Discover Financial Services is stepping away from its recent merger-and-acquisition frenzy and is trying to grow the old-fashioned way: by developing new businesses itself.
The Riverwoods, Ill.-based credit card company has been a frequent buyer in the past year as it tries to expand beyond its traditional card lending and network roots. It has snapped up stray loan portfolios and online deposits from companies including Citigroup Inc. and Tree.com Inc.
But now Discover is refocusing on developing new businesses internally instead of buying them. It intends to launch an online checking account at the end of 2012 and is putting in a new computer system to support some of the features, chief executive David Nelms said in a Sept. 22 interview.
Nelms declined to discuss many details of Discover’s new checking product. He initially spilled the beans during a Sept. 22 conference call with investors to discuss Discover’s quarterly earnings.
He acknowledged some of the hurdles facing Discover as it looks to convince customers to move their checking accounts online.
“Most consumers still have traditional branch checking accounts, and we don’t think that’s going to change overnight,” Nelms said in the interview.
Many banks are overhauling their checking accounts, adding new fees or cutting back on rewards in response to new regulatory caps on debit card interchange.
Nelms cited those regulations as another reason Discover is waiting to unveil its checking account.
“It’s good to wait a year because there’s a lot of moving parts on pricing and features right now. In 12 months we’ll have a lot better feeling of how it all shakes out and what consumers want,” he said.
A Discover checking account likely would include a debit card, he said, and would be affected by the new rules restricting the fees issuers collect from merchants’ banks every time their customers pay with debit cards. But Nelms said those interchange restrictions also could become a silver lining for Discover as it markets its checking account to customers.
“To the extent that there are more fees on checking accounts, that could make it more attractive for consumers to go to a lower-cost direct model,” he said. “The ideal account would have as few fees as possible and that would be one of the ways we would want to come in to attract customers.”
Discover says it more than doubled its third-quarter net income to $649 million, as its customers increased their spending and its credit card loan portfolio grew for the first time in over two years (
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