or with our partners. I think that is why we have set pay out there. And I do think having customer choice is going to be the thing that we want to really do. We want to do that mobilely as well, so that customers, when they're in the shopping cart, can make a choice.

In terms of PayPal, we know that we have a great partnership with PayPal. They had a product that they had already launched in the U.K. and wanted to accelerate their launch here in the U.S. We see that as a cross-sell opportunity for us, like Brian said earlier. So, again, we feel like we're positioning ourselves in the marketplace to be successful. We're not, at this point, really seeing a huge impact of these products against our overall performance.

[Mihir Bhatia, Bank of America]

Thank you.

[Brian Wenzel]

Thanks. Have a good day.

[Operator]

From JPMorgan, we have Rick Shane. Please go ahead.

[Rick Shane, JPMorgan]

Hey, thanks for taking my questions this morning. I'm curious to how the change in the way that consumers are interacting with businesses, fits with your business model? And when I think about that, historically, you guys probably had a higher percentage of in-store card-present transactions.

As you move to your mobile app, you went to a highly secured tokenized transaction. And now you probably have many more customers shopping online, card not present. The business model has historically had lower interchange. And so, I'm wondering, from an economic perspective, is there greater fraud risk? And is there a way within the business model to offset that economically?

[Margaret Keane, Chief Executive Officer]

Yes. Well, I think, it's important to note, most of our transactions are private label transactions, which don't target anything. So for us, that's not an issue. I think what's really important for us is ensuring from a fraud perspective that we have the right customer applying.

We’ve put a number of tools in place to really drive fraud and make sure we're offering the customer the right product to that right customer. I would say, generally speaking, fraud is something that we continually battle; every financial institution is up against this battle, particularly as more and more people have been compromised in terms of their identities. And really, it's our responsibility to really put the tools in place to make sure that we're doing the best job possible to reduce that fraud. I don't know, Brian, if you'd add -- Brian Doubles, if you'd add anything on transaction volumes?

[Brian Doubles, President]

Yes, the only thing I would add, Rick, we've talked about this in previous calls. This is where we're really leveraging data share with our partners. Our partners know quite a bit about their customers. They know how long they've been a customer, either through a mobile or digital channel. Even simple things like if we can match the ship to address, with the address that they're putting into the apply tool to apply for a credit line.

Those things are enormously helpful in helping us authenticate the customer and reducing fraud rate itself. That's something that we rolled out across all of our large partners in Retail Card and we're rolling it out now to even some of the smaller partners to share that data in an effort to reduce fraud, but also make better credit decisions around line sizes, and get a better credit outcome as well.

[Rick Shane, JPMorgan]

Got it. And Margaret, that's exactly my point, which is with no interchange on the traditional transaction, what I was sort of trying to understand, and it sounds like you're managing it more on the fraud side. Trying to determine if there's some way, on the card-not-present transactions over the online, whether or not you can capture some additional economics?

[Margaret Keane, Chief Executive Officer]

I got that. Sorry about that. But yes, we -- exactly what Brian was describing.

[Rick Shane, JPMorgan]

Got it. Okay. Thanks guys.

[Brian Wenzel]

Thanks Rick. Have a good day.

[Operator]

From Morgan Stanley, we have Betsy Graseck. Please go ahead.

[Betsy Graseck, Morgan Stanley]

Hi good morning.

[Brian Wenzel]

Good morning Betsy.

[Betsy Graseck, Morgan Stanley]

So, I'd like to call it the finger traffic versus the foot traffic. And I know in the prior question, you answered it from a foot traffic point of view. But I just wanted to get a sense as to how you're thinking about the finger traffic in terms of generating that new account?

And then how have you seen that finger traffic change over the course of the pandemic? Have you seen any behavior change in terms of frequency of purchase, average size of purchase? Just line utilization that people are willing to maintain, especially in the latter, more recent couple of months, I should say? Just wondering if the behavior is changing at all?

[Margaret Keane, Chief Executive Officer]

Well, Brian touched on this a little bit and I'll have Brian Doubles add a little color to this. But 60% of our applications for Retail Card were generated mobilely or online. So, that is a big shift from where we were. And each quarter, it's been growing. Our view is that, that will continue to grow.

In addition to which consumers are using our apps to make payments, increased credit lines and really transact through their mobile phone. We expect that to continue to grow and be a big part of what we're working on with our partners. I would say that what we're always trying to do is create this digital point-of-sale, both in the Retail Card, Payment Solutions and CareCredit business. So, it's not just the Retail Card side, it's actually all three platforms.

And back in March, we really pivoted our agile teams to really accelerate some of the development on the mobile side. So, I would say -- I don't think we're seeing difference in terms of spend or how they spend. I think the reality is that people don't necessarily always want to go into the store. So, online has become a bigger part of how they transact.

And I'd say the second is, just as we move forward, the whole contactless even in-store purchasing, I think, will become a bigger part because consumers really don't want to touch point of sales. So those are the areas that we continue to invest in. I don't know, Brian Doubles if you'd add?

[Brian Doubles, President]

Yes. One of the things I would add, Betsy, is one of the things we've been very focused on and actually, one of the areas that we accelerated back in March is really integrating our financing offers throughout that customer shopping journey, and we showed you a little bit of that on the slide. And that looks very different by partner.

So if you think about SyPI or SDK that plugs into the larger partners' apps, that we've been doing for a number of years now. And that works really well with large partners, so either the SyPI product or having the larger partners plug right into our API platform, which is what we're doing on Venmo.

The work that we accelerated back in March and April, which really matters more to our smaller to mid-sized partners, is really getting integrated into their digital properties across the point-of-sale. So not just when you're checking out in the shopping cart, but when you're looking at the product, when you enter the home page, and we've seen conversion rates go up significantly when we have that kind of multi-point integration across all of their digital properties.

And so that's really what we've been focused on, is helping not just our large partners, but small to midsize partners, getting the financing offer presented multiple places throughout that shopping journey. And again, that's been really important to our partners because, obviously, times like these, they're accelerating our digital transformation and trying to drive sales, and this, certainly, helps them do that.

[Betsy Graseck, Morgan Stanley]

And how penetrated do you feel you are with your current customer set in that offering?

[Brian Doubles, President]

Well, it really varies. I'd say we're very penetrated in the larger partners, and we're making really good progress in the small to mid-sized partners. But a lot of this is – it's really a joint partnership. It depends on their level of how far advanced they are in their digital transformation. And we're building tools to easily plug in there in a scalable way.

[Betsy Graseck, Morgan Stanley]

And then my follow up just is on liquidity. You highlighted in the deck that the liquidity is up significantly year-on-year. It makes sense. Wondering how much of that will you sit on to fund future loan growth, or will you be redeploying that into securities? There's clearly excess capital that could drive buybacks as well going forward. So I'm just wondering how you're thinking about this excess liquidity that you've got?

[Brian Doubles, President]

Yes. Thanks, Betsy. As we think about, as we enter the fourth quarter, it's really to fund the portfolio growth that we would seasonally anticipate. As we move into 2021, we hope it funds loan growth. We said earlier, with regard to buybacks, obviously, we like to have the cash to, and we most certainly have the capital to execute the buybacks, but really that's not on our horizon until probably at least the back half of the year when we have a better view of what the economy is going to do. So our plan really is to deploy it relative to growth in the assets and managing the liability side of the equation. I don't anticipate us really going to try to chase some basis points to yield in the investment portfolio, to be honest with you.

[Betsy Graseck, Morgan Stanley]

Got it. Thanks.

[Brian Doubles, President]

Thanks, Betsy. Have a good day.

[Operator]

From Wolfe Research, we have Bill Carcache. Please go ahead.

[Bill Carcache, Wolfe Research]

Thanks. Good morning, everyone. Margaret, there was a period post Walmart where you guys eliminated concerns over renewal risk by pushing the earliest renewal date to 2022, which seemed really far away at the time. But now with 2022 getting closer and RFP is happening, in some cases, roughly a year ahead of contractual maturity dates. Some investors have started to ask whether we could see you guys do something similar to what you did post Walmart by possibly renewing your largest partnerships, and sort of eliminating that renewal risk for several years into the future. Can you discuss whether that's something that you're considering, or are we more likely to see renewals happen on more of a case-by-case basis?

[Margaret Keane, Chief Executive Officer]

Look, we're always trying to renew deals. So I think this is really the relationship and partnership that we've built over the years. And I think you just saw it happen with Sam's Club. We renewed Sam's Club with a multiyear deal last year. And we just renewed it again with another multiyear deal. So we're always looking at ways to extend our partnerships.

And usually, that conversation comes about as people are thinking about new value props or big investments into the program in some way. And I would just tell you the way I think about renewals that's like a daily part of our jobs. And we need to make sure that we're having those conversations where it makes sense. So you see it happening real time with what happened with Sam's Club.

[Brian Wenzel]

I think the one thing I'd add on to Margaret's point is that, when you look at these investments, so in the case of Sam's, that there's a value prop construct that's on top to renewal we did last year, and we priced at a very disciplined level, right? We priced through the cycle and priced through a very difficult cycle here. So to the extent that we get an opportunity to extend at attractive risk return profile, we most, certainly, would take that opportunity and take that risk off the table, Bill.

[Bill Carcache, Wolfe Research]

Thank you. That's very helpful. If I can, as a follow-up, when we look at the levels of capital that you guys are running at, and the amount of building that you've done, to the extent that there potentially could be some sort of stimulus that it seems like you're not really counting on that as a big benefit in the reserve building that you've done to-date.

Historically, you guys have expressed your belief that you could run at capital levels comparable to your peers, which we see at sort of the 10.5%, 11% range on a normalized basis. Is it reasonable to think that you guys can get CET1 down to that range, as we look ahead to kind of the other side of this?

[Brian Wenzel]

Yes. Yes, Bill. So first of all, let me just make sure we're clear on stimulus. We still have stimulus baked into our reserves. It's just at a lower level, and the timing is different than what you would see in -- based on Moody's model, I think, last week, they may have even moved out to 2021 their stimulus, but we have spent a lot of time with it. So there is some level of stimulus.

With regard to the capital level, yes, nothing has changed in our view with regard to how we think about the long-term capital position and being able to get down to our peers. During this period of time, we continue to run stress cases, and are very comfortable with our ability, given the resiliency of the business, given the earnings profile of the business, the RSAs that we can get down to that level.

So there's no change with regard to the long-term view on capital. The time in which we begin to deploy greater amounts of capital back to the shareholders will really be dependent upon the economy and the visibility.

[Bill Carcache, Wolfe Research]

Got it. Very helpful. Thanks for taking my question.

[Margaret Keane, Chief Executive Officer]

Thank you. Have a great day.

[Operator]

From Stephens, we have Vincent Caintic. Please go ahead.

[Vincent Caintic, Stephens]

Hey, thanks for taking my questions. First, on your expenses. So it's helpful to get your guidance for $150 million to $250 million for 2021 and more beyond that? And also just thinking about your push on digital here, I'm sort of wondering if you can sort of talk about your digital investments? And it seems like you're pushing more than usual to accelerate your partners' digital transformation. Is this the level we should expect in terms of investments going forward? Do you want to make more investments, or does this taper off after a little bit of time? Thank you.

[Margaret Keane, Chief Executive Officer]

Well, we've been making investments for a number of years, particularly in our technology platform, and we'll continue to do that as we see the need. We think that, strategically, we have to be the best of the business in terms of digital capability. And both -- I think, both in the front end, which we've talked a lot about, but even on the back end.

And so when we looked at, kind of pivoting back in March, we actually stopped doing some things that didn't really make sense given the pandemic and redeployed those resources to accelerate some of the things that were already on our roadmap. So it wasn't like we created new thinking, we actually had these plans. They would just furthered out.

An example I'll give you is we're doing a lot of work on digital collections right now, in terms of really getting us to be state-of-the-art there. So that's an example where we took resources that we're kind of working on that, but we put more resources on it.

I'd say that from an expense point of view, we took a really comprehensive look at our overall expenses and said, okay, how do we tighten? Where do we tighten? Some of that we talked about in terms of our footprint, which was a positive one. But when we did this journey on expenses, we basically said, we're going to do this expense reduction in order to ensure we can still invest for the future because, I think sometimes the mistake you make is you tighten so much that you really dilute the future. And what we didn't want to do is really have that happen.

So we've been hard at work making sure we continue to invest, while tightening where we can. So that's really the plan that we've kind of executed upon we have work to do going into 2021. But we feel like we were able to hit it pretty quickly and really align our cost base to the size of our business going forward, to ensure that we keep the returns that we want to achieve for our shareholders. So we're feeling -- we've executed well here. We still have things to do, of course, but we're well into the execution of the expenses coming out.

[Vincent Caintic, Stephens]

Okay. That's very helpful. Thank you. And just with the excess deposits that you were talking about. Just wondering how much more aggressive you're willing to get on raised cuts, or do you feel comfortable here? Thank you.

[Brian Wenzel]

Yeah. Thanks for the question. So we'll continue to evaluate that market. We led the market down this year. So we've reduced 115 basis points on our high yield savings, 140 basis points on CDs, with six and seven movements.

Here's -- as we think macroeconomically going forward, there will be some pressure as we used to have some higher priced CDs coming up for exploration as we move through the fourth quarter and into the first quarter. So there will be some pressure to redeploy those dollars for our consumers. We also think there's an opportunity as we think some of the larger institutions may continue to try to reduce rates, so there may be some inflows. But at the end of the day, we hope to grow the business next year, and we'll need those deposits. So it's a very it's a very tricky balance.

We can move down a little bit more, we think, but we want to be very cautious because what we don't want to do is if we have to raise deposits next year have to then pay more in price in order to get those deposits. So it's really a fine balance between trying to find that appropriate floor. And we're in line with competition. There could be a little bit more room, but I wouldn't expect something significant.

[Greg Ketron, Director, Investor Relations]

Brandon, we have time for one more question.

[Operator]

Yes. From KBW, we have Sanjay Sakhrani. Please go ahead.

[Sanjay Sakhrani, KBW]

Thanks. Good morning. Most of my questions have been asked and answered. But just on the Sam's Club renewal, congratulations on that. I know it's been a whirlwind the last couple of years. I'm just curious, how should we think about the economic impacts of the renewal? Are there any appreciable impacts on the RSAs going forward? And any other that we need to contemplate?

[Margaret Keane, Chief Executive Officer]

We always look at this in terms of the returns and we’re pretty happy with where we landed on the renewal in terms of our raw returns. So I wouldn’t see a big economic impact. I think the real positive here is that we’ve been able to work closely with Sam's over the last, say, 15 to 18 months on really helping them execute against their digital strategy and we’ll continue to do that.

And I think more importantly the exciting part is really relaunching a new value prop, which both of us felt was really needed. So we're excited to work with them on that as we go into 2021. But I don't think you'll see an appreciable difference in the economics.

[Sanjay Sakhrani, KBW]

Okay. Perfect. And then, I guess, I have a follow up on the Buy Now, Pay Later industry questions, and maybe it's a question for you, Margaret and Brian Doubles. If we think about the industry's impact thus far, do you feel like it's had an appreciable impact in terms of loan growth? Do you feel like it's cannibalizing your customers across all your relationships, or is it just a different customer base that's sort of -- where you're seeing the uptake in this product?

[Margaret Keane, Chief Executive Officer]

Well, I think -- first, let's put it in perspective. I think the overall dollar sales on those products, somewhere between $8 billion and $10 billion, which is really not that appreciable, when you look at the overall market. Most of what's being put out there are smaller ticket for payment type things for retailers.

I think where we really have a market and/or have a solid customer base, it's really a bigger ticket size. And that's where I think we've been able to do things like we're doing with Amazon. So our view is, we're going to be in this market. We're going to look at the right way to do this.

The other thing I'd tell you, it's still early days on the overall economic returns on these particular smaller ticket ones. But SetPay is a product that we're testing and piling. We're having good success. I think it's really about two things: giving customer choice; and then second, helping the merchants complete the sell. Because right now, the most important thing for our merchants and our partners is to help them grow theirselves, which is what we're really trying to work on. I don't know, Brian Doubles, if you'd add anything there?

[Brian Doubles, President]

No, I think it does. It comes down to choice. And our partners all have a view on which products they want to offer. In some cases, it's a revolving credit product that has an installment component could be SetPay. In some cases, if it's smaller ticket, to Margaret's point, they would be more interested in the Buy Now Pay Later product.

Our goal at the end of the day is to be very integrated across all of our partners' digital properties and offer a wide range of financing products, because it won't be a one-size-fits-all. It's going to be a combination of revolving credit, longer-term installment and shorter-term buy now pay later products.

[Sanjay Sakhrani, KBW]

Thank you.

[Brian Doubles, President]

Great. Thanks Sanjay.

[Greg Ketron, Director, Investor Relations]

Okay. Thanks, everyone, for joining us this morning. The Investor Relations team will be available to answer any further questions you may have, and we hope you have a great day.

[Operator]

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.