Tuesday , December 10, 2019

The Beat Picks Up at Pulse as Discover’s Transaction Volume Grows

Last year was a year of revival for Discover Financial Services’ long-suffering Pulse debit network, which posted a 19% fourth-quarter increase in year-over-year dollar volume on 15% more transactions.

The strong finish—$42.4 billion in volume on 1.03 billion transactions—brought Pulse’s full-year volume to $157.1 billion, up 14% from $138 billion in 2016. The transaction count hit 3.86 billion, a 12% increase from 2016’s 3.46 billion.

(Image credit: Discover Financial Services) Pulse’s growth came from new issuers, merchants, and favorable routing decisions, says Discover CEO Nelms.

Pulse’s 2017 performance, which began modestly in the first quarter, contrasted sharply with dollar-volume slippages of 8% and 9% in 2016 and 2015, according to Discover filings.

In recent quarterly conference calls, Riverwoods, Ill.-based Discover attributed Pulse’s declines mostly to the loss of a large customer. On Wednesday, chief executive David W. Nelms told analysts that Pulse is winning new business both from debit card issuers and merchants, who now have more control over debit card transaction-routing decisions than they did before the Durbin Amendment in 2010’s Dodd-Frank Act took effect.

“In Pulse, growth continued to come primarily from our core point-of-sale business and was driven by merchant and acquired routing decisions, as well as the addition of new issuers and incremental volume from existing issuers,” Nelms said in reviewing Discover’s fourth-quarter results, according to a SeekingAlpha.com transcript.

Later in the call, chief financial officer R. Mark Graff noted that “there was one was large player that helped with the growth, but over half the growth came from a whole lot of our other customers, and you know we’re pleased that after several really tough years that the Pulse is back to some really nice growth,” according to SeekingAlpha. Graff didn’t identify the large customer.

Another Discover-owned network, Diners Club International, garnered a 14% fourth-quarter year-over-year increase in volume to $8.37 billion. Diners Club’s full-year volume came in at $31.5 billion, up 10% from $28.6 billion in 2016.

Volume on the proprietary Discover credit card network grew more slowly, up 7% in the fourth quarter to $36.3 billion. For the year, proprietary volume totaled $133 billion, a  5% increase from 2016’s $126.1 billion.

Discover’s network partners generated $3.28 billion in fourth-quarter volume, just 1% higher than a year earlier,  and $14.2 billion for the year, up 3%.

In all, Discover’s networks posted $90.3 billion in fourth-quarter volume, up 13% from a year earlier. The year saw $335.9 billion in volume, up 10% from 2016’s $306.6 billion.

In other Discover news, the company said it plans to raise its minimum hourly pay rate to $15.25 for nearly all of its full-time U.S. employees as a result of the recent federal corporate tax reductions after granting a $1,000 bonus to more than 15,000 non-executive employees earlier this month. The new minimum rate will take effect later this year and cover more than 7,000 employees.

The new federal tax law also proved to be a boon for processor Total System Services Inc. (TSYS), which reported its fourth-quarter financials Tuesday.

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