Wednesday , August 12, 2020

Discover Says Its Cardholders Can Use Their Rewards to Pay When Checking out With PayPal

The major payment card networks have long since come to terms with PayPal Holdings Inc., and now they’re finding ways to put that newfound friendship to use in burnishing their brands with cardholders. The latest example surfaced Monday with an announcement from Discover Financial Services that Discover cardholders can use their cash or miles rewards to pay at checkout with PayPal merchants.

The new service lets cardholders pay with their rewards at both Web sites and within apps, but excludes physical stores. The merchant need not accept Discover. Covered programs include Discover it, Discover it Miles, Discover it Chrome, and Discover More. In its third-quarter results, Discover reported a 1.38% rewards rate on $41.2 billion in total card volume, up slightly from 1.31% a year earlier, implying the company doled out more than $500 million to cardholders.

Earlier, Discover announced it had smoothed the process for its cardholders to link their Discover cards with their PayPal accounts via the Discover app or Web site. That linkage is now necessary for the rewards-redemption program, though Discover says consumers can enroll in the program by starting a PayPal account through their Discover account. 

Information was not immediately available for how many Discover cardholders also own PayPal accounts. But the merchant universe available to cardholders is clearly expansive. PayPal announced last month it now has 23 million merchant accounts. 

“We want to make it as easy as possible for our cardmembers to redeem their rewards, especially by partnering with merchants where our Discover cardmembers love to shop,” said Shannon Kors, vice president of card rewards and benefits at Discover, in a statement. “Our customers loved seeing PayPal added to this year’s categories in the 5% Cashback program. Now they can spend the rewards they earned with PayPal and have more choices when they pay.”

The move toward rewards as an online merchant currency could help Discover in a key way by beefing up its connection to digital payment avenues, say some observers. “It strikes me that Discover is finally addressing its decided lack of fintech integration,” notes Patricia Hewitt, principal at PG Research & Advisory Services, a Savannah, Ga.-based consultancy. “The network is likely looking broadly for ways they can boost their presence in the digital world and ensure their brand can hold its own in a wallet-dominated future.”

Unlike its larger rivals Visa Inc. and Mastercard Inc., Discover has long maintained friendly relations with PayPal. In 2013, Discover made its network available to further PayPal’s ambitions to reach physical stores. Two years earlier, Discover had launched a peer-to-peer payments service that let cardholders send money to anyone with a PayPal account. That service, too, streamlined the PayPal account-opening process for Discover customers.

But while PayPal was long seen as an upstart rival, relations warmed with Visa and Mastercard in 2016 when the companies announced deals that called for PayPal to stress the card networks for payments while de-emphasizing the automated clearing house system.

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