Saturday , January 19, 2019

Discover’s Network Volumes Grow; Company Eyes ‘Non-Traditional’ Ways To Keep Growth Up

Dollar volume in Discover Financial Services’s Payment Services unit rose 19% in the first quarter to $56.1 billion, led by a resurgent Pulse debit network where volume jumped 20%.

Pulse, one of the nation’s largest electronic funds transfer networks, has been rebounding in recent quarters have a long period of decline following the loss of a major customer and competition for merchants’ point-of-sale debit transactions in the wake of the Durbin Amendment, which upended the U.S. debit market.

Now, Discover says Pulse is winning many routing decisions from merchants and merchant acquirers. The network posted first-quarter volume of $43.2 billion versus $36.1 billion a year earlier, according to financial results Riverwoods, Ill.-based Discover released Thursday.

Discover chief financial officer R. Mark Graf indicated there was nothing dramatic behind Pulse’s growth. “There were no particular elephants present, no giant wins in the quarter, anything like that, that really drove that growth,” he said at a late-afternoon conference call to review the quarterly results, according to a call transcript. “It was far more granular across the board in our traditional marketplace of smaller [financial institutions] and some mid-tier FIs as well.”

Besides Pulse, the other two businesses in Payment Services also posted double-digit growth in the first quarter. The Diners Club International network reported volume of $8.4 billion, up 14% from $7.4 billion a year earlier. Discover’s financial-institution network partners saw volume jump 24% to $4.6 billion. Meanwhile, Discover proprietary credit card volume rose 8% to $32.4 billion.

Asked by an analyst how Discover plans to keep network growth up, Discover chief executive David W. Nelms said the company is looking to capture volume now on Visa and Mastercard cards, although he didn’t get into specifics.

“We are looking very hard at opportunities in the U.S. and around the world to really capitalize on this very scarce and, in our view, very valuable network that has the ability to scale to a whole lot more volume,” Nelms said, according to SeekingAlpha. “But most of that volume today is locked up by Visa and Mastercard, and we’re looking for non-traditional ways to unlock it.”

Nelms did say growth opportunities also lie in Discover’s AribaPay payment service for suppliers, and more connections to other networks in regional markets abroad. Discover has approximately 14 of these so-called network-to-network partnerships and is adding a few more every year, giving the company access to high-margin cross-border payments, Nelms said, according to the transcript.

Discover gets most of its revenues from its credit card and other lending operations. Boosted by lower taxes, first-quarter net income rose 18% to $666 million. Revenue net of interest expense increased 10% to $2.58 billion.

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