Digital Payments And BNPL Trends Will Transform Consumer Finance

Key Takeaways

• Expansion of digital banking, innovative payment products, and strong merchant partnerships are driving revenue growth, customer acquisition, and improved operational efficiency.
  
• Enhanced credit risk management and evolving installment payment solutions are strengthening asset quality, earnings stability, and sustained long-term profitability.
  
• Bread Financial’s profits and growth are threatened by regulatory risks, cyclical volatility, credit quality issues, tech disruption, and changing consumer payment preferences.

Catalysts

Provides tech-forward payment and lending solutions to customers and consumer-based industries in North America.

• Bread Financial is expanding its digital-first consumer finance strategy, demonstrated by steady growth in direct-to-consumer deposits—up 13% year-over-year to nearly $8 billion, compared to just over $1 billion five years ago. This positions the company to benefit from the growing shift toward digital payments and e-commerce, supporting higher fee and interest revenue as more transaction volume moves online.
  
• The company is deepening and diversifying its private-label and co-brand partnerships, including new deals like the Crypto.com card program and an expanded relationship with AAA. Partnerships with leading merchants and e-commerce platforms are expected to drive recurring revenue growth and attract new, loyal customers, directly supporting long-term revenue and earnings expansion.
  
• Ongoing investments in advanced data analytics and operational excellence initiatives are reducing noninterest expenses and improving operational efficiency, with company guidance pointing to positive operating leverage for the full year. These initiatives should contribute to higher net margins over time as Bread Financial scales its digital platform and technology-driven solutions.
  
• Bread Financial continues to deploy enhanced credit risk management and multiyear portfolio optimization, resulting in improved credit performance, lower net loss rates, and a higher proportion of prime cardholders. This disciplined approach is expected to reduce charge-offs, provide greater earnings stability, and unlock incremental profitability as macroeconomic conditions stabilize.
  
• The proliferation of Buy Now, Pay Later and alternative installment payment offerings, along with ongoing innovation in loyalty and rewards programs, allows Bread Financial to capitalize on changing consumer preferences. With the mainstream acceptance of installment-based credit and the company’s ability to launch new, innovative products, this trend supports future customer acquisition, sustained loan growth, and revenue per active account.

Bread Financial Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Bread Financial Holdings compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Bread Financial Holdings's revenue will grow by 24.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 11.7% today to 12.1% in 3 years time.
• The bullish analysts expect earnings to reach $563.3 million (and earnings per share of $12.21) by about July 2028, up from $286.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 8.7x on those 2028 earnings, down from 10.2x today. This future PE is lower than the current PE for the US Consumer Finance industry at 9.8x.
• Analysts expect the number of shares outstanding to decline by 6.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.25%, as per the Simply Wall St company report.

Bread Financial Holdings Future Earnings Per Share Growth

Risks

• Bread Financial faces ongoing risk from regulatory scrutiny, including the potential return of tighter late fee and consumer credit regulations and increasing focus on data privacy, all of which could drive higher compliance costs and restrict future growth, negatively impacting net margins in the long term.
  
• The company’s business remains heavily concentrated in retail, travel, and other discretionary consumer segments, exposing Bread Financial to cyclical downturns and macroeconomic volatility, which could result in higher loan charge-off rates and compress net income during economic downturns.
  
• Bread Financial’s history of higher-than-peer credit losses and reliance on less stringent credit standards poses a structural risk, as ongoing or worsening credit quality could demand elevated loan loss provisions, directly pressuring net earnings in periods of consumer or economic weakness.
  
• Intensifying competition from both fintech disruptors and large incumbent banks with more agile, digital-first, or lower-cost credit solutions threatens to erode Bread Financial’s market share and pricing power, likely dampening future revenue growth and requiring continual, costly technology investments to stay competitive.
  
• The secular shift of consumers away from traditional revolving credit card debt toward alternative payment models such as Buy Now, Pay Later, and real-time payment platforms is expected to diminish Bread Financial’s core revenue streams from interchange fees, finance charges, and card-related products, reducing revenue and profitability over the long run.

Valuation

• The assumed bullish price target for Bread Financial Holdings is $93.37, which represents two standard deviations above the consensus price target of $65.2. This valuation is based on what can be assumed as the expectations of Bread Financial Holdings's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $105.0, and the most bearish reporting a price target of just $45.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $4.7 billion, earnings will come to $563.3 million, and it would be trading on a PE ratio of 8.7x, assuming you use a discount rate of 11.3%.
• Given the current share price of $62.87, the bullish analyst price target of $93.37 is 32.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.