Discover Opens Its Network to Others

  An appellate court ruling is still pending in Visa USA's and MasterCard International's appeal of a lower-court decision that struck down their rules prohibiting members from issuing American Express- and Discover-branded cards. But Discover Financial Services, the Riverwoods, Ill.-based card unit of Morgan Stanley, already announced June 2 that it is opening its Discover/Novus network to other companies to issue proprietary prepaid cards. Those cards, which may or may not carry the Discover brand, would be processed through the Discover/Novus network.
  Discover also said it would provide the same opportunity to Visa and MasterCard members to issue Discover prepaid cards over the same network if the 2nd U.S. Circuit Court of Appeals in New York upholds the 2001 ruling. In that ruling, U.S. District Judge Barbara Jones ordered the card associations to end their exclusionary rules or policies banning U.S. members from partnering with Discover and American Express Co.
  "(The announcement) is an early indication of Discover's strategy, pending a ruling by the 2nd Circuit," says John C. Grund, a partner with First Annapolis Consulting Inc. "Discover is also opening its network to companies that offer prepaid and stored-value cards to leverage the infrastructure that it already has in place."
  Discover says its first prepaid card customer is NBO Systems Inc. The Salt Lake City-based gift card marketer is supplying nonpersonalized, private-label prepaid cards to shopping malls. The cards can only be used at select merchant locations.
  In Discover's program, however, merchants also have the option of putting the Discover brand on their proprietary cards, which would enable the plastic to be used at 4 million merchant and automated teller machine locations where Discover is accepted. "We feel we have a very strong network, and this gives merchants a chance to become involved with Discover in new ways," a Discover spokesperson says.
  Through the Discover partnership, Metavante will provide account and transaction processing, card personalization, customer service, settlement, reporting and risk-management services. Jeffrey Lewis, a Metavante vice president, says the Milwaukee-based processor and financial technology company will process the prepaid card transactions using the same debit platform it uses to process Visa check card and debit MasterCard transactions. As such, he says, it would be relatively easy for Metavante, a unit of bank holding company Marshall & Illsley Corp., to use the same platform if a bank wanted to issue Discover prepaid cards.
  "There's a lot riding on the (exclusionary rule) lawsuit right now," he says. "Discover is tied into our debit platform, so these stored-value cards run as a separate product on that platform."
  Metavante does not operate a credit card platform and uses a third party, Columbus, Ga.-based Total System Services Inc. (TSYS), to provide that service, Lewis says.
  In the initial rollout last November, NBO implemented a gift card program at the Merle Hay Mall in Des Moines, Iowa. Three additional malls have since been added, according to an NBO news release. NBO officials did not return calls.
  In NBO's program, mall gift cards can be redeemed at any store within the shopping center that accepts Discover cards. The nonembossed gift card features the mall's logo and name on the front. The back of the card provides contact and Web-site information for balance inquiries.
  The card can be sold in fixed amounts or in values chosen by the consumer, Lewis says, noting that Metavante and Discover are negotiating with more prepaid clients in addition to NBO.
  NBO officials say advantages of mall gift cards include the ability to keep funds within the malls and their merchants, to enable merchants to use their existing point-of-sale equipment for card issuance and acceptance, and to generate repeat store visits by cardholders.