I think that interpretation is becoming outdated, and this quarter gave me enough evidence to say so directly.

The Schwab investors worried about in 2023 was heavily dependent on net interest revenue, and the valuation reflected that single-variable risk. 

The Schwab that reported this quarter is monetizing something far more valuable than a rate environment: a $13.1 trillion client base with penetration levels across most product categories that are still a fraction of the industry average. 

No wonder Management spent little time arguing for a rate story in the Q2 earnings release and Summer Business Update. While they spent most of it talking about deeper client engagement, broader product adoption, and the significant runway remaining to increase wallet share from relationships that already exist on the platform.

The Market Is Still Pricing The Wrong Charles Schwab

For most of the past two years, Schwab’s valuation has been anchored to one question: what happens to earnings when interest rates fall? 

That framing made sense when net interest revenue appeared to be the primary driver of profitability. This quarter showed a business generating growth from multiple directions simultaneously, and the composition of that growth matters as much as its size.

Net interest revenue increased 19% year-over-year. Asset management and administration fees rose 16%. Trading revenue jumped 28% as daily average trades reached a record 11.9 million. Core net new assets totaled $118.7 billion, reflecting client engagement that remains exceptionally healthy well into the second year of a rate normalization cycle that was supposed to compress the earnings story significantly. None of those revenue streams depend on identical economic conditions, and that diversification deserves a different valuation treatment than concentrated revenue does. The more independent earnings engines a business develops, the less a single macro variable should determine its multiple, and I don’t think Schwab’s current multiple fully reflects how much that mix has changed.

Lending Penetration

The most revealing figure in Schwab’s presentation wasn’t revenue growth or EPS. It was lending penetration, and management’s framing of it deserves more attention than it received.

Bank lending balances have grown from roughly $50 billion to $67 billion over the past year, a 33% increase that most companies would headline aggressively. Charles Schwab Corp (NYSE:SCHW) highlighted it as evidence of how much opportunity still remains because lending penetration sits at approximately 1% of client assets against an industry average closer to 4%. 

A company sitting on $13.1 trillion in client assets and 48 million brokerage accounts, operating at one-quarter of the industry’s average lending penetration rate, doesn’t need to acquire millions of new customers to compound earnings meaningfully. It needs existing clients to do one more thing with their relationship, and then another, and the math on that compounding is considerably more powerful than customer acquisition at scale.

Lending is one example. Managed investing is another. The same logic applies to trust services, estate planning, alternatives, and the broader advisory capabilities highlighted throughout the Summer Business Update. Each additional service added to an existing relationship generates revenue without restarting the expensive process of customer acquisition, and the aggregate opportunity across $13.1 trillion in assets is the kind of number that justifies a structural re-rating rather than a cyclical one.

Platforms Compound Faster Than Brokers

One slide from management’s presentation captured Schwab’s strategy better than any quarterly metric. It wasn’t about revenue or earnings. It mapped the expanding range of services Schwab wants clients to use, from banking and lending to managed investing, trust services, alternatives, digital assets and AI-enabled advice. 

That’s platform thinking.

A brokerage earns more when clients trade. A platform earns more every time clients deepen the relationship. AI supports that strategy by improving servicing, automating workflows and increasing developer productivity by 15% to 20%, making the platform more efficient and harder to leave. 

Now, since bottoming near $85 in June, Schwab has rallied about 20%, reclaiming both its 50-day moving average ($93.09) and 200-day moving average ($95.17). Shares are now pressing against the $104-$104.40 resistance zone that rejected buyers after February’s earnings report, with Monday’s intraday high reaching $104.41. 

Rather than reversing after a sharp advance, the stock is consolidating just beneath resistance while holding comfortably above both moving averages. 

That’s consistent with institutional accumulation, not speculative momentum, and supports the idea that investors are beginning to value Schwab less as a rate-sensitive broker and more as a financial platform.

Why Schwab Deserves A Higher Multiple Than It Did Two Years Ago

Two years ago, investors valued Charles Schwab Corp (NYSE:SCHW) based on where they expected interest rates to go. That framework was appropriate for a business whose earnings were primarily rate-dependent. It no longer captures what this business is becoming.

Record trading activity, strong asset gathering, expanding managed investing, and a lending franchise operating at a fraction of its structural capacity all point toward a company whose earnings are increasingly supported by client monetization rather than a single macro tailwind. 

With all of these in mind, it’s logical to say this company doesn’t need the rate environment to cooperate in order to grow. 

It needs management to keep executing on the platform model they’ve been quietly building for the past two years – and after this quarter, I believe that’s exactly what’s happening.

And there are reasons to believe that Affirm has a long runway for growth. For one, Americans are taking on substantial amounts of debt. 

“All major loan categories tracked in the report saw increases as well. Credit card balances topped $1.2 trillion, rising 7.3% from the fourth quarter of last year and logging the smallest yearly increase since 2021,” reported CNN. “Higher levels of household debt are to be expected as they can reflect factors such as population growth, strong economic conditions, holiday-related spending and the rise of e-commerce.”

And second, that means more Americans are turning to buy now, pay later borrowing.

Buy Now, Pay Later Adoption Continues to Accelerate

 U.S. consumers spent roughly $20 billion using BNPL in just the November–December period, nearly 10% higher year over year. 

Zooming out, the long-term opportunity is even more compelling. Global BNPL transaction volume is projected to reach $560 billion to more than $900 billion by 2030, while the U.S. market alone is expected to approach $200 billion by 2026.

And, as noted by MarketWatch, shoppers used BNPL to spend about $20 billion between November 1 and December 31, a 9.8% year-over-year (YoY) increase.

Wall Street is Bullish on BNPL

Wall Street is taking note of those trends. Analysts at Needham upgraded the stock to a buy with a $100 price target. The firm added that, “AFRM has submitted an application to establish Affirm Bank, a proposed Nevada-chartered industrial loan company,” as quoted by CNBC.

In fact, if approved, this would be a game-changer. Owning a banking entity could help lower funding costs, improve margins, reduce reliance on third-party capital markets, and help enhance regulatory flexibility.

JPMorgan Chase & Co. (NYSE: JPM) analysts also upgraded AFRM to market perform, calling it a “long-term secular winner at the expense primarily of the credit card industry.” 

BNPL is a Direct Threat to the Credit Card Industry

BNPL companies like Affirm are a direct threat to the credit card industry. One reason is that BNPL often offers a “free” alternative (no interest for consumers) that draws users away from credit cards, especially for e-commerce. This cuts into fee income for card issuers. 

It’s also important to note that BNPL is becoming very popular among the younger generations. Over half of Gen Z (51%–59%) and Millennials (48%–58%) report using buy now pay later, often making it more common than credit cards for these demographics.

Three, according to a 2025 report from Morgan Stanley, “More than a quarter of U.S. consumers have used ‘Buy Now, Pay Later’ (BNPL), a type of short-term installment loan, to finance purchases. Although BNPL still represents a small share of total U.S. e-commerce sales, it is expanding rapidly: BNPL loans financed 6% of e-commerce in 2024, a jump from 2% in 2020. Additionally, consumers are increasingly using BNPL for everyday items like clothing and groceries, rather than to pay off big-ticket items.”

Investors Can Diversify With an ETF

If you’d prefer to diversify with other BNPL-related stocks, there’s also the iShares FinTech Active ETF (BPAY).  With an expense ratio of 0.55%, the ETF offers exposure to technology disruption around the world and across multiple areas in finance, such as payments, banking, investments, insurance and software. Some of its 37 holdings include PayPal (NASDAQ: PYPL), Charles Schwab (NYSE: SCHW), Capital One Financial (NYSE: COF), Synchrony Financial (NYSE: SYF), Block (NYSE: XYZ) and Global Payments (NYSE: GPN).

As of January 2026, the BPAY ETF trades at $27 a share. The fund is actively managed by BlackRock and has about $9.8 million in total net assets. BPAY seeks to maximize total return by investing at least 80% of its net assets in equity securities of fintech companies that are driving disruption in financial services.

The Trends Line Up in Affirm’s Favor

Rising consumer debt, accelerating BNPL adoption, growing Wall Street support, and a massive long-term market opportunity all suggest that BNPL is not a passing fad—but a structural shift in how consumers pay.