Discover Forecasts $35 Million in 2015 EMV Costs and Is ‘Open for Business’ in Mobile Payments

Discover Financial Services expects to incur $35 million in incremental costs next year for Europay-MasterCard-Visa chip card issuance and acceptance, chief executive David W. Nelms said Wednesday. Nelms also said Discover will be an active player in mobile payments.

Nelms made his remarks at an investor conference sponsored by The Goldman Sachs Group Inc. that focused on financial-services companies. He and chief financial officer Mark Graf said the $35 million would be spent on issuing chip cards to a large portion of Riverwoods, Ill.-based Discover’s cardholder base, although they did not specify the number of cards. Other expenses will go for configuring the company’s networks to accept EMV cards, including tokenization capabilities, Graf said.

“Benefits [of EMV] in terms of lower fraud and expenses will occur over time,” Nelms said, “but those savings will not come through right away, and certainly we’ll see very little benefit in 2015.”

Later, when asked about mobile payments and wallets, Nelms said owning a network gives Discover some competitive advantages, including the potential to offer differentiated services. “I am very excited about the long-term prospects of mobile payments,” he said. “I think over time that will be the access device for credit card accounts, as well as debit card accounts.” But mobile payments “will take longer” to develop because of the need to build merchant acceptance, “which changes very slowly,” he added.

Discover is the only general-purpose card network that hasn’t announced a working relationship with Apple Inc.’s new Apple Pay mobile-payment service for the iPhone 6, but Discover has said it is working toward that goal. Meanwhile, Discover is positioning itself as the flexible mobile-payments player, citing its work to bring PayPal Inc. service to the point-of-sale. Nelms said Discover wants to be part of as many mobile wallets as possible, wherever its cardholders want to use their cards, but also offer something different. He didn’t reveal anything specific coming down the pike, but indicated Discover will embark on multiple mobile-payment projects and take some chances.

“We’re the people that are not Visa/MasterCard,” he said. “We’re willing to private-label our network, to let other people use their brands, change our rules, change our pricing, provide some unique advantages. Right now it’s not clear how it all plays out … but we are open for business.”

On another matter, Nelms declined to comment about pending litigation when asked about the federal lawsuit Discover’s Pulse PIN-debit network recently filed against Visa Inc. accusing No. 1 payment network of anticompetitive practices.