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Dollar volume on Discover Financial Services’ Pulse electronic funds transfer network declined 9% in the second quarter, but that was an improvement from the first quarter’s 15% plunge and the bottom is in sight, Discover said on Tuesday. Meanwhile, the impact of grocery stores’ reluctance to accept credit cards for sales of general-purpose prepaid debit cards eased off a bit in the quarter for prepaid card provider Blackhawk Network Holdings Inc.
Pulse’s second-quarter volume came in at $33.9 billion versus $37.2 billion for the year-earlier period and $34.7 in the first quarter. Riverwoods, Ill.-based Discover attributed the declines to the loss of a single large debit card issuer, which the company hasn’t identified.
But as he did three months ago, Discover chief executive David W. Nelms predicted that the slippage will run its course in the coming months. “We expect Pulse volumes will stabilize around the end of the year,” Nelms told analysts in a Tuesday afternoon conference call to review second-quarter earnings, according to a transcript from Thomson Reuters StreetEvents.
Nelms also noted that things were brighter on Discover’s other networks. Diners Club International saw its volume grow 6% year-over-year to $7.2 billion, while volume on the proprietary Discover network increased 2% to $31.8 billion. Volume from Discover’s network partners grew 5% to $3.7 billion.
Thanks to its partnerships with payments networks and related firms in both the U.S. and abroad, Discover’s acceptance base is nearly at parity with Visa and MasterCard’s, which creates opportunities for further volume growth, according to a report from Chicago-based investment firm William Blair & Co.
“Discover network acceptance locations globally have grown from 5 million to 35 million over the past five years, which is roughly 98% of Visa and MasterCard’s locations,” analyst Robert Napoli said in the report. “Discover is making [an] effort to monetize its network by forming strategic partnerships with companies interested in leveraging Discover’s global acceptance network.”
Meanwhile, Pleasanton, Calif.-based Blackhawk said in its second-quarter earnings report Tuesday that the impact of EMV on its U.S. retail segment “was slightly lower than forecast.” Blackhawk noted earlier this year that the recent reluctance of many grocery stores to accept credit card payments for prepaid card purchases, especially open-loop gift cards, was costing it millions of dollars in lost revenues and profits.
Criminals like to buy prepaid cards using counterfeit or stolen credit cards because such purchases enable them to quickly get goods and cash, and they’ve found that grocery stores that haven’t yet upgraded to EMV chip card-accepting terminals in the wake of the card networks’ Oct. 1, 2015, liability shifts are especially vulnerable. The liability shifts make merchants responsible for counterfeit losses if their point-of-sale terminals can’t read chip cards. In response, some non-EMV-accepting grocers have put restrictions on prepaid card sales, including purchase limits or by requiring cash or regular debit cards for purchases, Blackhawk said.
The company reported an $11.3 million loss for the second quarter ended June 18 compared with a $2.9 profit in 2015’s second quarter. Contributing to the loss was a 10% year-over-year decline in U.S. adjusted operating revenues because of the EMV impact. In all, EMV’s estimated impact was $14 million on adjusted operating revenues and $12 million on adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), the company said.
As it did in its first-quarter report, Blackhawk said the EMV impact will ease as laggard grocers install chip card readers throughout the year. “We continue to believe that the negative impact of EMV on U.S. retail is largely a 2016 event,” the second-quarter report says.
