Discover Financial Services has formed a series of
significant partnership deals in recent months, all of which are
aimed at building up its presence outside of its US domestic base.
Having secured deals in Canada and in Asia, Discover is now setting
its sights on expanding its European footprint, as Charles Davis
reports.

Having weathered the worst of the recession and built a card brand
that defies national borders, Discover Financial Services sees the
world as its playground these days. Last year, Discover acquired
the venerable Diners Club franchise from Citigroup, and ever since,
it has made its international intentions known.

Just last month, Discover announced a deal with the Belgian
processor Trionis that will enable Discover and Diners Club
cardholders to make withdrawals at more than 74,000 ATMs in Europe.
That followed an ATM deal in Canada this summer and a long-term
merchant-acquiring deal in India announced in August. In March,
Multipay, a Swiss processor, agreed to handle Diners Club and
Discover credit card transactions.

Gerry Wagner, executive vice-president of international acceptance
for Discover Financial Services, and a 24-year founding veteran of
Discover, is now in London at the centre of Discover’s
international expansion, and told CI he sees Europe as its primary
international market, followed by Asia and South America as
prominent Diners Club markets.

“We see opportunities all over the globe,” Wagner said. “We are
working to increase the opportunities for our cardholders all over
the world and build the network of merchants accepting our
products.”

Opening up European markets

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By GlobalData

Discover executives no doubt cheered this month as US Bancorp’s
Elavon acquiring unit purchased the Diners Club Western European
merchant portfolio from Citigroup. The portfolio includes more than
75,000 merchant contracts in Europe.

Wagner said the deal opens new merchant categories in some of the
company’s most important European markets, including the UK,
France, Germany, the Benelux markets, Switzerland and
Ireland.

Discover already has an acquiring relationship with Elavon in the
US, and Wagner said the deal could help Discover with Diners Club
acceptance at merchants, beyond the portfolio they purchased with
Citi.

Elavon, which says it is the sixth-largest acquirer in Western
Europe, has about 200,000 merchants in the region, and expects to
add Diners Club acceptance to its existing portfolio by the second
quarter of 2010.

Wagner said Discover would pursue a two-tiered strategy in its
international expansion, targeting high-end merchants as well as
three- and four-star hotels for Diners Club, while targeting value
chains as Discover merchants.

“The economy is having a real effect on corporate travel and
entertainment, and you have lots of corporate limits these days on
hotels and food,” Wagner said. “We need to expand the Diners Club
merchant base beyond the white tablecloth establishments, to the
places where corporate travellers these days are spending
money.”

Discover, meanwhile, will be looking for merchants at the middle of
the spectrum – the places where recreational travellers are likely
to be spending money, and is using its Pulse debit network to
bolster acceptance for both its card brands.

Expanding in Canada

Trionis, which provides processing and switching services, signed
the ATM-acquiring deal with Pulse. Banks from nine European
countries, along with US processor First Data and the European
Savings Banks Group, own Trionis.

The deal gave Discover and Diners Club cardholders access to ATMs
in Austria, Belgium, France, Germany, Italy, Luxembourg, Portugal,
Spain, Sweden and Switzerland.

Pulse, of Houston, signed a similar deal with Interac, Canada’s
only debit network, enabling Discover, Diners Club and Pulse
cardholders to withdraw cash from a portion of Canada’s 57,864
ATMs. The agreement will initially enable cardholders to withdraw
money from about 14 percent of Canada's ATMs.

The Interac deal does not include POS access in Canada. And it does
not permit Interac debit cardholders to use the 289,000 ATMs in the
US that route transactions across the Pulse network, and more than
600,000 machines worldwide.

The agreements build on card acceptance deals Discover forged in
Asia, Wagner said. Discover cards are accepted in China as part of
a reciprocal agreement signed in 2005 with China UnionPay, the
country’s only bankcard network. Pulse agreed to handle
transactions for UnionPay cards in the US, and Discover cardholders
can use their cards at UnionPay’s 365,000 merchant locations and
80,000 ATMs in China.

The Trionis deal gives Discover a truly global ATM network for the
first time, and now Discover and Diners Club cardholders will find
a way to transact with their cards wherever they travel, Wagner
said.

“The economic situation in the EU is incredibly difficult, but the
strategy is to allow Discover transactions abroad to ride on the
Diners network, and to allow the European Diners Club transactions
to ride on the Discover network,” he said “First, build the
networks, then build out acceptance, then refresh the brand and
begin marketing and advertising.”

Ultimately, Wagner said, the issuer wants to take the Discover
model and take it across international markets, with its renowned
cashback rewards programme at the heart of the offer.

“There are plenty of rewards cards in Europe, but none that are
built upon the rewards proposition the way that Discover is,” he
said. “We think we’ll offer something new.”

Discover net income