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In a deal on which the two parties spent the weekend hammering out final details, Discover Financial Services LLC and Global Payments Inc. on Monday said Global would take over processing and other acquiring functions on Discover transactions with merchants for which Global processes Visa USA and MasterCard Worldwide transactions. The arrangement with Discover, which also involves Atlanta-based Global purchasing that part of Discover's portfolio for which it is assuming acquiring duties, is expected to go into operation some time in the first quarter of 2007. The Discover-Global link follows by two months the announcement of a similar deal Discover cut with First Data Corp. (Digital Transactions News, July 14) and represents the next step in a major push the Riverwoods, Ill.-based card network is making to boost its merchant base, particularly with respect to small merchants. “We feel we have good coverage now, but sometimes that last mile is the toughest,” says Gerry Wagner, vice president of merchant sales at Discover. More such deals are likely. Wagner says Discover is “in deep discussions with the majority of the top 10 acquirers.” Wagner refuses to say how many merchants that currently accept Discover also use Global for bank card processing, calling the number “confidential.” Global serves some 1 million merchant locations in North America, and all of them will be able to accept Discover through Global once necessary technical work is completed at both companies, says James G. Kelly, chief operating officer at Global, which controls 5% of U.S. bank card transactions at merchants, according to researcher TowerGroup. Discover, which doesn't release the number of merchant locations that accept its brand, says some 4.5 million acceptance points are linked to its network, though these include ATMs as well as point-of-sale locations. Global will also sell Discover to all new merchants it adds and will push Discover acceptance through its extensive network of independent sales organizations, Kelly says. “That was part of our commitment to Discover, that we'd open this up to our partners,” he says. “We started this morning contacting our partners to let them know and invited them to participate with us.” Global will buy processing from Discover and re-sell it in the form of discount pricing to merchants, according to Kelly, though specific pricing hasn't been worked out. “The Discover program has contemplated a series of interchange-like fees similar to what you see with Visa and MasterCard,” Kelly says. Adds Wagner: “We set acquirer pricing to Global and [First Data] and from there market forces take over.” Once the new arrangement goes live, Global will switch out all Discover transactions to Discover for authorizations, but will handle settlement, chargeback, and customer-service functions itself. In this sense, it will function much as it does with Visa and MasterCard, says Kelly. Currently, merchants deal directly with Discover for all acquiring functions, much as they do with American Express Co., though Discover has for years had referral agreements with acquiring processors. Wagner says Discover hopes through these new processor deals to bring greater efficiency to the point of sale for merchants that now must make separate agreements with Discover on the one hand and the bank cards on the other. “We're taking out redundancies and inefficiencies,” he says. The Global deal differs from the one Discover cut with First Data in that Global will buy up the merchant contracts covering the relationships it is taking over from Discover. This includes rights to all revenue streams from those merchants. Discover's Wagner, though, doesn't rule out the possibility that a similar agreement might be reached with Denver-based First Data. “It's a likely assumption,” he says. Global expects to begin merchant conversion in the first quarter, and will convert segments of merchants over a period of time that could take until the end of 2007. It will close on the acquisition of the merchant contracts as each segment is converted, Kelly says.
