Discover Boosts Issuing Prospects Among Banks with TSYS Deal

In a move that could give it a big boost in signing up banks to issue cards on its network, Discover Financial Services Inc. on Tuesday announced a deal with TSYS Inc. under which TSYS clients will be able to issue Discover credit and prepaid cards and use TSYS for issuing-related processing. With the agreement, Discover can potentially link to its network any of some 300 financial institutions that use Columbus, Ga.-based TSYS to process card transactions. David Goodridge, director of credit issuance at Discover, says two unnamed TSYS issuers have already agreed to issue Discover products. “This is a great development for us,” Goodridge tells Digital Transactions News. “It will open up the market for Discover Network.” Under the agreement, issuers will be able to connect to Discover through their existing agreements with TSYS, eliminating the need for separate, direct connections. This should make it easier for smaller banks in particular to begin issuing Discover, Goodridge says. “This is a real focus at the moment [at Discover], to make sure we have the enablers in place to write deals with large and small financial institutions,” he says. “It allows us to broaden our range.” For its part, TSYS says the deal adds value to its processing services. “Becoming a Discover Network issuer processor is a tremendous opportunity for TSYS to continue building our relationships with our issuing partners by offering them another option that helps them drive their businesses,” said William A. Pruett, senior executive vice president of client services at TSYS, in a statement. Both Riverwoods, Ill.-based Discover and American Express Co. have since court rulings cleared the way three years ago sought to lure banks to issue cards on their networks. Previously, Visa USA and MasterCard Worldwide rules forbade members from issuing on the two rival systems. A ruling striking down these bans was upheld by the U.S. Supreme Court in October 2004 (Digital Transactions News, Oct. 4, 2004). Since then, Discover has signed more than 20 issuers of credit and prepaid products, about a dozen of which are issuing Discover credit cards. These include GE Money, which issues a Discover-branded card for Wal-Mart Stores Inc., as well as HSBC and Alliance Data Services. As part of its effort to sign up banks, Discover two years ago reached a processing agreement with First Data Corp. similar to the one it has struck with TSYS. Goodridge says the agreement with TSYS came about as a result of demand from TSYS issuers. “We've been approached by TSYS clients,” he says, that wanted to issue Discover after acknowledging success other issuers were having with the product. “There's no better solution from their perspective than using their own [outsourced] processor,” Goodridge says. The benefit to issuers, he argues, is that Discover produces a “significant uplift” in response rates when tested head-to-head against other networks. The TSYS deal follows a string of agreements Discover has made on the acquiring side to allow merchants to accept Discover through the same link they use to process Visa and MasterCard transactions. These deals, the latest of which was with Wells Fargo Merchant Services, includes one with TSYS Acquiring Solutions, TSYS's merchant-processing unit.