Discover Research
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2) How does Discover Financial Services compare to its major competitors?
i) What type of strategy does Discover Financial Services practice? How does
this relate to
comparable companies in the same market?
iii) What changes have occurred in Discover Financial Services business environment
recently and how has the company adapted to these changes? Have these changes affected
Discover Financial Services financial well-being?
ii) What opportunities will Discover Financial Services use in the near future? Where is the
company headed?
Opportunities
Discover Financial stock gains after Morgan Stanley upgrade to Overweight.
The share price of Discover Financial Services (NYSE: DFS) has increased by 2.0% in premarket trading on Wednesday after Morgan Stanley analyst Betsy Graseck upgraded the credit card issuer from Equal Priority to Overweight because she believes the company's credit quality will remain strong even during a downturn in the economy. Despite the analyst's prediction that unemployment will increase from 3.5% to 4%, she does not believe that DFS will suffer credit losses as severe as those it did between 2008 and 2010, when unemployment was at 10%.
Patience is Virtue in this Economic Environment.
The company continues to report solid growth in its business. However todays investors would hold back on this stock due to the current economic uncertainties.
Discover financial services call center open in former Target stores.
Discover President and CEO Roger Hochschild said the call center started in temporary space with just 20 employees. It has since grown to 300 workers and will reach 1,000 by 2024 “with almost 90%” of those employees living within a five-mile radius of the facility.
Discover Financial (DFS) Teams up with IBM to Ease Digital Shift.
Discover Financial Services DFS has partnered with IBM Consulting, a division of International Business Machines Corporation, to expedite the digital transformation of
its existing systems and applications into an open and flexible hybrid cloud architecture. As a result of this recent step, Red Hat, a hybrid cloud technology company bought by IBM in 2019, will play a critical role in advancing Discover Financials’ digital shift. DFS is looking forward to incorporating the open enterprise hybrid cloud approach
, which is supported by a secure platform, into its systems and applications. This major digital bank and payments organization will effortlessly automate, respond, and extend solutions to its clients in order to modernize the same. DFS will use the Red Hat Ansible Automation Platform to achieve hybrid cloud automation. Discover Financial will utilize Red Hat Advanced Cluster Management for Kubernetes (ACM) in its hybrid cloud architecture to get end-to-end management visibility and control over its cluster and application lifecycle. As a result, Red Hat-
created OpenShift will lead Discover Financial in utilizing its main features, which include security, automation, and multi-cloud service integration. This, in turn, will likely cut operating costs, enhance business process results, speed application deployments, and increase DFS security and resilience. Initiatives like this one testify to Discover Financials’ ongoing attempts to maintain its position as a leading digital
bank and payments company.
To that aim, improved digital solutions are urgently needed to improve consumer experiences, making the current endeavor timely.
How is Discover’s Financial Business Model different from Visa’s?
Visa’s Business Model
When a cardholder uses a Visa card to make a purchase, data is sent over Visa's network to the issuing bank and the merchant's bank, known as the acquirer, for authorization. The acquirer delivers a clearing file containing transaction data, which is processed for the issuer and acquirer's final settlement. The fundamental service provided by Visa through its network is a three-step procedure known as authorization, clearing, and settlement
. Visa further provides value-added services such as account level processing, loyalty reporting, and dispute resolution. When a customer uses a Visa credit card, he or she is granted a loan, the risk of which is held
by the issuer rather than Visa. The issuer gets interest on the loan from the cardholder and also charges a card fee for the usage of its card. The issuer determines the interest rate and the charge. The acquirer charges the merchant a merchant discount fee. Acquirers must pay an interchange reimbursement charge to the issuer bank on purchase transactions. Visa receives none of the aforementioned fees. Instead, it charges its financial clients data processing and service fees. These fees are based on the number of transactions processed by a customer as well as the
gross dollar value of the transactions. As a result, Visa's business is volume based; the more times the company's cards are used, the more money it gets.
Discover’s Business Model
Discover operates a closed-loop network, serving as both the issuer and the acquirer.
Unlike Visa, Discover offers credit cards to users directly, allowing them to have revolving credit card balances on which the business collects interest. Discover's revenue is made up of more than 60% interest income. Discover also receives discounts from retailers and penalties from cardholders for late payments, cash advances, and balance transfers. Fees and interest rates are negotiated in contracts with retailers and cardholders. Unlike Visa, Discover's business is more dependent on
the loan balance that the corporation can maintain and the interest it can generate on this level. As a result, Discover must encourage the usage of its cards over those of competitors. To this end Discover's main strength is its Cashback Bonus rewards program, which allows cardholders to earn rewards when they use Discover credit cards. Discover counts the cash refunded to clients as a reduction in fee income rather than an expenditure item. Discover was able to sustain a 4% card receivable growth rate through 2013, which was greater than the general market growth rate of 1%.
Discover on shifting to Product-Based IT Delivery
Amir Arooni, Discover Financial Services' executive vice president and CIO, is a visionary IT leader who is passionate about both the commercial and human sides of technology. He's also one of the most effective capital-D Differentiators I've ever encountered. He believes strongly in enabling people to perform outstanding work and growing them to be the type of imaginative anticipators who will consistently create more and more distinctive value for consumers.
He kindly gave up his leadership playbook and revealed how he differentiates through a combination of process agility, technology, and smart people when he spoke recently on an episode of the Tech Whisperers podcast. Following the event, he spent some time diving more into Discover's Runway program, which is assisting the digital bank in staying ahead in technology and innovation by transitioning from a project-based attitude to a product-driven framework founded in agile working.
“Can you give us a high-level overview of each of those five work streams?”
1)
If you are through a significant transformative transition, you must ensure that your availability and security are at the best level possible and that you do not
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