Teaming up with PayPal is consistent with other Discover Financial Services agreements that stress the card brand’s payments strategy of being “the most flexible partner for a number of other players,” Discover Chairman and CEO David Nelms says.
Nelms spoke about Discover’s agreement with Ebay Inc.’s PayPal unit, an announcement made in early August that sent shock waves through the payments industry, during the Sept. 27 third-quarter earnings conference call with analysts.
The agreement essentially further expands PayPal’s online payments service to allow consumers to pay with PayPal plastic cards at Discover merchant payment terminals and, eventually, with mobile phones for “tap-and-go” payments.
Nelms cited Discover’s past efforts to open its network to the cardholder base in Japan, China and Korea “in order to provide full acceptance in the U.S. for them.”
The PayPal deal represents a similar strategy, but differs because PayPal has “a huge customer base and they are very big online, and uniquely focused and positioned,” Nelms said.
When asked if Discover intends to enter similar agreements in the future, Nelms spoke of the unique relationship PayPal represents.
“I don't think there will be any deal exactly like this one,” Nelms said. “No one else is positioned as uniquely, and in some cases, as well as PayPal.”
PayPal has been developing a mobile wallet for a long time, and has enhanced that product in the process, Nelms added.
PayPal has “a huge volume online” and Discover is opening up the offline to them, he said. “Discover is doing it in a way that is backward-compatible with existing terminals, and future-ready for all the new technologies that will be deployed at point of sale,” he said.
In addition, Discover views the PayPal partnership as “starting out as a domestic deal” that will ultimately “morph into a global acceptance deal” of which the card brand would be willing to bring in PayPal and other partners, Nelms said.
Discover executives expect the PayPal deal to add to future profits after delivering third-quarter results that showed third quarter profit rise 3%.
Discover’s payments service was also bolstered by a 17% increase in Pulse PIN-debit volumes, earning $40,990 compared to $35,109 in the third quarter of 2011.
That was good news for Discover executives, who earlier in the year were not sure positive results from Pulse would continue, considering the effect of the Durbin Amendment’s banning of network exclusivity was yet to fully take hold.
Nelms said Pulse has performed consistently since Discover purchased the PIN-debit network. “They have managed to gain share in a very competitive environment,” Nelms added. “In terms of Durbin, it’s really too early to tell exactly whether that’s going to be helpful or hurtful.”