Synchrony Financial (SYF) Q3 2026 Earnings Call: Volume Growth and $9.50 EPS Outlook

Synchrony Financial (NYSE: SYF) reported higher purchase volume, expanding loan receivables and lower net charge-offs for Q3 2026. Management raised its full-year diluted EPS expectation to approximately $9.50, while continued technology investment and operational losses lifted expenses.

Key Takeaways

• Net earnings were $892 million, or $2.68 per diluted share. Return on average assets was 2.9%, and return on tangible common equity reached 25.2%.
• Purchase volume increased 8% year over year to nearly $50 billion, the highest third-quarter level in Synchrony’s history. All five sales platforms recorded growth.
• Ending loan receivables rose 3% to $103 billion, despite a 16.9% payment rate that was 60 basis points higher than a year earlier.
• Credit performance remained strong: the net charge-off rate declined 37 basis points year over year to 4.79%, while 30-plus and 90-plus delinquency rates were unchanged.
• Management now expects full-year 2026 diluted EPS of approximately $9.50, the high end of its original range, with year-end loan receivables growing at a mid-single-digit rate.
• Synchrony returned $1.2 billion to shareholders, including $1.1 billion of share repurchases and $110 million of common dividends.

Key Financial Data

Net interest income benefited from higher interest and fees and lower interest expense. The year-over-year margin decline reflected lower late-fee incidence, lower liquidity portfolio yields and a reduced mix of loans within interest-earning assets. Lower funding costs partly offset those pressures.

Business and Operating Performance

Purchase volume increased across all five platforms. Diversified & Value led with 13% growth, supported by partner expansion and higher gas prices. Home & Auto rose 9%, Lifestyle increased 6%, Digital grew 5%, and Health & Wellness advanced 3%.

Co-branded cards represented approximately 53% of total spending. Their purchase volume increased 23%, driven by new programs, product upgrades and broader out-of-partner use. Both discretionary and nondiscretionary out-of-partner spending grew at double-digit rates.

Management said spending grew fastest among Gen Z and millennials, particularly in Diversified & Value, Digital, and Home & Auto. Synchrony attributed its ability to serve younger and earlier-stage borrowers partly to PRISM, its underwriting and analytics platform that uses more than 9,000 data variables and cash-flow underwriting.

The company expanded CareCredit Pay Later to nearly 20,000 Health & Wellness locations. It also announced integrations with Stripe and Vetspire to embed CareCredit financing into online checkout and veterinary practice workflows.

Synchrony is positioning its cards and offers for agentic commerce. Its initiatives include a ChatGPT plug-in for discovering marketplace offers and participation in the Personal Agent Protocol initiative as a design partner. Management believes shopping agents could reduce friction in using private-label and co-branded cards while making rewards and discounts more transparent.

Management Guidance

Management provided the following expectations for full-year 2026:

• Diluted EPS of approximately $9.50.
• Year-end loan receivables growth in the mid-single digits.
• Higher net interest income.
• A net charge-off rate below 5.5%, with delinquencies and losses following normal seasonality.
• Retailer share arrangements, or RSAs, remaining within the long-term range of 4% to 4.5% of average receivables.
• Fourth-quarter other expense dollars generally in line with Q3 as investment in technology and future growth continues.

Management also expects net interest margin to increase sequentially in Q4, primarily because loan receivables should account for a larger share of average earning assets.

For 2027, management did not issue formal guidance. It nevertheless described a framework that could support double-digit EPS growth through net interest income growth, portfolio seasoning, lower operational losses, operating leverage and capital returns. Higher net charge-offs and potentially higher deposit betas remain possible offsets.

Risks and Areas to Watch

Other expense rose 10%, driven by operational losses, technology investment and higher marketing spending. Management said more than 100 mitigation strategies had been implemented and expects operational losses to decline in 2027, although technology spending is likely to remain elevated into next year.

Higher deposit betas could pressure funding costs as competition for deposits remains strong. Synchrony is still finalizing its 2027 assumptions and said it would seek offsets if funding pressures prove greater than expected.

New portfolio seasoning is affecting payment rates, loan growth and reserve patterns. The OnePay Walmart portfolio is only around the end of its first of three vintages required to approach a steadier state. Management also expects associated credit losses to begin contributing as the portfolio matures.

Management described consumers as resilient despite higher gas prices, broad inflation and weak confidence. However, elevated interest rates could have indirect effects through employment, small-business financing, housing activity and rental inflation.

Analyst Q&A Highlights

• Payment rates: More than 90% of the 60-basis-point annual increase was attributed to portfolio and product mix. New portfolios accounted for 35 basis points, while lower promotional balances contributed 8 basis points.
• Consumer health: Management reported no current signs of broad consumer stress. Payment rates remained healthy across credit grades, spending was resilient, and entry into delinquency was better than in 2018 and recent years.
• Agentic commerce: Synchrony views AI-driven shopping as a long-term opportunity rather than only a defensive checkout strategy. Management expects agents to make it easier to select cards based on partner discounts, cash back and other offers.
• Efficiency: Headcount has been broadly flat to down as Synchrony uses productivity initiatives to fund cloud, AI, digital wallet and Pay Later investments. Technology spending growth is expected to decelerate over time, potentially from 2028 onward.
• Capital returns: Management remains committed to moving prudently toward its 11% CET1 target. Synchrony had approximately $4.6 billion remaining under its repurchase authorization, but cautioned against treating Q3 repurchases as a new quarterly run rate.
• Holiday spending: Early fourth-quarter sales trends were broadly consistent with the Q3 exit rate. Management and retail partners were cautiously optimistic, with somewhat higher promotional activity and earlier pre-Black Friday campaigns expected.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Good morning, and welcome to the Synchrony Financial Third Quarter 2026 Earnings Conference Call. Please refer to the company's Investor Relations website for access to their earnings materials. Please be advised that today's conference call is being recorded. [Operator Instructions].

I will now turn the call over to Kathryn Miller, Senior Vice President of Investor Relations. Thank you. You may begin.

Kathryn Miller

Thank you, and good morning, everyone. Welcome to our quarterly earnings conference call. 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 wanted 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 will 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 or 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 Brian Doubles, Synchrony's President and Chief Executive Officer; and Brian Wenzel, Executive Vice President and Chief Financial Officer.

I will now turn the call over to Brian Doubles.

Brian Doubles

Thanks, Kathryn, and good morning, everyone. Synchrony delivered strong third quarter results, highlighted by broad-based purchase volume growth across each of our 5 sales platforms. Spend within our Diversified and Value platform increased 13% compared to last year, primarily reflecting the impact of partner expansion and higher gas prices. In Home & Auto, purchase volume increased 9% compared to last year, primarily reflecting the performance of new programs, select furniture retailers and the impact of higher gas prices. Purchase volume was 6% higher in our lifestyle platform, primarily reflecting strength in categories like other apparel and luxury as well as the impact from our new programs. Meanwhile, digital platform sales grew 5%, driven by strong customer engagement across partners with broad diversified offerings and refreshed value propositions.

And in Health & Wellness, purchase volume grew 3%, primarily reflecting growth in Pet. Total purchase volume reached nearly $50 billion again this quarter, the highest third quarter level in our history and an increase of 8% compared to last year. Approximately 53% of that spend occurred through Synchrony's co-branded cards in the third quarter, which increased 23% versus last year, and was driven by the combination of new programs and product upgrades, delivering enhanced value propositions and increased utility and higher broad-based spend across our card programs. Both discretionary and nondiscretionary out-of-partner spend on our consumer co-brand cards grew by double digits. Strength in discretionary spend came from categories like electronics and entertainment, while in nondiscretionary gas station and discount store spend grew fastest.

And as Slide 3 shows, spend across Synchrony's portfolio is growing fastest among Gen Z and millennials, particularly in our Diversified and Value, Digital and Home & Auto platforms where the strong value proposition and broad utility of our offerings resonate deeply. The significant growth across the younger age demographics has been enabled by our proprietary underwriting and data analytics platform, PRISM. Synchrony leverages over 9,000 data variables and cash flow underwriting to responsibly deliver purchase power to credit-ready customers even when they are earlier in their financial journeys and often overlooked by other traditional lenders.

And because we can meet our customer wherever and however they want to be met with the right product for that purchase, Synchrony is building relationships and delivering experiences that can unlock greater financial flexibility over time. To that end, we recently introduced CareCredit Pay Later, an enhanced and rebranded installment loan product that will appear alongside CareCredit's existing credit card as another way for eligible customers to plan and pay for health and wellness-related products and services. It is now available at nearly 20,000 Health & Wellness locations, including dental, cosmetic, vision and audiology care providers.

By providing tailored choices upfront after one seamless application, this multiproduct experience empowers customers with financing flexibility and payment structure optionality that aligns to their preferences. In addition, Synchrony and Venmo collaborated on a refreshed value proposition for the Venmo Credit Card with an industry-first feature that rewards social spending, offering cardholders more cash back for splitting purchases with friends on Venmo.

The Venmo Credit Card issued by Synchrony delivers unlimited daily cash back deposited directly into the account and offers a simple way to manage money and rewards together, all within the Venmo app. As we all know, the spending experience is constantly evolving. Digital wallets and agentic commerce are changing the way consumers discover, decide and buy. So Synchrony remains focused on the heart of what matters, connecting our customers, partners, merchants and providers through seamless experiences and unmistakable value.

Our new integration with Stripe, the programmable financial services company, will make it easier for both Synchrony's and Stripe's providers and health and wellness retailers to offer CareCredit financing as part of their online checkout experience. More than 12 million CareCredit cardholders as well as new approved applicants will have opportunities to access trusted care credit financing for health and wellness purchases through participating Stripe providers.

Synchrony is also integrating with Vetspire, a leading cloud-based veterinary practice management software provider to embed CareCredit financing options directly within Vetspire's AI-enabled cloud-based platform and give veterinary practices a more modern way to offer real-time payment solutions at the point of care. Vetspire is used by more than 1,000 veterinary hospitals and clinics nationwide and about 85% are already CareCredit enrolled providers. By operationalizing checkout workflows and making financial options easier to access, our collaboration aims to improve the experience for pet owners, reduce administrative friction for clinic teams and support timely care for pets.

Meanwhile, Synchrony's enterprise collaboration with OpenAI is designed to strengthen our positioning at the center of AI's next chapter in shopping and payments. We have launched our Synchrony ChatGPT plug-in, which allows consumers to discover savings and offers within the Synchrony marketplace directly within ChatGPT and browse promotional financing deals and everyday value from participating partners in a fast conversational experience.

And from a corporate perspective, we are deploying the latest OpenAI models like GPT-6 Astra to enable deeper engagement with advanced capabilities, more meaningful product development and faster technology innovation. Of course, Synchrony's AI strategy extends d adopting emerging technologies to helping define how they will operate across the broader commerce ecosystem. We have joined the Personal Agent Protocol, Poppy initiative led by Sierra and Meta as a design partner reflecting our commitment to helping define the open standards that will underpin the future of agentic commerce.

By contributing to the development of secure, transparent and permission-based protocols for AI agents, Synchrony is helping advance an ecosystem that can deliver greater customer choice, trust and scalability across digital commerce. So as we look to the remainder of this year and the years ahead, Synchrony is executing on what we set out to do. We are extending our reach, enhancing the experiences we deliver and driving optionality for our customers and partners. And as a result, we are delivering attractive growth and strong risk-adjusted returns that position us to drive significant long-term value for our stakeholders.

With that, I'll turn the call over to Brian to discuss our financial performance in greater detail.

Brian Wenzel

Thanks, Brian, and good morning, everyone. Synchrony continued our focused execution and delivered another strong financial performance in the third quarter. We achieved record third quarter purchase volume, which grew across all 5 platforms. Ending loan receivables growth continued to accelerate while credit performance remained strong, resulting in attractive returns for our shareholders. More specifically, we generated net earnings of $892 million or $2.68 per diluted share, a return on average assets of 2.9%, a return on tangible common equity of 25.2% and a 6% increase in tangible book value per share.

Focusing on our performance in more detail. Purchase volume grew 8% versus last year and reached almost $50 billion, the second consecutive quarter at this level while maintaining our disciplined approach to credit. Ending loan receivables increased 3% to $103 billion as higher purchase volume more than offset ongoing effects of elevated payment rates. The payment rate of 16.9% was approximately 60 basis points higher than last year and approximately 180 basis points above the pre-pandemic third quarter average, primarily reflecting the impacts of new portfolio seasoning, shifts in portfolio and product mix and our previous credit actions.

Net interest income increased 2% to $4.8 billion, primarily driven by the combination of higher interest and fees and lower interest expense, partially offset by lower investment income. Interest and fees increased 1%, primarily reflecting growth in average loan receivables. Interest expense decreased 3%, primarily due to lower benchmark rates. Our third quarter net interest margin decreased 12 basis points versus last year to 15.5%, reflecting 3 key drivers: one, a 20 basis point decrease in our loan receivable yield, which was primarily driven by lower assessed late fee incidence resulting from our strong credit performance.

The decline in loan receivables yield reduced our net interest margin by approximately 16 basis points. Two, a 62 basis point reduction in our liquidity portfolio yield, primarily due to lower benchmark rates. The decline in liquidity portfolio yield reduced our net interest margin by 10 basis points. And three, a 22 basis point decrease in the mix of loan receivables as a percent of interest-earning assets versus last year. This reduced our net interest margin by approximately 5 basis points.

These factors were partially offset by a 27 basis point decline in our total interest-bearing liabilities cost, primarily due to lower benchmark rates, which contributed approximately 19 basis points to our net interest margin.

On a sequential basis, net interest margin increased by 42 basis points, primarily due to 2 key factors. One, the decline in earned income reversals as net charge-offs decreased from the seasonal high in the second quarter to their seasonal low in the third quarter. This increased net interest margin by 20 basis points. And two, the increase in the mix of loan receivables as a percent of interest-earning assets, which increased our net interest margin by approximately 17 basis points. This was generally due to accelerated receivables growth, which utilized some of the excess liquidity we held for prefunding in the prior quarter.

Next, let's turn to the remainder of our P&L. RSAs of $1.1 billion were 4.3% of average loan receivables in the third quarter and increased $72 million versus the prior year, primarily reflecting program performance. Provision for credit losses increased $120 million to $1.3 billion, primarily driven by a reserve build of $30 million versus a $152 million release in the prior year, partially offset by a $62 million decrease in net charge-offs.

Other income decreased $22 million to $105 million, primarily reflecting the impact of higher loyalty costs resulting from the growth of new programs and refreshed value propositions. Other expense increased 10% to $1.4 billion, primarily driven by higher operational losses, technology investments and increased marketing expenditures. The third quarter efficiency ratio was 35.9%, approximately 330 basis points higher than last year. This resulted from higher overall expenses and the impact of higher RSA.

Turning to our portfolio credits on Slide 8. Both our 30-plus and 90-plus delinquency rates at the end of the third quarter were in line with the prior year. Our net charge-off rate was 4.79%, reflecting a decrease of 37 basis points from 5.16% in the prior year. And our allowance for credit losses as a percent of loan receivables was 10.01%, a decrease of approximately 8 basis points from 10.09% in the second quarter and a decrease of approximately 34 basis points from 10.35% last year.

Slide 9 shows Synchrony's funding, capital and liquidity, which continues to be a core strength of our business. We grew our direct deposits by $2.4 billion versus last year and our broker deposits by approximately $575 million. At quarter end, deposits represented 83% of our total funding, while secured debt represented 9% and unsecured debt representing 8%. Total liquid assets increased 7% to $19.5 billion and represented 15.9% of total assets, 33 basis points higher than last year.

Turning to capital. Synchrony ended the quarter with a CET1 ratio of 12.9%, reflecting a 140 basis point reduction versus last year, a Tier 1 capital ratio of 14.5%, reflecting 100 basis point reduction, a total capital ratio of 16.5%, reflecting a 110 basis point reduction and a Tier 1 capital plus reserve ratio of 24.3%, reflecting a 130 basis point reduction versus last year.

Synchrony returned $1.2 billion to shareholders during the third quarter, which included $1.1 billion in share repurchases and $110 million in common stock dividends. At quarter end, we had approximately $4.6 billion remaining of our share repurchase authorization.

Finally, I would like to discuss our 2026 outlook on Slide 10. Given the performance of our business through the course of this year, we now expect to deliver approximately $9.50 in diluted earnings per share for the full year, the high end of our original expectations. This reflects our continued full year expectations that year-end loan receivables will grow by mid-single digits. Net interest income will increase. Net charge-offs will be less than 5.5% with delinquency and losses following normal seasonality. RSAs will be higher for the full year, but remain within our long-term target range of 4% to 4.5% of average receivables and other expense dollars in the fourth quarter will generally be in line with the third quarter as we continue investing in Synchrony's capabilities and future growth opportunities.

To conclude, Synchrony's core business drivers are strong, and we remain focused on executing on our strategy. Our disciplined approach to growth positions us to deliver consistent market-leading returns, and we're investing in our competitive differentiation to drive long-term earnings power and intrinsic value while also returning significant capital to shareholders.

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

Brian Doubles

Thanks, Brian. Before I turn the call over to Q&A, I'd like to leave you with 3 key takeaways from today's discussion. First, Synchrony is delivering sustainable growth. Our products and experiences resonate across generations and spend categories amid a dynamic consumer landscape because we are constantly investing in innovation and evolving with our customers and partners.

Second, Synchrony is strengthening our competitive differentiation by positioning ourselves at the forefront of digital commerce. We are prioritizing strategies that embed our financial ecosystem within the ever-evolving frontier of commerce, whether that be at the point of sale through digital wallets, payment processors or agentic purchasing path. By meeting people wherever they choose to transact, Synchrony is expanding our reach, deepening relationships and enabling greater choice, trust and scalability as a leader in the evolving retail ecosystem.

And third, Synchrony is delivering outcomes that matter. We are empowering more than 68 million customers with financial flexibility. We are powering loyalty and sales for the hundreds of thousands of merchants, partners and providers we serve, and we are positioning our business to drive consistent market-leading returns for our stakeholders.

With that, I'll turn the call back to Kathryn to open the Q&A.

Kathryn Miller

That concludes our prepared remarks. 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

[Operator Instructions] Our first question will come from Ryan Nash with Goldman Sachs.

Question-and-Answer Session

Ryan Nash

So Brian, if you look at the implied 4Q EPS guide, I think it points to a little bit of downside versus Street expectations. So maybe can you just help us with the bridge for where you think the market's off, whether it's PPNR or allowance? And given how the market outlook has shifted, do you still see a path to double-digit EPS growth next year?

Brian Wenzel

Yes. Thanks for the question, Ryan. Let me just start with -- we began the year with a range of $9.10 to $9.50, right, which preceded the war in Iran, preceded the higher gas prices that Americans are feeling today, preceded inflation accelerating and preceded a rise in the Fed funds rate. So here sitting here today with the $9.50 full year rate, we actually feel good about the performance with that backdrop, right, which is ahead of, again, depending upon which service you use, $9.38 to $9.40, consensus estimate for the full year.

So when we look at it, we think that, obviously, this is an increase, right, relative to the performance of the business. And again, we're pleased about it. I think consensus, when you look at it between 3Q and 4Q, the cadence on reserve was probably off. And I'm not sure people thought through enough about how the loss trajectory was moving 3Q and 4Q. So again, I think that's the biggest delta as you think about how -- what the estimates are for fourth quarter versus 3Q. So again, we feel good about the year.

When you think about next year, we're not going to get into '27 guidance on this call, Ryan, so I can appreciate that for a second. But when you think about it, I guess the framework kind of remains the same, right? We want to be able to grow NII, which hopefully will mirror loan growth. I think you do get some benefit from the new portfolio seasoning year-over-year.

And then again, I think next year, we hope not to comp the operational losses and drive more operating leverage in there. Again, you'll have some higher probably net charge-offs. But again, taking all things equal, that combined with our capital return policy should give us a framework to get to double-digit EPS growth next year.

Ryan Nash

Got you. And then -- if I look at the payment rate, you mentioned in your remarks, Brian, it was up 60 bps year-over-year, and it's almost up 200 versus the pre-pandemic. So maybe just sort of talk through the impacts on loan growth, margin and credit if we continue to see an elevated payment rate. And are there any steps you can take to ease the pressure? Or do you think it will naturally adjust just given these portfolio seasoning impacts?

Brian Wenzel

Thanks, Ryan. So when I think about the 60 basis points year-over-year change, if you pull that apart for a second, over 90% of that or 56 basis points is really mix related. And inside that 56, you have 35, which are the new portfolios and 8, which really comes from lower promotional balances. So it's really a mix issue when I think year-over-year.

Your point about prepandemic, the challenge that we have today is we're sitting down a couple of hundred basis points lower on non-prime. We have lower percent of promotional assets, which is really impacting the stickiness and the conversion from sales into assets. I think as we move forward, we would expect as credit probably more normalizes, right? So you slide up into the 5.5% to 6%, we would expect to see a little bit more nonprime in the book, not higher than pre-pandemic period, but more normal for us. And I think we want to see promotional balances begin to take hold, which really goes back to consumer confidences -- or consumer confidence, excuse me.

When I look inside this quarter, though, we did see green shoots. When I look at Dental, which had been flat through the second quarter, that was actually up year-over-year. Home Specialty was up year-over-year. Select furniture is up year-over-year. And then when you look at overall smaller discretionary purchases, they continue to increase. We are -- we do have some headwinds, right, in power and cosmetic, audiology. But again, I think we see green shoots, which will help that promotional asset percent rise.

So those are some of the biggest factors, Ryan. And I think we just got to be patient with how the portfolio returns back to what was the -- closer to the pre-pandemic period.

Operator

Our next question will come from Sanjay Sakhrani with KBW.

Sanjay Sakhrani

Brian Wenzel, you kind of walked through all the different aspects of what's changed over the course of the year. And I'm just curious, and this is probably even more a question for Brian Doubles. But when we're thinking about the health of the consumer and the state of the consumer, the credit numbers look really strong and obviously, you've provisioned as such, but is there anything underneath it that you're seeing that's putting -- that's weighing on the consumer? Anything that concerns you given all these pressures? Just curious to get a sense of what's happening on the front lines.

Brian Doubles

Yes, Sanjay. Look, I'd say we still feel really good about the trends we're seeing at the moment. The consumer continues to show signs of strength. I think it's been a little bit surprising, not only to us, but to the industry more broadly. I think higher gas prices, fairly broad-based inflation. And then you look at consumer confidence that has been weak all year, but it's not impacting. None of those factors are really impacting consumer behavior. So I think strong labor market, decent wage growth, there are some natural offsets there. Consumers continue to spend through it.

As you mentioned, credit looks really good. We started to open up a bit earlier in the year just given how good credit was looking. We think that will drive some nice growth for us as we get into next year. But yes, we're really happy with purchase volume up 8%. We gave you by credit cohorts. We gave you some data by generations, millennials, Gen Z looking really good. So we're really not seeing any signs of stress at the moment. And I think that's fairly consistent across the industry.

Brian Wenzel

Yes. Sanjay, what I'd add in just 2 points to augment what Brian just said. First, when you look at payment rate and we look at payment rate by credit grade, right, when I look at the non-prime -- the payment rate for non-prime is up 40 basis points quarter-on-quarter. That's the same rate it's up on the 780 plus. So again, we're seeing very good payment rates and strength in the consumer, albeit inside of an affordability issue for some. So that's number one.

And I think number two, you see it on the spending behavior patterns we show on Page 3 of the deck that, again, we see strength there, and that's continued on. And maybe I'll just add what the fourth thing is -- or third thing is, when you look at entry rate, entry continues to be better than 2018 into delinquency and better than a couple of years ago. A lot of that is our pre-delinquency strategies as well as our credit actions. So again, whether you look at it spending, when you look at it from payment rate and you look at entrance into delinquency, they all continue to show strength.

Sanjay Sakhrani

And just my follow-up question. Obviously, a bunch of announcements you guys made around agentic and working with a lot of the players that are involved. I'm just curious because there's been just a lot of chatter on the back of the launch of Muse, just how you guys see agentic commerce sort of affecting private label because there's all this talk about gamification of rewards and optimization of financial products. I'm just curious how you think it plays out for private label and Synchrony. And obviously, you guys are doing things to be on the offensive.

Brian Doubles

Yes. Obviously, this is a big area of focus for us. I think agentic is going to fundamentally change how consumers discover products, research, ultimately purchase. I think we've got a jump start on this. It's still very early, but we're working with all the leading AI platforms. We need to make sure that as that purchasing path changes that our products are embedded in that experience.

And I think, look, frankly, our partners have been very helpful here. They're pulling us into those discussions. They've got a big incentive to ensure that our cards are embedded in whatever that experience is because they want to make sure that obviously, their customers get the benefit of the value prop. They get the benefit of any discounts or offers that we have on our cards. They want to make sure that their RSA is protected. So it's obviously getting more complicated, but we're really excited about the longer-term opportunity here.

I think ultimately, it's going to make it easier for consumers to use our products. I think shopping agents will be able to program certain purchases to use our cards. I think that reduces some of the historical friction that we've had. And I think that transparency overall benefits us. We think our products provide great value, typically more savings, better discounts, better offers than general purpose cards. And so we think if we can remove that friction in the process that, that ultimately advantages us over time.

Operator

Our next question will come from Moshe Orenbuch with TD Cowen.

Moshe Orenbuch

Thanks for the incremental detail on volume growth by segment. And it is kind of interesting to see the acceleration in prime. And I'm just wondering if you could kind of talk about whether that's driven by product mix or by different types of marketing or activation. And what you think that means in terms of revolve rates or anything else that might happen as you do get to your balanced growth targets?

Brian Wenzel

Yes. Thanks for the question, Moshe. It is somewhat product related. When you think about Dual Card being a larger percentage of the book, they tend to be people who are going to be a 680-plus VantageScore, so in the prime segment to super prime. So again, I think that's driving some of the behavioral patterns.

But again, across the spectrum, one of the questions about our business is, are you attracting Gen Z and millennials into the book? And we clearly are, but they're on the same type of bend, albeit at a higher rate given the smaller balance than that. So again, I think when you think about that payment behavior pattern, spending behavior pattern, the product is driving some of it. The more we push into Pay Later, for us, Pay Later is a higher ticket than most what I'd say, Buy Now, Pay Later providers offer. So it's a combination of product really.

Moshe Orenbuch

Got it. And kind of shifting gears to the follow-up question. The combination of technology investments and operational losses have kind of pushed your efficiency ratio higher. Can you talk about each of those and how you see at what point do they sort of level off? Or is it just a question of revenue growth rates accelerating to match them? Like how do you think about each of those in the context of efficiency over the course of the next year or so?

Brian Wenzel

Yes. Let's break it into 2 pieces. When I think about the operational loss piece for a second, we came off a year that was probably our best year ever as a company. This year, we expected some level of increase from that. We were impacted by a number of idiosyncratic events, which sometimes happen when you either launch new partners, partners make changes, et cetera. But what we feel we have that contained. Now unfortunately, with idiosyncratic events, you do have a tail which has played through the entire year.

I would say that the team has implemented well over 100 strategies to mitigate operational losses going forward. So we expect that mitigation to happen in 2027 and kind of come down. On the technology front, we were at a place where Moshe, it made a lot of sense for us to make investments given the acceleration, whether it's AI, cloud, our push into digital wallets, Pay Later product. It just made sense that we had to position the business for the long-term value and intrinsic value of the company. So we decided to make those investments. We think they're the right investments and will better service our -- over the medium and long term.

So again, I wouldn't expect that to continue to grow at an exponential rate, but it's going to be slightly elevated most certainly this year into next year. And then I think you'll begin to see a tail off beyond that, tail off from a growth rate perspective, Moshe.

Operator

Our next question will come from Terry Ma with Barclays.

Terry Ma

Just want to follow up on the payment rate. You called out new program seasoning as one of the key drivers. Can you maybe just give us a sense of where you are in the seasoning cycle for those new programs you added in the last year? And at what point should that dynamic reverse and turn into a tailwind for receivables growth and earnings growth?

Brian Wenzel

Terry, when I think about -- obviously, the largest one is our OnePay Walmart portfolio. And that really takes about 3 vintages in order to kind of get to a more steady state. So this would be effectively the end of that first vintage at the end of 2026. So we're probably in that first third. But again, I think you see some of the effects mitigating in the P&L as you step through year 2 and year 3.

The other portfolios that we have in there are much smaller. I mean, obviously, Bob's has a very different payment rate. Lowe's commercial has a much more accelerated payment rate. So again, I think that they're going to vary a little bit. I still expect we're very pleased with the growth that we've seen in Walmart given the number of customers they serve and their presence in the retail ecosystem. So again, we continue that growth. And then hopefully, as you step through these vintages, the translation between sales and assets begins to narrow for those new portfolios.

Terry Ma

Got it. And then just on agentic commerce, can you just talk about what the ultimate opportunity is for Synchrony? Is it primarily about protecting your existing position at checkout? Or is there an opportunity to expand and acquire customers outside traditional channels?

Brian Doubles

Yes. Look, I think it's a big opportunity for us, and I touched on it briefly, but there's a couple of things that I think naturally advantage us here. First, it's just going to make it easier to use our cards. One of the go back over time, one of the friction points just in co-brand and private label has been the consumer forgets their card, and they don't want to go through the process to look it up or they don't have it stored in a mobile wallet. This makes that easier. If you could actually program an agent to say, hey, I'm shopping at x partner. And any time I shop at that partner, use this card so I get my 5% off. That makes that process so much easier than it's been historically. So I think that's one big advantage that we see going forward.

I think the other thing is our products provide great value. And I think you're going to have these personal agents doing the comparison for consumers in terms of which card they should use. It will be a combination of factors. But one of those factors is going to be what offers are available to me, what is the first purchase discount or what is my everyday cash back. And we think all of our products are really advantaged in that comparison. If the agent is able to provide that level of transparency, we think that naturally advantages our business model, our products and our partners, 2 big things that we see, at least in the short term.

Operator

Our next question comes from Don Fandetti with Wells Fargo.

Donald Fandetti

Can you talk a little bit about the competitive environment from your sort of legacy lending or bank competitors and then also the digital side and whether or not you feel like you need to make any bolt-on acquisitions or if there are any portfolio opportunities out there?

Brian Doubles

Yes. I think, look, the competitive dynamics have been pretty consistent for the last 3 or 4 years, frankly, both in terms of the number of competitors who we see out there competing on RFPs and the traditional stuff that we do. If anything has changed, I would say, over the last 2 years, it's in the what I would call nontraditional partner base. So we just announced a relationship with Stripe. That's -- obviously, they're a payment processor. They're not a retailer. I think that's kind of the new frontier as we go out and seek the one-to-many distribution channels for our products. So I think that's probably the nuance.

I would say the competitive set as we're out there competing for business with merchants and providers, that's been pretty consistent. I would say the competitive dynamics in terms of terms and price continues to be pretty rational. I think part of that is driven by just a little bit of uncertainty as you look out into '27 and '28. So I think most issuers are being pretty disciplined around how we're bidding on stuff. I think we're clearly being successful. We renewed a ton of programs. We won a bunch of new programs this year. So I feel pretty good about that.

And then on your second question, in terms of M&A, look, we continue to be really disciplined. You've seen that for the last decade. We like to buy companies that are relatively small that we think we can grow, leveraging our scale. There's obviously -- there's been a lot more bad M&A done historically than good M&A, and we fully appreciate that, and we're pretty disciplined buyers, and that will continue.

Operator

Our next question will come from Jeff Adelson with Morgan Stanley.

Jeffrey Adelson

I just wanted to focus on the RSA a bit. It did step down a bit more than we were expecting this quarter. I think especially it was notable in light of the better operating and credit results you put up this quarter. I was just wondering, is there anything under the hood that maybe drove this quarter's stronger RSA? And maybe just help us understand how to think about that trajectory going forward from a quarterly cadence perspective?

Brian Wenzel

Yes. When I look at the RSA, traditionally, people try to look at it externally when you think about PPNR minus net charge-offs minus the RSA and how does that percentage work? And generally speaking, it stays within a certain range. Now what drives it inside that range is really the mix of the portfolio. So while you look at credit at the top of the house, depending upon credit where credit sits in one partner versus another has a slightly different RSA impact that flows through. So mix generally is the biggest driver. There's been no substantive changes to any of the agreements that would drive a structural change to the RSA, et cetera. So it's really just more mix.

And again, when I look at it, it operates inside of what we think is a normal range. When you look at that metric, you can also look at it, Jeff, as a percentage of total purchase volume because, again, there are portions of it that is driven by volume itself, and that has a more steady effect. But again, consistent with typical ranges we see for the RSA.

Jeffrey Adelson

Okay. And then just -- with rates stepping up here, can you just walk us through how you're thinking about the impact on your consumer at this point? I know from a NIM perspective, if you look at your 10-Q, you're slightly -- you're more neutral, but you're slightly seeing a benefit there to your NIM. But I know in the past, you've talked about above neutral rates as a reason to stay tighter on your underwriting box with regards to the consumer. So just how are you thinking about the impact of rates you're stepping up on your consumer and the credit quality into next year?

Brian Wenzel

Yes. When you think about it, Jeff, majority of the financial obligations for consumers are fixed obligations, right? Whether you think about autos, mortgages, even though there's some more reset -- mortgages that reset over the last couple of years. But again, that's certainly fixed. So you don't see a direct impact to the consumer that flows through more immediately. It's the effects over time that happen.

And broadly speaking, the interest rate environment can have a bigger effect on employment when you think about small and medium-sized businesses that may not have access to capital, et cetera. Most certainly, if mortgage rates stay elevated and the mortgage -- the home -- the home housing market kind of slows down, you're going to see inflationary pressures through the housing, through rental rates that will go up, so kind of have a circular benefit there. And obviously, we benefit when there's a good and vibrant home sale market because people are willing to invest in furniture and other things as that goes through. So again, there's more, I'd say, ancillary effects to the consumer than direct effects to the consumer from that rise in interest rates.

With regard to our positioning, right, we're generally neutral. When I think about the interest rate, you think about what happens to our interest-bearing liability costs, we then look at the prime rate changes, the investment portfolio and a merchant discount where rates get passed on to some of either the providers or merchants, that's generally neutral. There are some lag effects when you're going up that can impact you.

But again, I think over the long term, the bigger question becomes when you think about deposits, what's going to happen with betas. And we probably think that given this competitive environment, betas will be higher than the past rate hiking cycle given the competitive dynamics and the fight over deposits that you're seeing today, particularly with a lot of promotional pricing. So that could have an effect. But again, we'll be back in January to talk more about those assumptions.

Operator

Our next question will come from Darrin Peller with Wolfe Research.

Darrin Peller

Just a follow-up for one more minute on NIM. I mean when you think about fourth quarter, just if you could just give us a sense of how to frame some of the puts and takes, the loan yield and funding costs. There's obviously a lot of questions around the path of future hikes that we just touched on, and you saw broader improvement this quarter. But again, deposit betas may shake out on the way up this time. Maybe a little more color and specifics on that would be helpful.

Brian Wenzel

Yes. Thanks for the question, Darrin. We do have one more rate increase in the back half of the year, but coming -- I'm sorry, the remainder of the year coming in December of this year. When I think about NIM, generally for the fourth quarter, again, we've indicated that NIM will increase quarter-on-quarter. A good chunk of that is going to obviously be the AEA mix. You are going to see more loan receivables as part of the equation than you did in the third quarter. So that will give you a benefit.

When I particularly think about the interest side of that, so think about that interest expense, the prime rate increase that will flow through really in November and December, merchant discount, there's a slight negative to NIM in the quarter, but it's not really material. Where you are going to see some benefit is really on the core lines of interest and fees. So again, with losses being a little bit more moderated, you should see a benefit. Again, we expect it sequentially to increase.

Darrin Peller

All right. That's great. And then just a quick follow-up. There's been elevated tech operational spend as you've ramped Walmart OnePay and other new partners. Employee costs have been up only 1% to 2% over the past few quarters. So maybe just talk a little bit more about some of the internal efficiency initiatives, how they're continuing more broadly in the expense base now.

Brian Wenzel

Yes. Yes, you're right. When you think about the employee cost being up 1%, I think one of the things we've been focused on as a company is how do we introduce productivity into large portions of the business. Some of it -- it's a very small portion is AI-driven when you think about utilization of the call center for call taking or call summaries at the end or driving efficiencies inside of that. So we've been generally head count neutral to down as a company from an employee base perspective, which we think is a good place to be as we try to drive that productivity.

Technology spend, Darrin, though, I'd sit back and say it's not necessarily Walmart related. If you think about it, we're in -- we're closing out year 2 of a 3-year journey on cloud. We want to accelerate our investment in AI. We've invested more in some of the wild technology, some of the things like Brian referred to Stripe earlier, being involved in these digital wallets, that is a really important part of agentic commerce. Our continued building out of the Pay Later product, things like that, that are driving our pre-qual process, things like that, that are driving more technology build than I'd say the integration of a new partner.

So those are investments that we think pay off here. We hope in the short term, but more in the medium to long term that drive the intrinsic value of the company. And that's why we have to make those investments that they're prudent. And again, that should decelerate not necessarily next year, but as a growth rate will decelerate hopefully '28 and beyond. But again, we want to invest technology, and we think by maintaining a flat head count and driving some of that efficiency there, we can fund those investments.

Operator

Our next question will come from Mihir Bhatia with Bank of America.

Mihir Bhatia

I wanted to go back to -- I think earlier in the Q&A, you mentioned, Brian, that reserve and loss cadence was the main difference in the fourth quarter outlook. Can you talk a little bit more about that? Is that a step-up in higher seasonal charge-offs, more of a reserve build? And then just maybe if you can also just touch on allowance coverage in that. I think typically, you get 30, 40 bps of allowance coverage benefit in the fourth quarter. Should we expect something similar here? Just give us a starting point as we head into 2027 allowance coverage.

Brian Wenzel

Yes, thanks for your question. My point earlier was really the reserve coverage, not necessarily the charge-off piece that I was referring to on the cadence between 3Q and 4Q. So that's the first point. The second point, as you think about the coverage ratio, particularly in the fourth quarter, you're right, there is a seasonal element. And typically, you see a decline, probably not as wide as what you'd say, you'd say it's probably more in that 25 basis point range depending upon the more relevant time period, about 25 basis points.

Again, given where we are at the end of the third quarter and probably the maturation of some of the new portfolio seasoning, some of the credit action seasoning, you shouldn't expect that same type of seasonal decline in coverage rate in the fourth quarter to be significantly less than that. But again, it will be posed for the quarter. But again, just not as low on the seasonal decline in the rate. That's not necessarily a negative thing. I think it just kind of goes into how the loss rate will begin to build between '26 to '27 as anticipated as Walmart losses begin to come online. And again, the credit actions we took in the end part of last year begin to season and mature and come through the portfolio.

So again, we're pleased with the coverage. And as I've indicated throughout the year, we generally thought that the rate had a downward bias to it. This is all taking into assumption that we don't have any deterioration in the macro or any significant improvement in the macro, it's kind of a steady state is kind of how we're thinking about it right now.

Mihir Bhatia

Got it. And then just following up on the deposit beta comment, I think you said you expect deposit betas to be higher this cycle, but it's with a lag. So just as we think about the double-digit EPS framework, if you will, for next year, that assumes some NIM expansion from portfolio seasoning. So how much of higher deposit betas would offset that? Or is that already in the framework, if you will?

Brian Wenzel

Yes. Right now, Mihir, we're going through our 2027 plan and formulating what we think the betas will be for -- finalizing what we think the betas will be for next year. And again, to the extent that the betas are higher, we're going to have to figure out a way in which we can continue to drive. We're focused, Brian, and I and the executive leadership team on driving double-digit EPS growth. Most certainly, we try to do it annually, but that's going to be a focus, and we will find ways to potentially offset any headwinds that it comes from higher deposit competitive environment.

Operator

Our next question will come from Robert Wildhack with Autonomous Research.

Robert Wildhack

Looking at some of the segment level data, purchase volumes, loan growth, et cetera, in most of the segments actually accelerated from the second quarter, except for digital. And from 1Q to 2Q, the digital segment accelerated itself pretty nicely. So I'm wondering if there's anything to call out with respect to digital this quarter and why the slowdown there because if that had held in, I think the loan growth and especially purchase volume would have looked even better.

Brian Wenzel

Yes. Yes. As you think about the digital, there is timing Brian talked about Venmo. There's timing when you have value prop relaunches and when things happen and occur from a marketing cadence perspective. So I don't think there's anything structural or different in there. We just have a tremendous opportunity inside of that sales platform when you think about partners like Amazon, when you think about partners like PayPal that's in there and other positions. Again, it's probably just more timing of some of those campaigns and value prop refreshes than it is something that's structural or fundamentally different.

Brian Doubles

And we did in the third quarter last year, we did a fairly substantial upgrade in the PayPal book to the co-brand card, and I think that drives some growth. So that's in the comp year-over-year.

Brian Wenzel

So it's all value prop driven.

Robert Wildhack

Okay. Great. And then I appreciate all the comments on agentic commerce, the friction and the value prop. The pushback that we get sometimes from clients is around the risk that agents have consumers optimizing to the point where they're squeezing every dollar from the card in terms of rewards, but also revolving less or managing credit better. Do you think that's a real risk, too?

Brian Doubles

Yes. Look, obviously, we're spending time on it. I think the first thing I'd say is there's a lot of transparency around APRs today. There always has been. And I think there's a lot of factors that go into how consumers pay down their outstanding balances. So they're not just looking at credit card APRs, they're looking at all the fixed expenses that Brian mentioned, mortgage, rent, payments, car loans.

And then when you look at just credit cards generally, consumers, they look at more than APR. They look at where do I want to make a payment to create some utility in the short term. That tends to be on their top-of-wallet general purpose card, not necessarily on our products. So obviously, we're going to stay very close to this as it evolves. But I still see agentic broadly as a big opportunity for us. And transparency broadly benefits us just given the value that we provide on our card. So overall, I think we're positively biased on this and think it is an advantage for us over the long term.

Operator

Our next question will come from John Pancari with Evercore.

Eugene Sweeney

This is Girard Sweeney on for John. Just one on capital. Clearly, you remain active on the purchase front, CET1 progressing lower, but still a sizable cushion between the 12.9% coming out of 3Q and 1% target. I know unrealized losses aren't really factored to your reported CET1, but just given the elevated yield backdrop, is there any change in how you're thinking about repurchase appetite and broader progress towards your 11% target?

Brian Wenzel

No, I'd say we don't have any changes in our conviction and the cadence in which we would we would get closer to target. I think we've consistently said we want to be aggressive but prudent given the macro environment. We got $4.6 billion remaining under our current authorization, and we're going to continue to execute that.

The only thing I'd say is I know we don't give quarterly guidance. I wouldn't read into the third quarter that that's a new run rate. I think if you look at the more historical average, it's probably a better sense on what we'll do. But again, we understand and want to get down to. And I think we've made very meaningful progress from where you go back, we were 14.3% on CET1 a year ago, we're down 12.9%, and we can -- and we're growing assets. So again, we'd like to grow assets first. But to the extent that we have excess capital, we'll deploy it again in share repurchases on an aggressive but prudent nature.

Operator

We will take our last question from Andrew Bauch with BMO Capital Markets.

Andrew Bauch

A lot of my questions have been asked so far, but maybe if I could ask you to paint with some broad strokes on how you kind of expect the holiday shopping season to shape up. Any behaviors that you're seeing from merchants that are different from prior years, special promotions that may be going on? Just whatever you're seeing in the market today?

Brian Wenzel

Yes. Thanks for the question, Andrew. I'll start out and then if Brian has other comments. Obviously, the first thing that we watch is whether or not consumer behavior, right, confidence as they go in, what their spending pattern is going to be. I think NRF has a 4 percentage point increase in the in holiday sales that are kind of coming through. I think the first read for us is when we look at the first 3 weeks, albeit a small sample size, sales have continued at generally the same rate as we have seen as we exited the third quarter. So I think the consumer continues to be strong.

I think the one positive for us is that we have a set of retail partners that are very attractive and offer strong offerings to consumers, and they're gearing up for what would be a slightly higher promotional activity level across the board here as they fight for dollars. We've seen the trend in the last couple of years where things have moved a little bit earlier into the cycle into pre-Black Friday and pre-Thanksgiving week. So again, we'll continue to watch it. I think we feel cautiously optimistic about holiday growth rates. But again, early signs from the consumer is not tapering off. And again, some will begin to start spending here in October. So we feel generally, again, cautiously optimistic with our partners and how holiday will develop.

Brian Doubles

Yes, I wouldn't add much other than to say that our teams are embedded with all of our partners actively working on a pretty robust schedule of holiday offers, promotions, discounts. We're very focused. We do that hand-in-hand with them with our teams that are embedded with them every day. To Brian's point, I do think -- I do think they're cautiously optimistic. They're looking at sales trends in October and probably weighting that a little bit more heavily than what they're seeing in terms of the headline on consumer confidence.

As I mentioned earlier, for one of the first times that I can remember, those 2 things are pretty disconnected. So if you're looking at consumer confidence, you don't feel great. But when you look at what the consumer is actually doing, you feel a lot better. So we're actively working with them on their marketing calendar promotions and offers. And I think we're -- we also share their cautious optimism for holiday.

Operator

Ladies and gentlemen, this concludes Synchrony's earnings conference call. You may disconnect your line at this time, and have a wonderful day. Thank you.