All right, good to go?
I'm good.
All right. It's great to have Perry Beberman, the CFO of Bread Financial, and Brian Vereb, the head of IR, here with us today. I think most people are familiar with Bread, so I think we'd probably just jump right in. But before we get going, Perry, and Brian, are there any quick updates for the first quarter that you wanna share with us?
Yeah, Brian, why don't you come on up here? 'Cause it sounds like you're part of this. I didn't realize he was allowed up on stage. Yeah, for the first quarter, this morning, we released our delinquency and net credit losses, and they came in as we've been signaling in support of what our expectations were for the quarter, that the quarter would be mid- to high-8% loss rate. So the 8-9 is consistent with that.
You know, I would expect that if everything tracks as we expect it will, we'd expect that, that the losses peak in the second quarter, probably around May, and you hit that inflection point where, you know, based on the early delinquency, delinquency formation, you should get that betterment in the back half of the year, coupled with, you know, what we're expecting to be some improving, inflation environment, and the credit actions that we've taken. But again, a lot macro-dependent on the second half, but certainly everything we're seeing looks like, you know, that mid-second quarter should be the peak. You know, we've been talking about what's happening around consumer spend has been slowing, particularly in big ticket for us.
One of the things that I'm, you know, not sure everybody's picking up on, we're around big ticket, there's merchant discount fees that we get for that. So when you think about what we're seeing in terms of some revenue difference versus the run rate from last year, probably about $20 million lower this year than what we've seen from last year. Making sure that, you know, we've been signaling that the revenue would come in a little light on that, and so, and that's in non-interest income. So that should pull through. That's really it for the quarter.
Okay. And as you guys have been out and meeting with lots of investors in recent weeks, you know, certainly been talking about lots of different topics, including the CFPB, I'm sure has been very much in focus. But before we get to that, I wanted to start off by asking you, Perry, if you could reflect a little bit on how your views have evolved since you joined Bread, and particularly, as you've gone from being more of a pure-play, private label player in the early days after Ralph and you joined and, you know, stepped into your current roles, to today, having over 50% of your volumes coming from general purpose spending.
Would you say there have been any changes into kind of how you think about the economics of lending versus spending between when you first started and now?
Yeah, I don't know if our perspectives have changed that much. I think when both of us joined, we came from, you know, two big banks. He came from Citi, I came from Bank of America, and the risk appetite was quite different at those companies than what, you know, Alliance Data at the time we joined, now Bread Financial. So you know, getting exposed to private label, the underwriting for profit, and getting comfortable with those the levels of risk-adjusted margins, was like, "Okay, that was a little..." So it was different. But then, when you look at the evolution, it's okay, we don't wanna be so, as I think you said, pure play, private label. This evolution to diversify into more co-brand has been important not just for us, but for the industry.
Because what retailers have figured out, whether it's Ulta or other brands that we have, is that might have been, at one point, a private label, where the purchase is only done within their store only. Having a co-brand where consumers can earn rewards that matter to them, or loyalty for that spend outside of just being inside that store, is valuable, and I think a lot of retailers have figured that out. So then you use the private label card as more of a downsell product for people who are more near prime or subprime, who wouldn't qualify for co-brand, which has larger lines, you capture more of the top-of-wallet spend, and diversifies the spend.
So I think there's been an evolution and interest in the partners we have, and then obviously, our interest in diversifying and getting more spend that's less concentrated in just that retailer only, so that you end up with lower losses, better quality of customer. And that's been in motion, and that will continue for years to come. It just takes time to continue to diversify.
Is the end goal of driving that incremental spend to drive more revolving behavior, or does that sort of increase in the mix of transactors? Is that part of the thought process as well?
It's a combination. I mean, you know, so I've been in this business now for, it's just scary to say, over 35 years. We make money by lending. When customers revolve, we make money, and that's the model. So sure, you are... When you're underwriting, you're underwriting to people who you believe are gonna have a propensity to pay you back, but borrow. And for the customers who are simply swiping the card, collecting the rewards, and pay you back every month, and I don't care where you are, which company or, you know, which issuer, that's usually an upside-down transaction.
Because, you know, you make X% on interchange, you're paying out more than you make on rewards to the consumer or the brand partner, and if that consumer pays you back, then you're funding their balance at some amount, so your, your negative net interest margin, negative revenue. So, you know, look, we don't turn those customers away because they're high, high credit quality, but our bread and butter is the revolving customer.
Understood. And if we think about the business model, and in particular, you know, how much you focus on targeted marketing, because you've got that sort of closed-loop network advantage, you know, it doesn't seem like we hear you know, talk about it in too much detail in as of late, but could you speak to that a little bit and how significant that closed loop is to targeted marketing efforts?
Yeah, I think you raise a really good point. One that is a competitive advantage for us in this space when you have the type of brand partners that we have, when you have a lot of new accounts originated at the point of sale in the partner channels, it's very low cost. Where when you do target marketing. Now, you may do some target marketing for their customers via email or text or whatever, you have for them, but when you think about target marketing, like these big direct mail houses, where, you know, some peers, I'll use the Cap Ones or the JP Morgans or others who are big direct mail or paying for the affiliate channels, that's pretty costly. You know, they can range $300-$1,000 per account to acquire.
When you're dealing with private label or co-brand that serves more of that mid-tier customer, that becomes a bit challenging. So, we're very fortunate to have some great partners with terrific channels, where we don't have to spend a disproportionate amount of money on direct marketing. That's very costly.
For many years now, you mentioned earlier the rewards element of the transaction. We've been seeing a lot of, you know, much of the industry giving up the upside from that higher spend in the form of higher rewards in an effort to drive engagement. You know, can you talk a little bit about the importance of how you see rewards and the Bread business model going forward, particularly as you're looking to bring on more general purpose spend?
Yeah. I mean, rewards are a great element that drives consumer behavior. It—if you can find a reward that resonates with the customer for whatever they're trying to do, some want cash back, some want points to spend back at their favorite retailer, or points that they can redeem for a bunch of things, it's been a business model that's been around now for a long time, and it works. And a lot of retailers have figured it out, and the retailers want rewards that are geared towards their products and programs, and that's where, you know, we've got a team of people who are really good at helping design those products. Some fit neatly into an existing rewards platform. You know, take the NFL as an example.
They've got NFL points that consumers can earn, both on their credit card and through other things. So there's many ways, and every program has nuances to it. And for us, you know, you're funding it less on whether it be interchange that you get from, you know, general purpose spend, which is certainly available to help fund rewards, but it's also because when you do underwrite for profit, you have, you know, we have a high revolve rate, and so the whole program has to work, the economics work in totality.
If we could shift gears to where we are in the credit cycle. You know, as we've had this sort of debate between soft landing versus mild recession, you know, the outlook has certainly grown more constructive, in recent months. But, you know, there's this view that if we had simply had this mild recession, that that would have actually been a more bullish outcome for the industry because that would have purged weaker credits from the system, and the Fed would find themselves, you know, feeling more comfortable cutting rates, as inflation would be clearly rolling over. But instead, you could argue that the environment is a little bit murkier.
You know, there was that Boston Fed study at the end of last year that showed that consumers making $75,000 or less are 80%-90% maxed out on their credit cards. So there's this element of late cycle at play. Can you speak to how those dynamics influence how you manage the business, and do you think we're late cycle?
You know, you used a term there that I hadn't heard before, but I like it: murky, right? It's these are different times than what many of us, all of us have probably seen, and the last time you saw a period of high inflation was, what, in the 1970s? And so it's, it's a different type of environment, and I every cycle, economic cycle is different, and this one is different than the past ones. I mean, you've got, you know, low interest rates. Even though they've gone up, they're still relatively low. You have low unemployment, so while interest rates have risen, trying to slow the economy and trying to slow business investment, you know, the businesses are strong. And so whether there was something, you know, mild recession, I think that would've been big macro.
I'm not sure it would've affected the consumer very much. When you think about the average American, and what does the average American earn? $67,000 a year, and maybe it's up to $75,000, but whatever it is, but their cost of what they purchase in any given month is up $1,000 per month compared to what it was pre-pandemic. And that's real, and yet their wages aren't up that, as much. So these are the things that consumers are struggling with. So yeah, 20%-30% of the Americans are doing just fine. You're affluent, high, higher folks. I mean, everybody looks at your 401(k) balances, your investments, if you have them. Well, that's not everybody in America, right? Those people are doing fine.
People in this room may not have. You may have been feeling the impacts to your personal lives, and you're like, "No, you don't understand it." Well, but to the average American who are living paycheck to paycheck, it's getting a lot harder. And so to your point, a lot of these folks have increased their credit card debt. This debt now comes with higher interest rates. They're trying to purchase goods and services that are still costing more because inflation's out there. So even had there been a mild recession, I don't know if. Because usually with mild recession, you get some more unemployment. You know, this persistent period of inflation is impacting almost all of Americans. You know, the more affluent, clearly not feeling it, but the rest are feeling it. So even if you had a, a little bit of recession, you get...
Unemployment goes from 3.5% to 5%. Okay, it's 1.5% of people up and down the credit spectrum, not just the middle, up and down, who will, you know, lose their jobs or won't find employment. And you're seeing it today in the articles, right? A number of tech companies laying off. Well, that's not the average service worker. They're doing just fine in terms of employment, but who's gonna be impacted by that, you know, when it-- you know, these maybe some of the people who got over their skis a little bit, who are higher earners, may get pinched. Okay, well, those are more prime customers today. So it's gonna be interesting how this, this unfolds.
I expect this to be a slower recovery, even though we didn't have a recession, but a recovery of Middle America as inflation eases. But again, even with inflation easing, it's still a compounding rate on top of elevated periods. So at 2% higher, well, heck, they were just through this high period of mounting. It's still up. It's not as if prices are declining rapidly to ease their, their, their, stress.
That makes a lot of sense. It is difficult to be too bearish on credit, though, given that the year-over-year change in delinquencies is effectively across most issuers declining.
Yeah.
So the pipeline of potential credits that'll charge off in the future is getting smaller. But, you know, one of the areas of pushback that we have heard from investors is that charge-offs potentially could continue to rise, even if delinquency formations have peaked. And, you know, maybe if you could just respond or, you know, share how you would respond to those concerns, that charge-offs potentially can remain elevated and even continue to rise for a time, even though we've had these, you know, peak formations.
Yeah, I think every issuer is different, and every issuer has approached this, you know, the pandemic, post-pandemic, and into, you know, even where we are today, differently. You saw some issuers put on these really large vintages of, new accounts and size, you know, loans that came with those back in 2022. Consumer risk scores were elevated, you know, 'cause they had a lot of the government stimulus savings in their pocketbooks. They were making... you know, paying down debt, and those things increased their credit scores. Well, that was short-lived because it wasn't a permanent cash flow they were going to have. Some issuers leaned in on that, and now that's dried up. They also didn't anticipate this period of increasing inflation that put pressure.
So now you're seeing the balances there, strain coming through and creeping up the credit spectrum. We've been putting on smaller vintages throughout this period. We've been credit tightening, anticipating that this would be a more challenging period for the consumers we serve. So I think there's gonna be... when each issuer peaks will look different. We were rising sooner than the prime, super prime issuers, but we expected that. We're the canary in the coal mine when you serve private label cards. But by the same token, it should recover sooner, and we should start to see that peak maybe before others because there's a seasoning that happens with new account, new vintages. Usually, for general purpose, it might be 18 months out. So think about when these vintages came on, they're gonna season through.
For us, it's a little faster, and so our credit-tightening actions should see the inflection point maybe a little sooner. But again, moderating down, it's not as if... I think where people get confused on this topic is the great financial crisis. And there was just a different type of macro environment where you had this quick ramp-up of unemployment. You had a lot of people looking at their homes, and they were upside down in their mortgages, so you had strategic defaulting. So bankruptcies were filed all over the place, and people just wiped out their credit card debt at the same time they were cleansing their mortgage.
And so, to your point, you know, people think, "Oh, if there was a recession, all those people, the bads or whatever, the people who are a little stressed, would cleanse out, and then you're in a much better period." I think this environment is gonna be a bit of more of a slow cleansing than a cliff-type cleansing that we saw in the great financial crisis.
Which that thought process fits in with, I think you've talked about being very cautious about when the time comes to release reserves, you wanna make sure that you're not, you're not gonna have to be rebuilding.
Yeah, that would be,
Yeah.
I don't think our investor base would be too happy with me if, you know, we had this, you know, big reserve, and then said, "Just kidding," two, you know, two quarters later, rebuilt it because we didn't anticipate something that you could have. I think we're at a place where, you know, hopefully, investors can see from the posture we take, we're, I'll say, conservative and cautious, meaning, look, we lend. Let's start, get clear. When you lend, you take risk, you, but you expect to get paid for that risk.
When you're building your reserves, it's to make sure you are able to cover what the expected losses are in your current portfolio, but also acknowledging that there's some risk associated with the macro environment that you can't, you know, perfectly put your hand, your hands on in terms of what the impact of inflation is gonna be, what could happen with unemployment. So you lean in on some downside scenarios, and that's what we've done. And then when it comes time to where we say, "Okay, delinquency is looking much better," you would think that the reserve rate would come down, which is true, but I wanna make sure that we're seeing that pattern, that it truly has come down for multiple months in a row, not a one-month blip or...
And then, that the economic outlook, that it really is a true stabilizing, and all signs are indicating. We don't look at just one measure, but that it's time to unwind some of the conservative overlays. So I'm... Look, I'm in. I'm hopeful, but I'm gonna be cautious.
... That makes sense. One of the topics that has obviously garnered a lot of attention this quarter is, particularly with the release of the final rules from the CFPB, has been what the impact's gonna be. You guys have been in front of that with great disclosures. Maybe, if we take the opportunity here, can you give us a sense of, now that you've had a little bit of a chance to reflect on what those rules look like, is there any additional guidance that you plan to provide in the coming weeks, now that the final rule is out?
No. No.
Okay.
I mean, the answer is no. We've given guidance, and really, the rule came out largely in line with you know what was originally proposed. So right now, when we went back and re-evaluated the impacts, I mean, to be candid, the attorneys are really grinding through all the rules. And some of the things, look, the $8 fee is, it's an easy enough math to figure out. But where it gets a little more interesting is, okay, so when they say you can charge more than $8, but you have to demonstrate your cost to collect, again, there's the one of the flaws in this, the cost to collect versus being a penalty fee, which has a deterrence component.
But that aside, that's where we're a bit unsure what the process looks like, so we've got to figure out, okay, well, can you just go say, "Okay, we're gonna charge a, make it up, $20 fee, $15 fee?" And then do you prove your math before you put it in place? Do you have to prove your math afterwards? What's to disclose? There's a lot to it, Bill, and that's part of what we're trying to sort out. But I would expect as we, you know, we have our first quarter earnings, if we have some, you know, new information to share, we will at that point to try to tighten up guidance. And, you know, one of the other things that's really coming up is the timing. You know, we're seeing this live like everybody else. Like...
I'm not trying to handicap timing, so we gave our estimate of starting in October first of this year, not because of thinking that, oh, something has to go into effect on an October first in any year. This was simply, we just released our fourth quarter earnings and tried to give people a comparative point to say, "This is the impact versus that same period prior year." So there was some context to it. You know, we're seeing things like others. This could get a stay that crosses you over October 1 of this year, which means October 1 of 2025. I can't really handicap that.
But, you know, when we look at it, the impacts, and we tried to put a slide together, you know, at some point last year that kind of say, "Hey, this is how APR changes, and it would take time for those to burn in," which is why we've said it'll take two to three years for all these mitigations to work their way through to, you know, get those returns back to, you know, the levels we were looking for.
For what it's worth, our D.C. politics and policy analyst thinks that the CFPB rule is unlikely to go through. Assuming that he's right, do you see any lasting changes to the industry as a result of the threat that this posed, even in that scenario where ultimately it doesn't go through? And then, I guess, layering on top of that, the possibility, which has come up in some conversations with investors, that you actually get a little bit of a windfall benefit for having taken some actions where you're able to reprice now-
Yeah
... and ultimately, if it doesn't go through, then, you know, that up, that would be upside, that would drive to the bottom line.
Well, let's just say this: If it doesn't go through, I mean, we are preparing as if it's going. Let me be real clear. We have teams of people getting ready to execute, have been starting to work on execution plans. It would be foolhardy to do otherwise, right? And so we are, you know, making sure we're having the conversations with partners for things that we have to have conversations about to effect change. Those conversations are in full flight. I don't want to use the term windfall because that, that's not the goal of this, right? If you're trying to have strong returns, you're trying to have competitive products, and what you'll find in the industry is that equilibrium is sorted out, always is, right?
I mean, if we make more money, that means we'll share more with our partners, or you'll invest more into programs and products for consumers. The idea is to grow and grow profitably, grow responsibly, and not for us to just reap rewards one-sided. It's never been the nature of a partnership business. And, you know, if this doesn't go in, yeah, there could be some things that, that stick around, to help drive the right type of behaviors. But we'll see. I mean, it's really gonna be partner dependent. But the industry has always done a good job of being competitive. Now, in the industry, they may have to continue to drive for higher returns if they have changes in their Basel III capital requirements, that Basel III, that doesn't apply to us. So don't know what they'll be looking to do, but-
You know, that, that fits in with, what Ralph has said about hope is not a strategy.
Oh, for sure.
If we could shift gears to economic sharing, you know, some of your competitors engage in those kinds of arrangements, and there's this perception among investors that you don't embed economic sharing in your partnership agreements to the same degree. And, you know, that arguably is one of the ways that some believe, you know, Bread's historically been able to win new business. You know, could you speak to that? Is that a fair characterization of the business model?
I think there's ... it might be a mischaracterization that there's not economic sharing. There absolutely is economic sharing. I think where you're going is it a revenue share or a profit share versus a, you know, a bounty on new accounts or a percent of sales, you know, you know, basis points on the amount of sales. And each structure is different. Many structures have multiple facets or all three. So every contract's different, which is why they're more nuanced. We may have less of the pure profit share than some peers say that they're doing, but more aligned to the way some of the other issuers are doing. So every issuer has a different philosophy on it. And it depends on the partner.
Some partners want, are willing to take on credit risk, and they wanna be part of the profit pool. Okay, well, that means they're gonna get cyclical ups and downs in their profits. Others are like: "I don't wanna do anything with that, it's your business. I just want a percent of sales." And that then gives them a revenue stream that they're more accustomed to seeing. They understand their own sales are gonna go up and down, but they can track it. So it's really partner preference, and that's how we have been able to, I'll say, win business and work with partners. Some have been burned by some of the past constructs, and some, you know, are good with participating.
And some it's like: "Hey, I want some on sales, and I want it some profit share above a certain amount." So they're all different. But if it was pure profit share, you know, again, the goal of the partnership is to try to keep all parties as whole as they can be. Today, the consumer was paying for the late fee. Well, the idea is to put as much of that pricing back on the consumer. Now, unfortunately, 80% of the people who pay on time or, you know, are the ones who are gonna end up bearing higher costs of credit. And we've said that, the industry says it, but that's, you know, progressive way of thinking about it, and that, that's a policy they're comfortable with.
And so on the credit portion of those agreements in particular, is it fair that, you know, some merchants will say, you know, "Credit, that's all you. If it's better, you get the upside. If it's worse, then you, you bear the cost." Alternatively, some might say, "We'll, we'll share in the economics of credit as well as the rest of the program." So you have a mix of both of those as well?
We do have a mix of both, yes.
Okay. Shifting gears, you talked about your sweet spot being in the $100 million-$500 million portfolio range. Then, since you are growing off of a smaller base versus the industry, and you've got this opportunity to capture these smaller portfolios that arguably are ignored by your larger competitors because they don't really move the needle for them, should investors expect over time that, you know, this focus on these smaller portfolios is gonna enable you to grow above the industry average? And then separately, is there a baseline number of these smaller merchants that, you know, you look to add in any given year to hit your growth targets?
So I do think it's a competitive advantage in that, to your point, I mean, look at some of the behemoths that are forming with the new merger, and the really large banks, trillion or above in total assets, right? To go focus on a $100 million new partner that you see, that with the potential to grow to a few hundred or, you know, that 3x size, 5x size, or even larger over time, it's return on time for them, right? They're so efficiency-minded that they're putting people after things. Well, for us, it's a really strong returning business with good growth opportunity, so we do like that business. And to your point, you can cobble together 10 of those types of deals, and there's $1 billion-$5 billion of growth.
So yeah, we do believe when you come out of this period of time in the cycle and you keep putting on these good partners, that in time, we could have, you know, higher than industry average growth, but also because they're so much larger. I mean, when you think about annual attrition, just from losses and normal voluntary attrition happens every year at every company, you've got to replace that, you know, bucket of accounts. And then if you have growth aspirations, you've got to put something on top of that. When you're smaller, much easier, the math just makes it easier to grow. Now, growing within your capital framework is critical.
All right. So I'm gonna continue here, but, if anyone has questions, you know, please, please feel free to jump in. I wanted to ask about the funding strategy. You, you guys have done a nice job of growing your base of lower-cost deposit funding. How do you think or how should we think about your asset versus liability sensitivity profile, through the cycle, if you will?
Yeah. I mean, we, we've commented on this for the past couple of years, right? When you've had rising interest rates, we were slightly asset sensitive, so same would be true in a declining rate environment. Being slightly asset sensitive means, you know, we'll get squeezed a little bit on that interest margin on the way down.
Right. And there's no effort to alter the asset sensitivity through swaps or any kind of derivatives?
A little bit, but you know, it's the type of thing where we try to be as neutral as possible.
Okay.
And that's the goal. We are definitely not trying to take interest rate risk, try to stay as matched as you can, and you'll see that in terms of us versus peers or others, we're pretty tight.
Okay. I wanted to ask about the bank subsidiaries. This has come up in some conversations with investors recently. If we think back to sort of the old ADS days, the bank subsidiaries were kept well-capitalized, but the parent was significantly undercapitalized and ran with negative tangible common equity for, you know, most of its time as a public company. Now that you and Ralph and the rest of the Bread team have raised capital levels to levels that are now more in line with peers, you know, and at the enterprise level, is there? How do you think about the need for those bank subsidiaries? Is there, you know, I think, any potential changes to organizational structure that investors should be anticipating?
Sure. Well, there's definitely need for the bank subsidiaries because we lend and we raise deposits, so you have to do that through banks. Our parent is a non-bank holding company, so as a non-bank holding company, you know, we're fortunate to have two terrific banks, but you know, I think where you're going is there something down the road where we might change our charters and become a bank holding company? And with that, you know, that's something we evaluate, but we would only do that if it was for a strategic advantage of doing so. By doing that, you'd introduce new regulators, different requirements. When this was evaluated a few years ago, they would've increased the capital requirements significantly from where we were because the company wasn't running itself in a disciplined fashion with clear capital planning, policies, priorities.
And so I think where we have gotten ourselves to, and you talk about the parent debt, I mean, paying down $1.8 billion of parent debt, getting our leverage ratios to almost where they need to be. You target a double leverage ratio of under 115%. Get under that, you check that mark. You know, we've got our durations now out to 2028, 2029 on the parent debt with, you know, I'd say more tried-and-true funding instruments that rather than bank loans, you know, bank term loans. So, we're in a great place with funding. You know, it's something we'll continue to evaluate. If there's a strategic reason to, to do something different with the bank charters, we, you know, we would.
But as of right now, you know, we work closely with our regulators, being the FDIC, to dividend up from those banks, dividends to the parent, so we can take care of our parent debt and then down the road, other capital parties.
Okay. So as we come down to our last few minutes, I wanted to ask about efficiency. Your investments in tech modernization and data analytics have been a big focus in driving efficiency improvements, but we haven't really heard much, not just from Bread, but really from the industry in general, about leveraging AI, which seems to be a big focus in, you know, many certainly within the tech space. Can you give us a little bit about any nuggets on what the Bread team might be working on in this area?
So, you know, efficiency is always important. You know, I focus less personally on efficiency ratios and the like, 'cause really, that's gonna be dependent upon the amount of investment you're making back into the business, whether it's through investment in programs to grow the business, investments to continue on our digital journey, whether it's introducing mobile apps across the board for our consumers, which should further drive efficiency in terms of cost to serve, deploying, you know, chat capabilities, things that we don't have. So we're still on our digital roadmap to get to parity or better, and that's going to continue. When you talk about machine learning, we have deployed over 200 machine learning models throughout the business. Think about in credit underwriting, delinquency forecasting, whatever it be. They're in a lot of places.
So we've been all over the data analytics and applying that type of modeling. The new stuff coming out around the generative AI, it's, you know... Again, we are operating within the bank structure. You need to make sure that you're risk managing this the right way, and I think everybody's trying to figure out the right use case to apply AI tools into your processes, whether it's agent-assisted information, whether it's informing a call coming in to the voice response unit. You know, what's the predictability? So there's a lot there, and I think we see a, you know, opportunity, but trying to go at it in a very methodical, mindful way. And one thing we've done is, and, you know, we'll talk more about this probably at our Investor Day, is, you know, we've got this focus on we call operational excellence.
It's just trying to continue to drive efficiency, continuous improvement, and get that into the DNA of every place in our company, so you can reinvest that or deliver better returns. So it's a mindset and something, you know, I'm excited about what emerging technology has to offer to help frontline workers work more efficiently, whether it's a financial analyst or somebody taking a call, to more sophisticated models and completely revamping the way you interact with a customer. So, you know, I think the future is bright for efficiency, but you've got to be smart about how to deploy that technology, 'cause I've also seen in the past that you can invest too much and not get the return on it. So that's where I go to the use cases.
You know, we've got to make sure, I don't need to be a fast, you know, leader in all this, but a fast follower.
Understood. Given your years in the business, have you actually ever done a side-by-side comparison between the sort of traditional underwriting methods and sort of some of these other machine learning, AI-based methods to see if there's a difference in performance?
Yeah, it's interesting, right? I think that's, that's a good point. You always do test and control, and traditional is a, it's you and I sitting there with somebody's, you know, income statement or credit bureau and trying to, you know, figure out and calling them up. You know, "What do you got?" Whereas now, the machine learning tools are more predictive. They have a tighter band in there, and you're making sure that... It, it takes out emotion like that a, a person has. But then you still have a portion of new applications that get kicked out that need a little bit of follow-up with the consumer for more information.
But the tools are getting pretty predictive when they can see trends in the bureaus or things that, hey, that you should tighten credit, or this consumer's payment pattern looks really good, and then you can give them a line increase. So I think the tools are... I think I know they're getting more sophisticated and are always consuming more data to help make more informed decisions.
Well, look forward to you digging into all these topics in more detail at Investor Day. Thanks. With that, we're out of time.
All right.
Thanks, Perry. Appreciate it.