Discover Expands Card Acceptance

  After a year of lackluster performance in 2005, Discover Financial Services burst into action in 2006, boosting profits, launching new products and expanding merchant acceptance.
  So it may seem odd that Discover's parent, Morgan Stanley, announced plans in December to spin off Discover. Analysts say the split makes sense given the different markets the companies serve and that Discover would become free to chart its own course for innovation and growth.
  Fiscal 2006, which ended Nov. 30, gave Discover a good foundation for independence, with managed loans of $50.3 billion, up 7% from $46.9 billion in 2005. Discover reported more than 50 million cardholders in 2006, up 1% from 49.5 million cardholders in 2005.
  Card sales volume was $96.6 billion in 2006, up 12% from $86 billion the previous year. Transaction volume rose 14%, to 3.3 billion from 2.9 billion in 2005. Discover decreased its provision for loan losses worldwide by 20.8%, to $1.9 billion from $2.4 billion in 2005.
  Pretax net income was $1.6 billion, up 73.7% from $921 million in 2005.
  Income from securitization, cardholder-loan fees, discount and interchange revenue, insurance, merchant fees, transaction-processing revenue and other noninterest income was $3.5 billion, up 20.7% from $2.9 billion in 2005.
  Discover increased the cash-access locations for its cards by 58% in April, when Discover Bank joined the Pulse ATM and debit network Discover acquired in 2005. The network includes 250,000 ATMs and about 3.4 million point-of-sale terminals.
  Discover finally caught the signature-debit wave with the introduction in February 2006 of Discover Debit Card for consumers and Discover Debit Business Card for businesses. In June, Discover launched the Discover Business Card, a cash-back rewards card targeted at small-business owners.
  And Discover expanded its international reach in 2006, signing agreements with issuers and acquirers in Central America, Europe and Asia.
  Discover's purchase of 800,000 Goldfish Card accounts from United Kingdom's Lloyds TSB caused most of the $87.1 million pretax loss for Discover's international operations in fiscal 2006, up 174% from the previous year's international loss.
  But Discover strengthened its links to Asia with a reciprocal merchant-acceptance agreement with Japanese issuer JCB International and with the second phase of its reciprocal acceptance agreement with China Unionpay.
  The really big news came in December, when Morgan Stanley announced it had resurrected plans to spin off Discover. With a filing with the U.S. Securities and Exchange Commission in March, Discover and Morgan Stanley took a step beyond 2005's aborted spin-off.
  The filing notes Discover's smaller scale as a competitive disadvantage. But a former Discover executive who requested anonymity says he believes the network will fare better on its own. "The Discover management team, given the capital to compete with the other cards, will do an effective job," he says.
  (c) 2007 Cards&Payments and SourceMedia, Inc. All Rights Reserved.
  http://www.cardforum.com http://www.sourcemedia.com