In what Discover Financial Services says is a first for the payment card industry, the Riverwoods, Ill.-based card company on Sept. 13 announced an agreement in which it will offer consumers optional extended-warranty services through SquareTrade for electronics and appliances bought with Discover cards.
“It’s a new product offering to the market,” Ryan Garton, Discover director of products and benefits, tells PaymentsSource.
The price for SquareTrade’s extended-warranty service, which Discover began testing in mid-July, varies and is commensurate with the cost of the product purchased, he says. Officials at SquareTrade could not be reached for comment.
Cardholders generally will have up to 90 days after making a purchase to buy Square Trade’s warranty service online from Discover’s website, which provides a tool to determine the warranty cost based on product type and cost. Coverage applies to any purchase made from a U.S. merchant, either in-store or online.
Discover cardholders who purchase SquareTrade warranties with their Discover cards also will receive a 5% Cashback Bonus on those purchases. Some Discover cards also provide double manufacturer warranties on product purchases, as do some cards offered by other card brands. Visa Inc. offers a product-protection service with its Signature card and enables cardholders to buy additional optional coverage but not through a deal with a specific third-party warranty provider.
Discover decided to form the agreement with SquareTrade after hearing concerns from consumers about the cost, hassle and sales pressure associated with many retailers’ extended product-warranty services, Garton says, noting SquareTrade warranties tend to cost 40% to 70% less than other warranties.
“We feel through this product we removed the hassle,” he says. “We’ve also removed the pressure of the sales tactics at the point of sale.” Garton declined to project how many cardholders might buy SquareTrade’s warranty service.
Though the agreement is limited to electronics and appliance purchases, the companies have left the option open to extend the warranty service to other purchases later on, Garton says. “We left room to grow (the service) in the future,” Garton says.
Products designed to improve security and to provide protection tend to rate highest in research exploring what interests consumers, notes Megan Bramlette, a director at Auriemma Consulting, citing the company’s own studies. “And warranties are a natural extension to that–the security of the purchase after the purchase, if you will,” she says.
Also, consumers tend to believe retailers overprice their extended-warranty offerings, and SquareTrade markets itself as a low-cost warranty provider that offers good value and customer service, Bramlette notes.
“This will resonate with cardholders, especially to Discover customers who have a natural affinity to savings. Otherwise, they wouldn’t have signed up to a cash-back card,” she says. “Regardless of its success, it’s a message well aligned with Discover’s core proposition of value.”
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