Discover Financial Services’ Pulse debit network posted solid gains in the first quarter, but executives say a new rule banning network exclusivity could prove a hurdle going forward.

Payment services pretax income grew to a record $52 million for the fiscal first quarter ended Feb. 29, up 21% from a year earlier, thanks to higher-margin Pulse transactions, the company said in a March 21 press release.

The company also boasts that it added 129 new issuers to the network in 2011.

“Pulse is particularly strong in the smaller institutions, and some of those institutions have more need for more services. So we, for instance, can provide more fraud models and extra processing services, where a large institution might be able to do that themselves. And some of that has revenue or fees associated with it,” David Nelms, Discover’s chief executive, said in an interview March 21.

But it’s unlikely that much of that increased business is the result of a new rule requiring that debit cards be associated with at least two networks, Nelms says. The new rule, slated to go into effect April 1, was part of the Durbin amendment to the Dodd-Frank Act

“I don’t think Durbin had an effect on this quarter’s profits or volumes with Pulse to any great extent,” says Nelms.

And executives say a new Visa network-pricing plan designed to attract merchants has rivals watching closely (see story).

Visa stands to lose the most volume under the rule changes, in part because it has historically had more exclusive routing deals, which are now banned.

“Visa’s actions are a concern,” Roger Hochschild, Discover president and chief operating officer, said during a March 22 conference call with investors.

“We’ll have to see how that plays out,” he said. “I’m confident in our ability to compete in a fair … market.”

Meantime, Discover’s diversified loans and cards businesses remain strong.

The company posted a quarterly profit of $631 million, or $1.18 per share, up 36% from $465 million, or 84 cents per share, a year earlier.

“It’s a very good quarter,” says Sanjay Sakhrani, an analyst with Keefe Bruyette & Woods, pointing in part to Discover’s very strong credit quality.

“The questions focused on how long these positive and favorable trends can persist, and it sounded like they don’t see anything changing the course in the short-term,” says Sakhrani of Discover’s earnings call with analysts on Wednesday night.

Credit card delinquencies for loans 30 days past due fell to $2.22%, down from 3.59% a year earlier, and the credit card net charge-off rate fell to 3.07%, down from 5.96%.

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