18 Months on, Discover Says Its Acquirer Program Is on Target

Nearly a year and a half after first enlisting bank-card merchant acquirers to sign small and mid-size merchants for Discover acceptance, Discover Financial Services LLC says the program is doing just what the company intended.

“We’ve seen excellent results,” Matt Johanson, vice president of acquirer relations at Riverwoods, Ill.-based Discover, tells Digital Transactions News, though he won’t give numbers.

Discover, the No. 4 general-purpose card network by charge volume, built a proprietary network of about 4 million merchants in the 22 years since its inception, about two-thirds the size of the U.S. Visa/MasterCard networks. While achieving comprehensive acceptance among large merchants, Discover didn’t match the reach of the bank cards among smaller merchants, a group generally regarded by acquirers as less price sensitive than the big guys.

To close that gap Discover last year enlisted First Data Corp. as its first outside acquirer (Digital Transactions News, July 14, 2006). Since then Discover has publicly announced as partners 11 more bank-owned acquirers, big non-bank acquirers, and independent sales organizations. Also on board is Total System Services Inc.’s TSYS Acquiring Solutions, a large merchant processor that, unlike the others, does not own merchant accounts.

There are other deals that haven’t been disclosed, including First Data merchant-alliance partners. Two more partnerships are pending, according to Johanson. “We’ve announced players accounting for more than 90% of bank card volume,” he says. The upshot for the processors is more revenue-generating transactions.

In a typical deal, Discover sells some of its small- and mid-sized merchant accounts to the partner acquirer. As the card issuer, Discover receives interchange on Discover transactions at those merchant locations and locations of new merchants signed by the partner. While similar to the way things work in the bank card world, it’s a sharp departure from the closed-loop network model Discover used exclusively in the U.S. until last year.

The financial result, however, is still positive for Discover, according to Johanson. “We do believe we have a business model that’s very viable, and one that will really help Discover grow its acceptance footprint,” he says. Discover continues to own and directly manage its large merchant accounts.

The selling point for smaller merchants is one statement and one deposit for bank card and Discover transactions, as well as just one number to call for customer service. That overcomes the objections of merchants that considered but rejected Discover in the past because of the extra hassle, according to Vin Perrelli, president of third-party acquiring and chief U.S. operating officer for Atlanta-based Global Payments Inc., one of Discover’s early partners.

“I think merchants in general like things as easy as possible,” says Perrelli. “Before you didn’t really go out and even pitch Discover. It usually wasn’t your lead-in.” Global, one of the nation’s largest merchant processors, this week said four of its larger affiliates among independent sales organizations–EVO Merchant Services, Mercury Payment Systems LLC, North American Bancard, and Total Merchant Services–are now programmed for Discover acceptance, a bit earlier than expected.

After the holiday season, Global will resume programming its other ISOs to take Discover. Payment processors and networks avoid making major operational changes during the heavy Christmas shopping period.

After extensive programming, Global brought its directly operated merchant portfolio up for Discover acceptance in September. Merchants in Global’s Comerica Bank alliance also will be able to accept Discover.

Perrelli says that because it’s so new, he doesn’t yet have a good read on the amount of Discover volume coming through Global. He anticipates, however, that new merchants will bite because of the smoother operational procedures and competitive pricing. “Discover was pretty good from an interchange standpoint at making sure they didn’t harm the merchant,” he says.