In its latest effort to widen use of its credit cards, Discover Financial Services is asking state, local, and federal government agencies to accept Discover cards for consumer tax and fee payments.
Many agencies already work with Discover, which touts its advantage as the only major card brand that always permits government entities to make consumers pay the fees that would normally be paid by merchants. Visa U.S.A. will not let its cards be used for Internal Revenue Service tax payments because of this surcharge issue, and American Express Co. and MasterCard International have taken middle-ground positions.
Discover plans to begin an advertising campaign next month to raise consumer awareness about ways its cards can be used in transactions with government agencies. Ads will appear in some Department of Motor Vehicles offices and other places where the card-issuing division of Morgan Stanley Dean Witter & Co. thinks they might be useful.
About 75 counties nationally accept only Discover cards, allowing residents to pay property taxes with plastic, said Thomas Bogardus, director of government relations for Discover Financial Services. "We plan to leverage our competitive advantage in the market," he said.
This year Discover, American Express, and MasterCard all participated in an Internal Revenue Service pilot program for federal tax payments. The three companies outsourced the payment processing to a vendor, San Ramon, Calif.-based U.S. Audiotex, which required people to pay a fee of about 2.5% of their tax bills for the convenience of paying with a credit card on the telephone.
American Express and MasterCard allowed the surcharge because U.S. Audiotex was viewed as offering a value-added service. Visa did not participate in the test, arguing -- as some lawmakers have -- that people should not be required to pay the processing fees normally shouldered by merchants.
American Express and MasterCard cards are accepted in many government offices. But Discover is "the only card company that allows surcharging without the use of a third party," said Thomas Dailey, senior vice president of the Discover/Novus network. "We don't want to make it a complex and onerous process for government agencies to do business with us." Discover will be promoting its "flexibility" to government agencies in marketing materials to be sent out in November. In addition, Discover will continue to mail advertisements to customers and prospects who live in counties with which Discover has relationships, Mr. Bogardus said.
The government payment initiative is part of a broader strategy Discover began in April to broaden card acceptance and increase sales. The first component, "Dine out with Discover," started in August. Participating restaurants advertised the Discover card and got full rebates for merchant fees incurred in August. Consumers received larger cash-back bonuses when they dined at participating restaurants.
In November, Discover will introduce a campaign targeting ski resorts. "Discover the Slopes" will offer incentives for consumers and merchants, Mr. Dailey said.
"About once a quarter we will have these initiatives to increase merchant acceptance and sales," Mr. Dailey said.