Discover Financial Services accomplished much in 2009, despite the economic environment taking a heavy toll.
The card brand reported net income of $1.3 billion for the year, up 40.2% from $927 million in 2008. Discover would have earned a profit even when excluding funds from settlements reached with Visa Inc. and MasterCard Worldwide in its case against the two card brands over their alleged efforts to prevent banks from issuing Discover cards, Discover CEO David Nelms noted during a conference call with analysts.
Indeed, despite the recession, “2009 was a year where we didn’t hit target returns, but we didn’t lose any money,” Roy Guthrie, Discover chief financial officer, tells PaymentsSource.
Nelms attributed Discover’s continued growth to various factors, including cash rewards, customer service and expanded acceptance. The company increased domestic and international merchant locations and ATMs, and it now has agreements with all major merchant acquirers in the United States. Discover cardholders can access 680,000 ATMs worldwide, and it is working to secure global point-of-sale card acceptance across the Discover and Diners Club International networks.
Discover, which says its cards are accepted at 90% of the U.S. locations that take MasterCard and Visa cards, is working to “improve our acquiring footprint in markets around the world to create a global network,” Guthrie says.
Sales volume on Discover cards totaled $87.5 billion in 2009, down 5.1% from $92.2 billion the previous year. U.S. managed receivables on Discover cards totaled $50.9 billion, down 0.4% from $51.1 billion (see chart).
As an issuer, Discover’s net principal charge-off rate on a managed basis was 7.77% during the year, up 276 basis points from 5.01% in 2008. Discover increased its provision for managed-loan losses to $2.4 billion last year, up 50% from $1.6 billion in 2008.
Additionally, Discover cut deals last year with global payment networks varying in type and scope. The most recent series of deals began last March, when Six Multipay AG, a Swiss processor, agreed to acquire Diners Club and Discover transactions. In August Venture Infotek Global Pvt. Ltd., an Indian processor, also agreed to acquire Diners Club and Discover card transactions. Later that same month, Discover and Pulse announced a deal with Interac, Canada’s only debit network, enabling Discover, Diners Club and Pulse cardholders to withdraw cash from a portion of Canada’s 57,864 ATMs. The agreement initially will enable Diners Club cardholders to withdraw money from about 14% of Canada’s ATMs.
To promote Diners Club, Discover launched a global branding campaign in December to encourage cardholders to use their cards for everyday purchases. The campaign featured a new logo, card design, Web site and television advertising. Despite global expansion, however, Diners Club will remain a niche brand under Discover Financial Services.
Diners Club cards contributed $26.2 billion in payment volume in 2009, up 106.3% from $12.7 billion the previous year. Diners Club issues cards through 49 franchisees in more than 185 countries.
Thus far in 2010, Discover has extended its cobranding and card-acceptance agreement with Wal-Mart Stores Inc. and continues to be the exclusive payment network for the Walmart Discover card. Through this extension, Discover hopes to work on building traffic on the Discover Network.
Discover also signed a deal with Global Payments Inc. to expand acceptance for Diners Club cards in Europe and Asia. PS
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