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Alliance Data Systems Corp (NYSE:ADS)
Q3 2020 Earnings Call
Oct 30, 2020, 8:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to Alliance Data's Third Quarter 2020 Earnings Conference Call. [Operator Instructions].

It is now my pleasure to introduce your host Ms. Vicky Nakhla of AdvisIRy Partners. Ma'am, the floor is yours.

Vicky Nakhla -- Investor Relations

Thank you, operator. By now, you should have received a copy of the company's third quarter 2020 earnings release. If you haven't, please call AdvisIRy Partners at (212) 750-5800. On the call today, we have Ralph Andretta, President and Chief Executive Officer of Alliance Data; and Tim King, Executive Vice President and Chief Financial Officer of Alliance Data. Before we begin, I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements.

These statements are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC. Alliance Data has no obligation to update the information presented on the call. Also on today's call, our speakers will reference certain non-GAAP financial measures, which we believe will provide useful information for investors. Reconciliation of those measures to GAAP will be posted on the Investor Relations website at alliancedata.com.

With that, I would like to turn the call over to Ralph Andretta. Ralph?

Ralph Andretta -- President and Chief Executive Officer

Thank you, Vicky, and thank you to everyone for joining the call this morning. We have had an exciting week with a Fiserv announcement as well as the announcement this morning of our agreement to acquire Bread. The new capabilities, digital advancements, technology upgrades and efficiencies from these transactions better position the company for sustainable, profitable long-term growth. I would like to start today's call by thanking our associates and leaders for all that they accomplished this quarter. Our associates continue to step up to the challenges and changes brought forth by the pandemic, and through their dedicated service, move the company forward on its strategic goals. Starting on page three.

Here is an overview of the key highlights of the third quarter. The company posted strong financial results, which I will touch on briefly, then Tim will provide more color. As is evident with our recent announcements, we are making substantial progress on our strategic priorities and making significant investments in our business. We will address these themes in more detail throughout the presentation and then provide insight on our focus going forward. After our prepared remarks, we will open up the call for your questions. Slide four provides the highlights for the third quarter. We reported net income of $133 million, an increase of $95 million from the second quarter 2020, and earnings per diluted share of $2.79. We built capital -- we continue to build capital and liquidity through income improvement and strong cash flow. Importantly, credit sales improved 28% sequentially and both AIR MILES, reward miles issued and redeemed improved from the second quarter of 2020, which I will discuss in more detail on the following slides.

Overall, in the quarter, we saw a pickup in our business as stores, states and countries reopen. Moving to slide five. You can see more detail on the improving credit sales trends for our Card Services business. While the sales were down year-over-year, we are seeing encouraging signs of growth across our channels and industry verticals. Like most, we are seeing the benefit of stores reopening and customer spend beginning to increase. While the positive September U.S. retail figures are very encouraging, we remain focused due to the many uncertainties our economic -- our economy faces, among them, the potential resurgence of the virus. We remain cautiously optimistic on the future, and are prepared for a potentially uneven but gradual economic recovery for the U.S. and world economies. As you can see on the bottom left chart, our sales channels continue to rebound from the lows during the shutdown period earlier this year. The chart on the bottom right provides the channel details for the 28% sequential growth in the third quarter versus the second quarter of 2020.

We saw a substantial improvement in multichannel spend as stores reopened, leading to a sequential 92% increase in in-store, in-person brand sales at the brand's brick-and-mortar locations. We are seeing more purposeful shopping. In-store traffic is still down versus a year ago, but when a customer -- a consumer does come into a store, they are spending more. Our nonbrand sales on our co-brand cards increased 27% sequentially. We are seeing an increase in spend in everyday categories for our co-brand cards and are pleased with the early results from our Comenity general purpose card, which we launched late in the third quarter. With stores reopening in the third quarter, consumers reverted back to multichannel spending, resulting in a pullback in online sales but an overall increase in total spend. Finally, I would like to highlight the success we are seeing in the transition from our traditional brick-and-mortar apparel focus to a more diversified payments provider across industry categories. Our diversified verticals defined as partners, excluding specialty apparel; department stores and jewelry represented 65% of our sales in the third quarter of 2020 versus 55% in 2019.

Slide six highlights select partner renewals, new vertical growth as well as our new proprietary credit card, the Comenity card. As discussed on our last call, we are focused on signing and renewing key partner relationships. We are partnering with companies that have their shared interest in driving sustained profitable growth for mutual success. Here, we highlighted two renewals in the quarter and some of our enhanced capabilities these partners are utilizing. The middle column highlights our beauty partners, which is one of the many diversified verticals where we are seeing strong profitable growth trends. With the recent addition and program launch of Sally Beauty, the largest distributor of professional beauty products in the U.S., Alliance Data now partners with the top four brands in the industry, which makes up 53% of the total market share. Also in the quarter, we launched Salon Centric, which is part of L'Oreal. The success we have seen in beauty as a category leader, is a good blueprint for our ongoing expansion into additional fast-growing industries.

The launch of our new Comenity general purpose cash-back card has exceeded our early expectations. We are currently offering the card to select customers and seeing strong activation rates and early engagement, especially among millennials. The development team for this card has extensive experience, working with similar offerings and is confident in the value this card brings from both retention and growth. In a situation where a partner leaves or is having financial troubles, we can strategically offer the Comenity card to retain card member relationships and drive increased sales. Let's turn to page seven to review the performance for LoyaltyOne, which includes the AIR MILES rewards program in Canada and the Netherlands-based brand loyalty. The segment's third quarter revenue benefited from improving business conditions in most parts of the world when compared to the previous quarter. As I mentioned earlier, and as displayed in the graph on the bottom of the slide, reward miles issued rebounded in the quarter from the low in the second quarter. Recall that we recognize most of our revenue when the collector redeems their miles, but a good indicator of our future revenue is the miles issued.

Given the lingering effect of COVID-19 on travel, AIR MILES continues to pivot its rewards portfolio to emphasize more non-travel app options, such as merchandise, to drive higher customer redemption rates. Our merchandise redemptions increased double digits as we focus on stay-at-home type products. We are also adding -- added streaming services for games and movies to our rewards portfolio. Brand loyalty revenue improved 37% from the second quarter of 2020 as areas around the world began to reopen during the quarter. We are closely watching the pandemic inflection trends, especially in Europe, as cases are beginning to rise. Slide eight provides a look at our digital engagement statistics for Card Services. Consumers are rapidly adopting technologies that simplify how they purchase, manage their accounts and engage with payments. Our suite of digital capabilities reflects the changing landscape by creating a seamless process for customers to adapt, apply for and use payment options.

Several of our brands are now leveraging our patented frictionless capabilities across all channels to drive easy applications, including QR code, text and applied functionality as well as a dynamic real-time-offer messaging that brings payment offers to the forefront of the customer shopping journey. 45% of our Card Services credit sales in 2020 were made online, up by one three year-over-year. 70% of applications are now digital and 78% of our bills are paid digitally, underscoring the importance of investing here and the success of our efforts to date. Turning to slide nine. I will speak to a number of ways we continue to enhance our technology capabilities. As discussed during the second quarter call, we are focused on expanding our product suite with additional product offerings like buy now, pay later and installment loans. The acquisition of Bread was an efficient way to expand our offerings and gain access to a broader audience and younger demographic. The deal jump-starts our ability to offer these products to our brand partners while bringing additional opportunities to leverage and offer our core products to those customers.

Bread's leading fintech platform advances our digital capabilities and offerings. Given Bread's advanced technology position in this space, we determined that the right strategy in this case was to buy rather than to build or partner. Our recently announced strategic agreement with Fiserv offers a number of benefits. We leverage Fiserv's highly flexible and scalable credit processing platform to benefit our brand partners and card members while driving operational efficiencies. Through our relationship with Fiserv, we will improve our brand partner conversions and speed to market, including quickly and seamlessly adding new products and capabilities that benefit our partners and our card members. The platform enables efficient integration and use of mobile wallet and virtual cards, while supporting our data and analytics capabilities. Importantly, the agreement provides efficiencies that reduce our cost to serve. We plan to reinvest those cost savings in digital capabilities and other growth initiatives. During the third quarter, we announced the launch of our Enhanced Digital Suite.

This suite of digital applications and capabilities helps our brand partners capitalize on the accelerated growth of e-commerce. The suite promotes credit payment options earlier in the shopping experience, and prescreens customers in real time, allowing for immediate credit approval without leaving the brand's partner site. We also support these offerings with enhanced digital marketing and payment tools. Combined, we expect these offerings to bring through more qualified applicants, a higher average purchase value and a higher sales conversion, making our suite of services more valuable to our brand partners. Slide 10 provides details on announced acquisition of Bread. We are excited to welcome Bread's talented employees to Alliance Data. The addition of Bread's highly skilled development team will boost our innovation potential with new perspectives and collaborative thought. We will create a new innovation hub in New York City to drive digital advancement throughout the organization.

Bread is an ideal partner to strengthen the expansion of our verticals and an addressable market of small and medium-sized merchants, while providing our existing partners with additional white-label product solutions. With the acquisition, Alliance data is uniquely positioned to provide a branded full spectrum payment suite for our partners. The partnership expands the growth potential for Alliance data and spurs our digital innovation and development. Moving to slide 11. We made strong progress on our recover, rebuild and regrow action plan in the third quarter. The recovery components are nearly complete, and our efforts to rebuild and regrow are advancing more quickly than we had originally planned. Due to the hard work and resiliency of our associates, we have successfully adapted to a different way of working. And in many ways, improved and simplified our processes. We are changing the landscape of where and how work gets done. Our new flexible, adaptive workforce and evolving physical workplace strategies effectively balance cost efficiencies with high levels of service and support. Tim will highlight a few of the many actions we have taken to reduce our fixed cost base and improve our underlying financial position over the past five quarters.

One example of this is our announced transition to Fiserv, which will provide for lower cost, scalable growth, increasing our ability to reallocate capital to areas of strategic differentiation. On rebuilding actions, we have -- we are expanding digital offerings and upgrading platform speed, flexibility and technology. These actions, along with our ongoing strategic initiatives, which I will highlight later in this deck, position Alliance Data for sustained and profitable long-term growth. This growth will be supported by our regrow actions, which include focused investments, especially in digital enhancements and operational and product efficiencies. Putting this all together, we have the opportunity to unlock long-term value for our shareholders.

I will now turn the call over to Tim to cover the financials.

Timothy King -- Executive Vice President and Chief Financial Officer

Thank you, Ralph, and good morning to everyone. I will start on slide 12 to review our results for the third quarter. During the third quarter, revenue was down 27% versus last year as the company and both the segments were impacted by the COVID-19 pandemic. The decrease in revenue was primarily tied to reduction in normalized card receivables, lower card yields for the Fed rate cuts as well as low redemption levels of LoyaltyOne. The year-over-year improvement in earnings before taxes was impacted by $72 million loss on extinguishment of debt and a $55 million of restructuring charges in the third quarter of 2019. Adjusted EBITDA, net, decreased for the quarter due to the decline in revenue, partially offset by the cost reductions, driven by lower volumes and our cost savings actions. Slide 13 provides an overview of some of the key business metrics for the company. Starting at the bottom left, we show our normalized AR, which would include held for sale versus our total credit sales.

For the quarter, we saw sales come in at $6.2 billion, which was down 21% year-over-year. However, when compared to the prior sequential quarter, we did see a rebound from the COVID low of $4.8 billion, up 28% sequentially. There's still pressure on AR, but we have begun to see a rebound in our sales and would expect the typical fourth quarter seasonality to increase AR balances at year-end. Moving to the lower right. We also saw a rebound in our yields. Recall in the second quarter, we were down 350 basis points year-over-year to a COVID low of 20.4%. Since the second quarter, we have rebounded 210 basis points, though we are still off the prior year's number by 220 basis points. As I discussed during the second quarter call, our yields have been under pressure due to both the customer relief programs and the Fed actions. With fewer accounts in our program, we have now begun to see a recovery in our yields. We'd expect our yields to remain near this range. Finally, turning to expenses. We continue to make progress on our year-over-year expense management initiatives.

We continue to benefit from the ongoing reductions of our real estate costs, employee costs and other operating expenses. For instance, our investment in automation, specifically, robotic process automation or bots are taking costs out of our servicing model through automating processes, which used to be done manually. These bots are now providing approximately $15 million of run rate savings, and we'd anticipate we continue to find further opportunities with this technology. Our expense areas, we've been successful in reducing both legal, consulting and fraud expenses. Overall, we realized approximately $50 million of fixed expense savings in the third quarter when compared to the third quarter of 2019. Let's turn to page 14, where I'll spend a little time talking about our card member payment behaviors. As we saw last quarter, card member payment trends remain favorable and continue to improve. As shown on the table, 84% of our accounts made a payment in the third quarter, up from 82% in the second quarter. This is above the levels we saw pre-COVID. Additionally, we have seen a reversion to normal for the percent of our card members who pay us in full at 23%.

Balances in our COVID-related customer relief programs now represent 3% of total card receivables, and continue to decline from the last quarter. Importantly, 73% of the account that enroll these programs are now making payments, up from 55% in the previous quarter. While we are pleased with these trends, we are not surprised. Our disciplined and seasoned underwrite process is a core strategic advantage of Alliance Data and is a pillar of our company. Turning to slide 15. I'm going to start in the upper left, taking a little bit of time talking a little bit about our losses. For the quarter, we finished with a loss rate of 5.8%, up 28 basis points versus the prior year. However, sequentially, we were down 180 basis points, mostly due to the strong payment behavior and the actions we have taken with our customer relief programs. This compares favorably to our average net loss rate over the -- for the past 15 years and is well below the peak we saw in 2009. Like others in the industry, we do expect pressure on this number as we move into 2021, especially the latter half of next year.

However, we do not expect to be near our historic high peak charge-offs as we have much stronger risk management tools and advanced underwriting models, along with improved underlying card member base. Turning to our allowance. On the right-hand side of the page, our allowance remains at approximately $2.1 billion for a reserve rate of 13.3%, unchanged from the prior quarter. We did release a small amount of our balances due to a decrease in receivables. It is important to note that the reserve level contemplates the assumption in Moody's most adverse economic outlook, the S4, which reflects only a 4% probability that the economy will perform worse, which we feel is appropriate given the uncertainty in economy now and into 2021. Moving to slide 16. As most -- as part of our most recent bond offering, we were able to secure additional flexibility with respect to our term debt. At a high level, we have been able to relax our covenant thresholds through 2021 and in the first half of 2022. Additionally, as outlined here, we have been able to extend the maturity of our overall debt. A year ago, we had almost $2.9 billion of debt maturing in 1.75 years.

We now have been able to ladder this out, including pushing out the closest maturity from coming to 1.75 years to 2.25 years and decrease in the size of maturity by about one two. While certainly not done addressing our balance sheet, our treasury team has made significant inroads, giving us additional flexibility and time. Slide 17 covers both our corporate and bank liquidity and capital. Since last quarter, our company -- parent company liquidity improved with overall liquidity increasing $100 million to a total of $1.2 billion. We took the opportunity to pay down our revolver. And as discussed on the prior page, extend the maturity of our corporate debt. At the bank level, cash is down sequentially as we were able to pay off some of our liabilities while maintaining a liquidity ratio of 15.7%. Capital has improved with a total risk-based capital ratio of 20.1%, up 40 basis points sequentially. We also were able to renew three conduits in the quarter, all three conduits in the quarter.

I'll now turn it back over to Ralph.

Ralph Andretta -- President and Chief Executive Officer

Thanks, Tim. Slide 18 provides an outline of our strategic initiatives. We are opportunistically investing in strategic areas highlighted on this slide as well as ramping up marketing spend in our growth verticals in the fourth quarter. As part of our way forward, we are leveraging our technology as a strategic advantage with continued innovation and a focus on reducing our cost to serve. As evidenced by our recent announcements with Fiserv and Bread, we are continuing to diversify and develop our product offerings to provide our partners with a full suite of payment solutions.

Digital advancement remains at the forefront of our development framework. Finally, our data science and analytics capabilities and insights remain a key strategic advantage and will continue to drive efficiencies and effectiveness for our business operations as well as for our partners. What I hope you will take away from today's call is that we are making significant progress in a challenging economic environment, and we will emerge a leaner, more focused and more profitable competitor.

Cheryn, we're now ready to open up the line for questions.

Questions and Answers:

Operator

[Operator Instructions] First question comes from Ryan Nash with Goldman Sachs.

Ralph Andretta -- President and Chief Executive Officer

Good morning, Ryan.

Ryan Nash -- Goldman Sachs -- Analyst

Maybe I'll start off with the deal. Clearly, it makes strategic sense, just given the emergence of buy now, pay later as a borrowing option for customers. But I guess can you maybe just talk about how you think about the strategic benefits of this versus other uses of capital? And I guess, just given where the stock is trading today, it seems that you -- to imply you could have reduced shares by a material amount. So I'm curious just how you weigh the long-term strategic benefits versus the near-term financial implications? And then second, can you still pursue other capital actions over the next few quarters even in the face of this?

Ralph Andretta -- President and Chief Executive Officer

Yes, Ryan. So I'll start and then I'll ask Tim to chime in. This is Ralph. So I think a couple of things. I think if COVID-19 has taught us anything, it has taught us the value of e-commerce. And you've seen that in the first and second quarter, and we'll continue to see e-commerce pretty much explode. So for us, this investment was paramount. The technology that Bread brings to the table and the talent they bring to the table is very much in our strategic plans as we move forward. And we can -- and so I think long term, this is the right decision for us. Our cash flow and liquidity have improved over the course of the year. So always a good thing. The bond offering helped us spread out our debt, as Tim has talked about. So I think we're in a reasonable position if there are other uses of capital to take advantage of that. But I see this as a strategic and long-term benefit for ADS. Tim, anything?

Timothy King -- Executive Vice President and Chief Financial Officer

Yes. Ryan, I would just reiterate what Ralph said. Clearly, the recent performance has allowed us to invest in this technology, which we've talked about in a number of calls, we feel is very, very important strategically. While, of course, maintaining the balance of the flexibility we have at the parent level. Though our capital allocation strategy remains. If we're finding things that we find are this important to our business, of course, we're going to invest them. But from there, of course, maintaining our dividend and not doing any share repurchases.

Ryan Nash -- Goldman Sachs -- Analyst

Got it. And if I can maybe switch gears to ask about growth. So you guys saw a really nice sequential improvement, yet, as -- was highlighted on the call, balances. Sales are still down about 20% year-over-year. So can you maybe just talk about how, from a year-over-year perspective, they trended over the quarter? And second, you talked about, Tim, the expectation to see normal seasonal trends in 4Q. Do you think we've actually seen the bottom for receivables? And assuming no major change in the macro, could we actually begin to grow off of today's levels over the next couple of quarters? Thanks.

Timothy King -- Executive Vice President and Chief Financial Officer

Yes. I mean obviously, the biggest known for all of us is going to be COVID and no store reopenings. And now clearly, we put that out last quarter that the store reopenings and state reopenings were very dependent. We were very encouraged by the number of folks going back into the brick-and-mortar that Ralph went through that slide. There maybe a little bit of pressure on our receivables from where we are now as we roll into 2021 as COVID allows -- starts to abate a little bit and could have a little bit of pressure. But we start thinking we're getting back to a normalized AR at this point.

Ryan Nash -- Goldman Sachs -- Analyst

Got it. Thanks for taking my question.

Operator

Next question comes from Mihir Bhatia with Bank of America.

Ralph Andretta -- President and Chief Executive Officer

Good morning, Mihir.

Mihir Bhatia -- Bank of America -- Analyst

Good morning. Thank you for taking my question. I wanted to ask on the acquisition, too. Maybe just a couple of quick questions just to start on BNPL and Bread in particular. Can you talk about just why is the accretion going to take three years? I mean you're paying a pretty -- a good amount of the purchase price, it seems in net cash, right? I mean I understand the fourth of it is in stock. But was Bread profitable? And then just relatedly, can you just talk about the economic returns of the product? How does the revenue profitability model differ from your core card product? Should we assume longer-term as that product grows ROEs decline from your historic level? Or do you think you can get the same ROEs? Thank you.

Timothy King -- Executive Vice President and Chief Financial Officer

Sure. So I'll start with just talking about the accretion. Clearly, we have not gotten into looking at the integration and what type of long-term profitability we'll have. We think there'll be a nominal pressure in the next year or two, meaning 2021 and 2022. And then obviously, growing from there with most of that dilution coming from just the increase in the share count.

Ralph Andretta -- President and Chief Executive Officer

So this is Ralph. I think we shouldn't think of this as a replacement of our product set, but an enhancement to our product set that will attract new customers, particularly younger customers who tend to use debit as a means to pay for things. So while we will add to our revenue base, I don't see this replacing our existing products. In fact, we will migrate some of these customers to our existing products as we move forward. So I think it is an enhancement, not a replacement.

Mihir Bhatia -- Bank of America -- Analyst

Okay. Thanks for that. And then just one other question. On your -- I think, slide five, if I could just talk about credit sales. I was surprised -- I mean the trend is clearly favorable, but I was surprised by the online brand sales being negative. That seems a little different than what we've seen from some of the other payment companies regarding online sales. Is that just a function of your retail partners? Or can you maybe just provide a little bit of color there?

Ralph Andretta -- President and Chief Executive Officer

Yes. So if you think about the third quarter as opposed to the second quarter, we had our traditional partners opening up their bricks-and-mortar locations. And we have pent-up demand for people to get out of the house and actually get a change of scenery. So we saw people shopping in the stores. And if you look at all that, although our -- maybe online went down a bit, sequentially, people shopping in stores, our sales went up 92%. But if you combine those two, sales were up in the quarter, as I said, 28% sequentially. So while we saw a little bit of a dip in online sales, we saw an amazing increase in in-store sales.

Mihir Bhatia -- Bank of America -- Analyst

Thank you.

Operator

Next question comes from Sanjay Sakhrani with KBW.

Ralph Andretta -- President and Chief Executive Officer

Good morning, Sanjay.

Sanjay Sakhrani -- KBW -- Analyst

Thanks. Good morning. Maybe I'll start with credit quality. Obviously, really nice charts there that show credits obviously performing quite well. But you've had the relief programs, you've had stimulus that's going to be a little bit of an air pocket. I don't know what you guys are doing with your relief programs. Have those sunsetted? Or are you still offering them? But I guess, just to think about the reserve rate and the migration going forward and the direction of credit quality henceforth. I mean how are you guys thinking about it?

Timothy King -- Executive Vice President and Chief Financial Officer

Yes. Sanjay, it's Tim. Yes. So clearly, the quarter benefited for those relief programs that we were seeing back -- heavy use of those back in Q2. But where we are right now, so we would expect, like most of the others in the industry, to have pressure on our credit in 2021, specifically in the latter half of 2020. One is the relief programs have kind of gone a little bit back to normalized levels. In my prepared remarks, I talked about being about at 3% for our relief programs -- our hardship and other relief programs. And that's pretty much the back to normal pre-COVID levels.

Sanjay Sakhrani -- KBW -- Analyst

And do you expect the reserve rate to sort of stabilize here? Or can it go higher here because I know you guys didn't really move that a whole lot?

Timothy King -- Executive Vice President and Chief Financial Officer

Yes. So clearly, we're anticipating the increase in charge-offs and a fairly directony and S4 level with our reserve rates. If the COVID starts to abate, and we continue to see the strong payment behavior we've seen for the last six months, there's opportunity on our reserve rates.

Sanjay Sakhrani -- KBW -- Analyst

Okay. And then just my follow-up question related to that, maybe for Ralph, is, I guess, you guys talked about strategically needing to beef up on technology. Does Bread solve for everything you needed? Or do you need more investment in technology from here on out? Thank you.

Ralph Andretta -- President and Chief Executive Officer

Well, technology like anything else is evolving. So what Bread does is it really puts us in a really terrific competitive position. But as I said, our reinvestment is going to be in digital enhancements going forward as well as products. So while it solves our -- it puts us -- gives us additional capabilities, we're not done yet.

Sanjay Sakhrani -- KBW -- Analyst

And would you expect to solve for that through acquisition or through internal investment?

Ralph Andretta -- President and Chief Executive Officer

Well, the acquisition of Bread gives us tremendous talent in digital, and I'm looking forward to working with that team. And helping -- having them help us solve our go-forward endeavors.

Sanjay Sakhrani -- KBW -- Analyst

Got it. Thank you.

Operator

Next question comes from Chris Kennedy with William Blair.

Ralph Andretta -- President and Chief Executive Officer

Good morning, Bob.

Bob Napoli -- William Blair -- Analyst

Good morning. Bob Napoli here. Just following up on Bread, Ralph. I think Alliance Data has been some of -- I'm sure several of your customers use other buy now, pay later programs like Affirm or Klarna or Afterpay. And I would imagine that you've seen how the two products work in tandem. So I'm just wondering what your thoughts are on how this enhances your cross-sell capability? Would you be able to replace some of those other buy now, pay laters? And what is -- how does the technology at Bread compare to and Affirm or Klarna or an Afterpay?

Timothy King -- Executive Vice President and Chief Financial Officer

Yes. So I think a couple of things. One is, certainly, we're going to offer this to our partners. And why I think it gives us a strategic advantage, it's a white-label offering. So that means that the customer doesn't feel like they're going yet to another company for some kind of credit. They feel they're invested in the brand they're buying from, and this is, to them, an extension of that brand. I think that's tremendously important. So I'm excited about that. And I think that gives us an advantage to potentially replace some of those third parties, arms link organizations that are out there. I think the other important thing is that we will have -- we will control the purchasing journey end-to-end. It's not a punch-out to somebody else. It's from beginning to end, we're able to service that customer in a consistent way, whether they use a private label credit card or a co-brand credit card or installment loan or buy now, and pay later.

Ralph Andretta -- President and Chief Executive Officer

Yes, Bob, clearly, the implication there is that we have the cross-sell opportunity. We can upsell people into the private label, the co-brand cards, it has to be branded across the board on all our different products.

Bob Napoli -- William Blair -- Analyst

And the Bread technology? And I guess -- and also like maybe the credit quality. Is somebody that qualifies -- doesn't qualify for an Alliance Data card then offered the -- is that the thought process that -- I mean I would think the retailer would want the loyalty associated with the private label card first?

Timothy King -- Executive Vice President and Chief Financial Officer

Yes. You'll see these things side-by-side, right? So ultimately, it's the consumer's choice on whether they want the private label credit card, which comes with all of the rewards or they want to have an installment loan, have something where they can have an installment loan so they have a set payment in a given month. So I think that will be the choice of the consumer going forward.

Bob Napoli -- William Blair -- Analyst

Okay. Then lastly, can you give some metrics like what the revenue is for Bread? What the -- how -- what the EBITDA is and what the growth rates are? And would you be holding their loans on your balance sheet?

Timothy King -- Executive Vice President and Chief Financial Officer

Yes. We'll eventually migrate them onto the balance sheet. That's part of the integration process. There's a couple of different steps we'll have to take there. And we're not disclosing, and it wasn't public, the revenue and the EBITDA. I'll just -- I'll go back to that it should be nominal pressure on us in 2021. And as we move into 2022 and 2023, clearly, we expect some fairly significant revenue because we'll be able to integrate them across our Board with all 160 of our different partners.

Bob Napoli -- William Blair -- Analyst

Thank you. I appreciate it.

Operator

Next question comes from David Scharf with JMP Securities.

Ralph Andretta -- President and Chief Executive Officer

Good morning, David.

David Scharf -- JMP Securities -- Analyst

Maybe, the first one, just shifting gears to the expense side. Can you shed a little more light on what the anticipated savings are from converting over to Fiserv? I assume it's the first data credit card processing platform. But -- and whether that transition to outsourcing was more expense driven? Or were there kind of speed-to-market issues that were more impactful?

Ralph Andretta -- President and Chief Executive Officer

So I would say it's all of the above. So we wouldn't disclose expense savings, but I can assure those expense savings that we have, we'll certainly reinvest in digital and product capabilities. But the ability for our -- the transition of Fiserv, if you think about it, it's speed to market, more products that will certainly help our partners. And for us, it will lower our cost to serve as we move forward. And just give us more flexibility in the marketplace to scale up and down as the marketplace moves.

David Scharf -- JMP Securities -- Analyst

Got it. Understood. And then as a follow-up, because it's been a familiar refrain on the call, just focusing on the buy now, pay later offering again. Maybe at a higher level, I understand its view is kind of complementary. It adds a potentially younger demographic, there's an upsell opportunity. But as we think about just private label, the value proposition of private label as a product, it seems like as the -- as commerce becomes more and more digital, it seems like the barriers to entry for new competitors to offer loyalty tools toward like buy now, pay later increase as well?

And I'm wondering, is there any feedback you're getting from your specific retail partners about either, a, whether the loyalty and value-add associated with the private label card has been impacted at all by some of these other types of shopping card conversion offerings? And b, specifically, have they provided any data on how many of your end consumers that have Comenity-issued cards have started to use in the alternative buy now, pay later option in the shopping card checkout?

Ralph Andretta -- President and Chief Executive Officer

So let me take the first one. I believe the private label card, there will always be a place for private label and co-brand cards because there's an affinity to the brand. And so when you think about other entrants, they don't -- they're not connected to the brand. So it's pretty -- it's an on-link transaction. So there's no brand affinity. There's no brand rewards. And that, we think, is still a barrier to entry going forward. And in terms of your second question, in terms of how many of the clients are using a buy now, pay later or installment loan, I'm not aware of any specific data that our partners have supplied.

Now our partners do have them on their site, which was one of the reasons we certainly wanted to invest in a leading-edge fintech that has so much great talent and such a digital platform. That's why we did invest in this. We want to be the supplier to our partners of all their payment methods, and give them a full suite of ways for our customers to engage with them and purchase bigger baskets as a partner.

David Scharf -- JMP Securities -- Analyst

Got it. It's very helpful. Thank you, Ralph.

Operator

Next question comes from William Ryan with Compass Point.

Ralph Andretta -- President and Chief Executive Officer

Good morning, William.

William Ryan -- Compass Point -- Analyst

Good morning. Thank you for taking my question. One kind of granular and one a little bit bigger picture. But on the granular side, looking at the trust data, it looks like there's a little bit, I kind of called it a credit bubble kind of working its way through on the backside of it, delinquencies are very low again. But it looks like you might be kind of running into a little bit of charge-off headwind maybe in November and December. As I recall, you're kind of restrictive on some of the accounts that you gave for Barron's, too. And I was wondering if you can kind of comment on what that might be or what it might reflect?

And then second, as it relates to Bread. Looking at the buy now, pay later, one of the comments partners have had is about economics of the business being detrimental. But more importantly, did brought up several times in the call is the loyalty side of the equation. Do -- will the retailers -- I think they probably would, would they have the ability, and I don't know I necessarily like this word, but to steer toward their product offering that you're going to have? Because it seems like they want to create the loyalty side out of this buy now, pay later over time.

Ralph Andretta -- President and Chief Executive Officer

Yes. So let me take the second one first, and then I'll ask Tim to comment on your first question. I do think that the -- that our partners will, as they do today, steer their customers to our products because it's beneficial to them to do that. So I would say this is to share another product or another basket, another product in a basket for them to use as a loyalty device. And that's why we are -- I'm particularly excited that it's a white-label solution, and we didn't partner with a third-party where it would be a -- just a name out there and it'd be a service rather than a customer engagement.

Timothy King -- Executive Vice President and Chief Financial Officer

Yes. And Bill, when you get to the trust data, that's just a timing issue with some of the customer relief programs. We're getting a little bit of pressure there that just at the trust level. As I've mentioned, the customer relief programs are having a benefit overall.

William Ryan -- Compass Point -- Analyst

Okay. Thank you.

Operator

Next question comes from Jeff Adelson with Morgan Stanley.

Ralph Andretta -- President and Chief Executive Officer

Good morning, Jeff.

Jeff Adelson -- Morgan Stanley -- Analyst

Questions. I know a lot has already been said on Bread so far, but maybe another question there. You said that you're making that available to your retailers soon. But just wondering how fast you feel like you can get that platform up to speed with your retailers? Is this something that's going to take a couple of quarters? Or you think it will take like a few years to really get entrenched with your client base?

And then I know you've already covered a lot on like what kind of color your retailers are giving you, but maybe you could dig in a little bit more in what percentage maybe of your retailers do you think are actually going to use this? Is this something where some can turn it on and turn it off? Or are you just going to kind of make it available to everyone and just let the customer base kind of dictate usage?

Ralph Andretta -- President and Chief Executive Officer

Yes. Just a couple of things. Well, the announcement is 1.5 hours old -- I'm sorry, one hour and 45 minutes old. So as you would expect, we are just starting to work with our brand partners on integration and who might want it first and how we might go at -- how we might do that. The beauty of this platform is that integration happens pretty quickly. It's less than -- it's like a 40-day to 50-day integration to add a brand partner. That is key for us in terms of the number of brand partners we have and the demand we would be expecting for this as we go forward. And so from my perspective, we will begin working with our brand partners as soon as we hang up from this call.

Jeff Adelson -- Morgan Stanley -- Analyst

Got it. Okay. And then maybe just shifting to general purpose. You're clearly moving into a new cayman capability with Bread. I feel like general purpose could be another growth channel for you. I was just wondering if you could give us some insight into where you hope to take that program over the medium to long term? Is that really more just a backstop against retailer bankruptcies? Or do you view that as a real opportunity to really drive growth outside that? And then separately, I know you've also covered a lot about your strength in beauty and some of these other non-specialty retailers outside there. Is there an opportunity for you to do a little bit more outside of consumer on the small business side?

Ralph Andretta -- President and Chief Executive Officer

Yes. So let me -- so when we -- let's define general purpose. I define general purpose as two things: one being our co-brand cards, and the second one being the Comenity card that we just launched. So if you think about our co-brand cards and our partnership with Fiserv, we now have co-brand capabilities that we can compete head-to-head with anybody out there. Again, that's a -- certainly, a beauty of moving to the Fiserv program very quickly. Not only do we have capabilities, we also have experience. So I'm speaking for myself and Val Greer and others to be brought into the organization, we've all managed large co-brand portfolios. I think it is a terrific part of our business. Each portfolio in our entire portfolio plays different roles. So although the margins maybe a little thinner on the co-brand side, they certainly bring better credit quality. And that better credit quality enables us to take a little bit more risk on the private label side. So we're looking for that balanced portfolio as we move forward.

As far as the Comenity card, early days, again, really excited about the engagement and the early spend we're seeing and the fact that it's attracting millennials. But at this point, we're thinking of that as, right now, as a save tool. That doesn't mean we won't pivot sometime in the future. But when you either -- when you part ways with a partner and you retain the receivables. And you could give those card members the ability to still spend with you and engage with you, that's a great thing. And then as a -- and doing the same thing when a partner does -- bankruptcy is just two times, but when a part does liquidate, saving those card members to ensure that they are still going to pay down their debt as well as engage with you and build another receivable, is a terrific use of that product.

Timothy King -- Executive Vice President and Chief Financial Officer

And Jeff, as far as the question around the businesses, we do have the capability to do small business loans. Most of those are going to be attached to small, single sole proprietors, etc. We already have that ability. Not been a big focus other than to make sure that if it's a consumer that fit running a business that we continue to be able to underwrite those folks.

Jeff Adelson -- Morgan Stanley -- Analyst

Thank you for taking my questions.

Operator

[Operator Instructions] Next question comes from Michael Young with Truist Securities.

Ralph Andretta -- President and Chief Executive Officer

Good morning, Michael.

Michael Young -- Truist Securities -- Analyst

Good morning. Thank you for taking my question. I know we've talked a lot about Bread so far. But I was curious, maybe just on the retailers actually on the kind of more the core business. There's kind of -- was a lot of noise made of bankruptcies and issues there. But just wanted to get an outlook on what's going on kind of with the bankruptcies versus the new additions of new retailers and kind of how those are trending?

Ralph Andretta -- President and Chief Executive Officer

Sure. So as you guys -- as you know, when we think about bankruptcy, there's two types, right? There's Chapter nine and Chapter seven. And the Chapter nine bankruptcies are reorganization -- sorry, Chapter 11 and Chapter seven, my apologies. The Chapter 11 bankruptcies are reorganization of the partner, and that results in potentially store closings. But that said, we still continue to transact with a partner. We still continue to acquire cards, and we still continue to market to the partner, albeit maybe when the partner comes out of Chapter 11, they may have less physical locations. That is why we are investing heavily in digital. So when that partner emerges and they are -- a bigger part of their business is digital, we'll be right in that channel where the customer wants to shop.

In terms of liquidation or Chapter seven bankruptcies, that's why we certainly are -- have the Comenity card as a save tool. But remember in Chapter seven, the bankruptcies, where the customer is a card member. We actually -- margins improve in a Chapter seven bankruptcy during early liquidation. As far as what I see going forward, stressful time for retailers, but we haven't seen any other retailer right now tell us that they're entering into an 11 or a seven situation.

Timothy King -- Executive Vice President and Chief Financial Officer

It's -- one of the things we noticed was there was -- as we came into 2020, there was a number of retailers that had weak balance sheets. And COVID hit them fairly hard, and they have obviously done what they've had to do from reorganization. The retailers we have left have a pretty strong balance sheet, and have been able to withstand this. And looks like they're starting to come back out. So for a lack of better term, it feels like we flushed out some of the weaker players on the retail side.

Michael Young -- Truist Securities -- Analyst

Okay. So net-net from here, you think you can kind of be in a net add position in terms of retailers and volume even ex kind of the macro?

Ralph Andretta -- President and Chief Executive Officer

Yes. So I think if you look at -- let's take the one category we talked to you about today, beauty. We see even year-over-year improvement in beauty, and we're a market leader. We've got over 50% of the market share there. So we'll continue to add there. So we see that as a really good vertical for us. The other verticals that we're thinking -- that we're adding to our home goods, home improvement, that's been really powerful for us. So we've seen improvement there as well. So most important is that we are able to work with partners across different categories and offer them this basket of opportunity for their customers to purchase -- have larger tickets. And give them the opportunity to do it in a variety of ways, private label, co-brand, buy now, pay later and installment loan. We're just filling our product suite very nicely.

Michael Young -- Truist Securities -- Analyst

Okay, thanks.

Operator

Next question comes from Vincent Caintic. Please go ahead.

Ralph Andretta -- President and Chief Executive Officer

Good morning, Vincent.

Vincent Caintic -- Stephens -- Analyst

Good morning. Thank you. Just a quick follow-up question. I'm sorry, I might have missed some of this. But -- so I appreciate the commentary on just the current core receivables, maybe still shrinking going into 2021. But I just want to -- that seems like it's been picking up nicely. And then the yields as well, that picked up nicely quarter-over-quarter. I'm just kind of wondering what you're expecting for trends there? And when you made the comments on receivables, does that include the Bread acquisition? Or is that just thinking of the existing core?

Timothy King -- Executive Vice President and Chief Financial Officer

Yes. So let me -- I'll start with the yields, and then I'll go to the AR, Vincent. So on the yields, the -- we're obviously down year-over-year about 220 basis points. Look, 150 basis points came from the Fed action. So unless the Fed obviously increases the discount rate and therefore, flows into the prime rate that we all have that pressure. The rest of that pressure is coming from the customer relief program and the -- actually, the consumer behavior, they're paying us. So the benefits we're seeing in the charge-offs and the delinquencies, and obviously, the downside of that is some of the late fee give up.

So we may be able to pick up some of that over time. But I think the 150 basis points is pretty permanent unless we have some type of Fed action. As far as the AR, specifically, it's going to be dependent on the consumer coming back into the retailers. We obviously have some really positive news for the folks coming back in, as Ralph highlighted in his slides. We think there may be a little bit of pressure, certainly nothing like 2020, and that's prior to the Bread acquisition, we think the Bread might be accretive to that.

Vincent Caintic -- Stephens -- Analyst

Okay. Great. That's really helpful. And then I'm going to throw away my Bread question. So on -- I'm just wondering how much overlap there is on your existing retailer footprints between Bread and Alliance Data? Because it seems like maybe there shouldn't be just because of the product sets are pretty different. And so kind of thinking maybe there is a great cross-sell opportunity between the two different products. But just want your comments on the existing overlap.

Ralph Andretta -- President and Chief Executive Officer

Yes, I would agree with you. There's minimal overlap, and it just presents us with a really strong cross-sell opportunity. I will agree with what you said.

Vincent Caintic -- Stephens -- Analyst

Okay, great. That's all. Thank you very much.

Operator

And at this time, I will turn the call over to Mr. Andretta.

Ralph Andretta -- President and Chief Executive Officer

Thank you for joining our call today and for your interest in Alliance Data. We're excited about the future and are focused on the execution of our strategic priorities to drive our company forward. Everybody, have a terrific day. Thank you.

Operator

[Operator Closing Remarks].

Duration: 55 minutes

Call participants:

Vicky Nakhla -- Investor Relations

Ralph Andretta -- President and Chief Executive Officer

Timothy King -- Executive Vice President and Chief Financial Officer

Ryan Nash -- Goldman Sachs -- Analyst

Mihir Bhatia -- Bank of America -- Analyst

Sanjay Sakhrani -- KBW -- Analyst

Bob Napoli -- William Blair -- Analyst

David Scharf -- JMP Securities -- Analyst

William Ryan -- Compass Point -- Analyst

Jeff Adelson -- Morgan Stanley -- Analyst

Michael Young -- Truist Securities -- Analyst

Vincent Caintic -- Stephens -- Analyst

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