Discover’s Global Deployments Driving Dramatic Growth

It’s been quite a month for Discover.

March 7: Discover Financial Services reaches agreement with the National Payments Corporation of India (NPCI) to have Discover and Diners Club International cards accepted at NPCI ATMs and POS terminals, and to give RuPay customers access to the Discover, Diners Club International and PULSE networks for purchases and withdrawals outside of India.

March 14: The network announces that Discover cards will soon be issued in Ecuador, the first time a Discover card will be issued outside the U.S.

March 15: Discover says it will implement a 2013 EMV mandate for acquirers and direct-connect merchants throughout North America.

March 21: Discover signs agreement with EVERTEC, giving Discover cardholders the ability to use the leading debit payment and ATM network in Puerto Rico.

It could be argued that David Nelms is simply making excuses for a fantastic trip around the globe, with stops in New Delhi, Quito, and San Juan. But realistically speaking this strategy is turning out to be a better corporate playbook as opposed to a jetsetter’s itinerary.

Indeed, investors are loving Discover stock so far in 2012. And furthermore they’re openly admitting to doing so! Just yesterday morning, Kyle Woodley at InvestorPlace wrote in reference to DFS: “It’s like falling in love all over again.” Later: “It almost seems crazy to say, but after its nearly 40% run this year, Discover still is a solid value play.”

The payment network seems to have people convinced that it can continue the success it showed last year, when it posted $4 in earnings per share, more than triple its 2010 amount.

On the company’s first quarter conference call, Nelms had enough positive news to keep momentum going: net income of $631 million ($1.18 EPS), “continued improvements in credit performance,” “strong volume across all of [Discover’s] networks,” and “25-year lows for net charge-off rate and 30-plus delinquency rate.”

Of course, growth is easier for a company with much less scale than its competitors; no one will be confusing Discover’s payment network for MasterCard’s anytime soon. In 2011, the Discover Network processed $111 billion in payments; PULSE did $140 billion; and Diners Club International did $29 billion; for $280 billion combined. 

That said, Discover has had an explosive start to calendar year 2012. We’ll be watching them closely as the weather heats up.



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