Dive Brief:

• Discover Financial Services reported a net income of $1.7 billion in Q2 2021, compared to a net loss of $367 million in Q2 2020, according to its second quarter earnings report. 

• The company is reducing its provision for losses and accelerating its share repurchase program “driven by sustained strong credit performance and an improved economic outlook,” it said.

• “We have removed nearly all of our pandemic credit tightening and have increased our marketing investment,” CEO Roger Hochschild told analysts. Discover’s credit card net charge-off rate decreased 145 basis points year-over-year (YoY) to 2.45% and 30-Day delinquency decreased 74 basis points YoY to 1.43% in Q2 2021.

Dive Insight:

Payments services volume was up 22% YoY to $78.4 billion in Q2 2021 compared to $64.4 billion last year. The segment also reported a pre-income tax revenue of $692 million in Q2 2021 compared to $23 million in Q2 2020. 

Discover Global Network’s affiliate Diners Club International network experienced a 41% increase in payment volume YoY, suggesting a partial travel rebound, but remained 28% below Q2 2019 volumes.

PULSE, an ATM/debit network's dollar volume increased by 19% YoY “driven by increased spend related to the economic recovery."

Credit card loan growth was down 2% YoY to $68.9 billion in Q2 2021 compared to $69.7 billion in Q2 2020. The drop was driven by “high payment rates and lower promotional activity,” the report stated.

“We achieved a historic low in delinquencies, which resulted from consumers' strong liquidity position and conservative stance on underwriting,” Hochschild said. “We expect some moderation later this year, [and] believe payment rates [of credit card balances] will remain above their historical levels for some time.”

Discover experienced a 26% increase in new accounts growth compared to 2019, and an uptick in consumer spending. 

"We expect to strengthen our sales figures, and the contribution for new accounts to drive loan growth [for] this year, and accelerate in 2022," Hochschild said. 

The company also posted an all-time high revenue of $729 million from equity investments services in Q2 2021.

Discover also stated that the company is looking to invest in “attractive opportunities” as it reaped rewards from its decade long investment in Marqeta. Discover's equity investment revenue largely was the "result of the company's roughly 6% ownership in Marqeta," which went public last month, according to an analyst report from William Blair. 

The company also invested $30 million in Sezzle, a buy now-pay later company this week, which is “being driven by the payment side” of Discover services, similar to their investment in Marqeta a decade ago, Hochschild said.

“We also believe that [there is] potentially over time and there may be opportunities on the banking side,” Hochschild added. “You know what we can do with unsecured lending and our direct merchant relationships, but we haven't announced anything on the lending side of buy now, pay later at this moment.”

The Riverwood, Ill.-based company bought 4.9 million of its own shares for $533 million in Q2, while the board of directors of the company “approved a new $2.4 billion share repurchase program,” which lasts until March 31, 2022, the earnings report stated.

 The company released $321 million in loss provision reserves in Q2 2021 and had $1.9 billion in reserves in Q2 2020 and expects 2021 losses to be down year-over-year.