International tourists spent close to $1.4 trillion during their cross-border adventures in 2015. Since international tourism is one of the largest sources of income for a significant number of destinations around the world – in developing countries and developed ones – the banking industry has had to evolve their instruments to ensure that costs associated with international payments are democratized enough, and, at the same time, leverage the opportunity to profitably prime the traveling population to incur significant expenses.
Regardless of how far the FinServ industry has come in stacking up perks on credit cards, one of the biggest consumer pain points in international payments remains intact – foreign transaction fees.
But what if I told you that there is one network operating across 185 countries that allows cardholders to make foreign payments with no foreign transaction fees? It’s time to rediscover Discover Financial Services – one of the most unique global FinServ businesses.
Discover started its journey in 1985 and introduced its first cash reward credit card in 1986. Discover was the first in the industry to introduce a cash rewards card and also offer 24/7 customer service without charging an annual fee, all of which was almost unheard of back in 1986. Today, Discover Global Network features more than 70 million cardholders, 37 million merchant acceptance locations and one million ATM and cash access locations across 185 countries and territories.
The company’s Q2 2017 financial report reveals that Discover credit card loans reached $61.8 billion and Discover card sales volume increased 5% from the prior year. Consumer deposits grew $3.6 billion (11%) from the prior year to $37.7 billion. Payment services' transaction dollar volume stood at $50.1 billion. In Q2 2017, Discover Financial Services reported net income of $546 million.
Long story short, Discover of 2017 is a massive and, more importantly, an innovative business. One of the hallmarks of Discover is that the institution is both the network provider and an issuer. The model utilized by competitors is different – Visa and Mastercard operate networks and partner with issuers to issue issuer-specific cards. Why is this important?
Revenue models applied to financial instruments are complex, and they include a variety of fees – transactional, flat fees, and incidental fees, each of which can be broken down into a dozen other fees. In this case, we care about two:
- Issuer fees: The issuers charge cardholders interest on their purchases and cash transactions. Some issuers also charge its users an annual fee just for the privilege of carrying their card. Apart from that, they also charge other potential fees – for cash advances, late payment, etc.
- Association (network) fees: Banks that issue cards with certain network providers’ brands have to pay fees to be associated with the network.
Being a network and an issuer, Discover is able to offer unique benefits to Discover cardholders that are rooted in operational efficiency and network reach.
Discover Network is a comprehensive, payments network accepted at millions of merchant locations in the US, Canada, Mexico, Central America, and the Caribbean. Discover's power is magnified by the two core networks it is built on:
- Diners Club International introduced the first multipurpose charge card to the world in 1950. Currently, Diners Club International has over 26 million merchant acceptance locations and 1.9 million ATM and cash access locations across 185 countries and territories.
- PULSE is one of the nation’s leading debit/ATM networks. PULSE provides cardholders with access to 1.8 million ATMs worldwide.
Discover is also accepted by three major mobile wallets – Apple Pay, Samsung Pay (>5 million monthly customers), and Android Pay (>5 million monthly users).
A hallmark of the Discover Network is its approach to acceptance expansion. Discover Network itself is strategically picking global partner networks to ensure the backing of the leading institutions across pan-regional markets – the ones that have the most scale and reach. More importantly, the potential of this growth is fueled by the partnerships that Discover acceptance members create themselves.
For example, in mid-September 2017, Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) signed a partnership agreement to become the only issuer of Diners Club cards in Vietnam. The agreement helps to expand VietinBank’s existing acquisition relationship with Diners Club International Ltd, a business unit and wholly-owned subsidiary of Discover Financial Services and a part of the Discover Global Network. The Diners Club cards have the same issuance process and method of use as international credit and debit cards. In addition to the functions of international credit cards, such as internet payments, point-of-sale payments, withdrawals and accessing transaction history, cardholders also enjoy many discounts across more than 30 countries at restaurants, hotels and shopping centers.
Earlier, in January 2017, Discover Financial Services also entered a landmark agreement with PayPal, making PayPal more widely available to Discover cardmembers, acquirers and merchants. The agreement provides PayPal access to Discover’s tokenization services, expanding PayPal’s reach at POS, which will enable US PayPal customers to pay with their Discover cards at all of the contactless-enabled merchants that accept Discover. As part of the agreement, Discover and PayPal plan to enable PayPal customers with eligible Discover cards to use their Cashback Bonus to pay for purchases at the millions of online and mobile merchants that accept PayPal. After enablement, Discover cardmembers will be able to view and use their available Cashback Bonus while using PayPal to pay for all or part of the largest card network in Brazil, Elo.
How Discover amplified its global footprint through partnerships
To map the scale that the third-largest network in the world was able to reach, it's enough to look at just a few of Discover's alliance members.
Needless to mention, Discover covers a network of 80+ acquirers covering the needs of businesses around the world.
Brazil: The largest card network in Brazil, Elo offers a wide variety of credit, debit and prepaid cards with approximately 80 million cards issued. The Discover-Elo partnership became the first network-to-network partnership in Latin America.
Puerto Rico: ATH is a regional debit payment and ATM Network that offers acceptance and ATM access throughout Puerto Rico.
Canada: In 2015, Global Payments, one of the leading worldwide providers of payment technology services, and Discover Financial Services announced a streamlined acceptance solution for Discover cards for merchants in Canada. The new program was meant to simplify acceptance of Discover, Diners Club International, PULSE and affiliated network cards for Global Payments' Canadian merchants, offering a comprehensive solution which provides value by offering a single statement.
In May 2017, Discover also entered into an agreement with Desjardins Group, the leading cooperative financial group in Canada, through its Monetico payment solutions, to expand acceptance in Canada. Merchants that have business relationships with Desjardins are now able to accept cards that run on the Discover Global Network, including Discover, Diners Club and alliance partner cards. Desjardins Group is the sixth-largest cooperative financial group in the world, with assets close to $260 billion.
In North America, Discover is accepted at more merchants in the US than Amex and is now comparable to MasterCard and Visa. It's also accepted in many Latin American countries including Colombia and Ecuador.
Japan: In 2006, Discover Financial Services and JCB agreed to an arrangement that will facilitate acceptance of JCB cards on the Discover Network in the US, and of Discover Network cards on the JCB network in Japan, and acceptance of PULSE cards at targeted ATMs in Japan at the option of the card issuer. In 2007, Discover Network began enabling its systems so that JCB cardholders were able to use their JCB cards at Discover Network merchant locations throughout the United States. Upon completion of a JCB system enhancement, Discover Network cardholders were able to use their cards for purchases at JCB merchant locations and for cash advances at targeted ATMs throughout Japan beginning in 2008. Currently, JCB is the only international payments network in Japan, with around 2.5 million merchants in 190 countries and territories.
India: In 2012, Discover Financial Services has entered into a strategic alliance with the RuPay. Supported by the Central Bank of India, RuPay is a national payment network with merchants and ATMs across India.
South Korea: In 2010, Discover Financial Services entered an agreement with BC Card, currently the largest domestic payments network in South Korea, allowing BC Card cardholders to utilize the Discover, Diners Club International and PULSE networks for international purchases and cash access outside of Korea, and ATM locations worldwide.
China: In 2005, Discover Financial Services, then a business unit of Morgan Stanley, and owner of Discover Network and PULSE ATM/debit network have signed a long-term agreement that led to acceptance of Discover Network Cards at China UnionPay ATMs and POS terminals in China and acceptance of China UnionPay cards on the PULSE network in the US. Both sides agreed to pursue ways to enable acceptance of China UnionPay cards at Discover Network's more than four million merchant and cash access locations in North America. Currently, China UnionPay has more than 3.5 billion members, 4.8 million merchants and 415,000 ATMs spread across mainland China.
In mid-September 2017, Allinpay, one of China’s leading alternative payment providers, and Diners Club International, a part of the Discover Global Network, announced that Allinpay is now an acquirer for all cards that run on the Discover Global Network. Allinpay merchants are now able to accept Discover, Diners Club International and affiliate partner cards, increasing acceptance in the Hong Kong region. Allinpay is one of the few financial institutions in China that possesses full scope payment licenses spanning online, offline, domestic, cross-border, acquiring and issuing. At present, Allinpay acquires over 1.5 million merchants.
Vietnam: In 2010, Discover Financial Services announced an alliance with Smartlink Card. JSC, a leading domestic payments network in Vietnam, that gave Discover and Diners Club International cardholders the ability to use their cards at more than 16,000 ATMs in Vietnam via a network of local commercial banks.
Currently, Discover is in a partnership with the National Payment Corporation of Vietnam (NAPAS), which offers access to thousands of ATMs in Vietnam via a network of 51 local financial institutions.
Mercury is a large domestic card network that provides POS and ATM acceptance throughout the Middle East.
Serbia: As the largest acquiring network in Serbia, DinaCard has more than 2.5 million members in the region.
EMEA acceptance includes Austria, Egypt, Israel, Portugal, Greece, Slovakia, South Africa and the UAE, to name a few.
Nigeria: Interswitch allows Discover Global Network to access purchases and cash accounts in Nigeria.
Moreover, >68 million cards, issued by 600 EUFISERV member banks, can participate in the PULSE Global ATM Network.
Discover has always been a consumer-centric organization despite all internal and external developments (no wonder it's ranked second among Direct Banks for highest customer satisfaction). Amid the accelerated pace of fraud in 2017, in July, Discover started offering a free service that monitors risky websites known to illegally sell or trade personal data and alerts Discover cardmembers if their Social Security numbers are found with suspicious entities. In addition, Discover alerts cardmembers if any new credit cards, mortgages, car loans or other accounts are opened on their Experian credit report. These new alerts are aimed at helping Discover cardmembers protect themselves from identity theft or fraud.
Discover's unique approach to partnership has not only allowed the network to grow rapidly, but has also put it in a position to help businesses around the world to offer more payments options, and, expand their customer bases. Discover's connected network has made continuous gains when it comes to reach, acceptance and cardholder base.