Discover Says An Open Isis Could Still Serve It Well For Mobile Payments

Although mobile-payments venture Isis has publicly disclosed that it wants to add larger payments networks than its initial partner, Discover Financial Services, Discover says it might now be better positioned in the mobile-payments market.

When three U.S. wireless carriers announced Isis in November, it worked with only Discover to route payments. But in April, the carriers said they would seek partnerships with other networks, and many observers felt this put Discover at a disadvantage (see story). 

Michael P. Taiano, a credit card industry analyst at Sandler O’Neill & Partners, said Discover’s situation actually might have improved with that announcement.

Even as an Isis participant, Discover is better off sharing the spotlight with other networks, he said. “It seems like [Isis] was sort of doomed to fail from the beginning because of the closed structure.”

David Nelms, Discover chairman and chief executive, said in an interview the network has expanded its horizons, working with Google Inc. and PayPal Inc., among others, on mobile-wallet systems.

“I would actually say that we are involved in more facets than most other players,” Nelms said. “Visa and MasterCard don’t have any consumers directly. They are really involved in the acceptance side. We are involved because we are a network and an issuer.

Analysts agreed that widespread mobile-payments adoption is so far off in the future –at least two years away by Nelms’ estimate–that it is premature to make any judgments on how Discover will fare.

Taiano said Discover is diversifying in areas beyond payments.

“Whether it’s student loans or other types of loans, I think that’s where they are aiming,” he said.

This year, Discover bought Student Loan Corp. for $600 million. In May, the company said it agreed to buy the assets of Tree.com Inc.’s mortgage origination subsidiary, Home Loan Center, for $55.9 million.

Discover’s net income for the second quarter, which ended May 31, rose 133%, to $600 million, from a year earlier. Its net revenue rose 7%, to $1.7 billion. Its charge-off rate fell to 5.01% in the quarter from 8.56% a year earlier.

By midday Thursday, Discover’s shares had risen 1.44%, to $23.93.