We are a leading credit card issuer and electronic payment services company
with one of the most recognized brands in U.S. financial services. Since our
inception in 1986, we have grown to become one of the largest card issuers in
the United States. We are also a leader in payments processing, as we are one
of only two credit card issuers with its own U.S. payments network and the only
issuer whose wholly-owned network operations include both credit and debit functionality.
We issue credit cards in the United States under the Discover Card brand to
various segments within the consumer and small business sectors. Most of our
cards offer a Cashback Bonus rewards program. In addition, we offer a range
of banking products to our customers, including personal loans, student loans,
certificates of deposit and money market accounts.
Discover Network cards currently are accepted at millions of merchant and cash
access locations primarily in the United States, Mexico, Canada and the Caribbean.
In October 2004, the U.S. Department of Justice (“DOJ”) prevailed
in its antitrust lawsuit (the “DOJ litigation”) against Visa U.S.A.,
Inc. (together with its predecessors, “Visa”) and MasterCard Worldwide
(together with its predecessors, “MasterCard”) which challenged
their exclusionary rules—rules that effectively precluded us from offering
network services to financial institutions. Since then, we have accelerated
our network growth by entering the debit market with the acquisition of the
PULSE Network, and by signing card issuing agreements with a number of financial
institutions. We also have significantly expanded our relationships with companies
that provide merchants with credit card processing services, which we believe
will further increase the number of merchants accepting Discover Network cards.
In addition, we issue credit cards on the MasterCard and Visa networks in the
United Kingdom, the world’s second-largest credit card market. Our portfolio
includes Goldfish, one of the United Kingdom’s leading rewards credit
cards, as well as several Morgan Stanley-branded credit cards and a number of
affinity credit cards.
We operate in three reportable segments: U.S. Card, Third-Party Payments and
International Card. On February 7, 2008, we announced that we had entered into
a definitive sale and purchase agreement to sell our U.K. credit card business,
which represents substantially all of the International Card segment, to Barclay’s
Bank Plc.
Customer Acquisition
We seek creditworthy individuals by leveraging an integrated acquisition and
risk management process. To acquire new customers, we use proprietary targeting
and analytical models to identify attractive prospects and match them with our
product offerings. We employ multiple acquisition channels, including direct
mail, internet, print advertising, direct response television and telemarketing.
Competition
We compete with other card issuers and networks on the basis of a number of
factors, including: merchant acceptance, products and services, incentives and
reward programs, brand, network, reputation and pricing. Many of our competitors
are well established and financially strong, have greater financial resources
than we do, are larger than us and/or have lower capital costs and operating
costs than we have and expect to have.
As a credit card issuer, we compete for accounts and utilization with cards
issued by other financial institutions (including American Express, Bank of
America, Chase and Citigroup, as well as third-party issuers on the Discover
Network) and, to a lesser extent, businesses that issue their own private label
cards or otherwise extend credit to their customers. There has been a trend
toward consolidation among credit card issuers, leading to greater concentration
of resources.
In the United Kingdom, we issue credit cards on the MasterCard and Visa networks.
We compete for accounts and utilization with cards issued by other financial
institutions (including American Express, Bank of America, Barclays, Capital
One, Halifax Bank of Scotland and Royal Bank of Scotland). As in the United
States, credit card issuers in the United Kingdom have used advertising, targeted
marketing, pricing competition in interest rates, reward programs and low-priced
balance transfer programs to attract and retain cardholders and increase card
usage.
In our third-party payments business, we compete with other networks to attract
third-party issuers to issue credit, debit and prepaid cards on the Discover
and PULSE Networks. Discover Network’s primary competitors are Visa, MasterCard
and American Express, and PULSE Network’s competitors include Visa’s
Interlink, STAR, NYCE and Maestro.
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