Full Description

Discover Financial Services (DFS), incorporated in 1960, is a credit card issuer and electronic payment services company. DFS is also engaged in payments processing. Its business segments include U.S. Card and Third-Party Payments. U.S. Card segment includes Discover Card-branded credit cards issued over Discover’s card network (the Discover Network), and consumer lending and deposit products offered through its subsidiary, Discover Bank. Third-Party Payments segment includes PULSE Network (PULSE), an automated teller machine (ATM), debit and electronic funds transfer network; Diners Club International (Diners Club), and its third-party business. On March 31, 2008, DFS sold its United Kingdom credit card business (Goldfish) to Barclays Bank PLC. On June 30, 2008, the Company acquired Diners Club International. In July 2008, DFS announced the opening of a new subsidiary, Discover Information Technology (Shanghai) Ltd., in the People’s Republic of China, to support its data analysis and modeling operations.

U.S. Card

The Company issues Discover Cards through its wholly owned subsidiary Discover Bank. Cardmembers are permitted to revolve their balances and repay their obligations over a period of time, and at an interest rate set forth in their cardmember agreements, which may be either fixed or variable. The interest that it earns on revolving balances is the primary source of revenue from cardmembers. The Company also charges cardmembers other fees, including fees for late payment and for exceeding credit limits. The Company also offers various products and services, such as Payment Protection, Identity Theft Protection, Wallet Protection, Credit ScoreTracker and other fee-based products.

The Company also offers installment loan products, including personal loans and student loans. DFS offers its installment loan products to existing cardmembers, as well as to new customers. It offers money market accounts and certificates of deposit directly to the cardmembers.

Third-Party Payments

DFS’s payments business includes the PULSE Network, Diners Club International, and its third-party issuing business, which includes credit, debit and prepaid cards issued on the Discover Network by third parties. When a financial institution joins the PULSE Network, debit cards issued by that institution can be used at all of the ATMs and personal identification number (PIN) point-of-sale (PIN POS) debit terminals that participate in the network, and the PULSE mark can be used on that institution’s debit cards and ATMs. In addition, financial institution participants may sponsor merchants and independent sales organizations to participate in the network’s PIN POS and ATM debit service. PULSE primary source of revenue is transaction fees charged for switching and settling ATM, PIN POS and signature debit transactions initiated through the use of debit cards issued by participating financial institutions. In addition, PULSE offers a variety of optional products and services that produce income for the network, including signature debit processing, prepaid card processing, and connections to other regional and national electronic funds transfer networks.

The primary source of Diners Club revenues consist of royalties paid by licensees for the right to issue Diners Club branded credit cards. Diners Club also earns revenue from the various support services offered to its licensees, including processing and settlement of cross border transactions and providing a centralized service center and Internet services.

The Company competes with American Express, Bank of America, Capital One, Chase, Citigroup, Visa, MasterCard, STAR, NYCE and Maestro.