Discover Buys Pulse for $311 Million, Gains Major PIN Debit Position

In an announcement with far-reaching implications for the electronic payments business, Discover Financial Services Inc. announced today it is buying the Houston-based Pulse EFT Association for $311 million “and other strategic value.” The deal, which the parties say will close by mid January pending approval from regulators and Pulse members, will result in Pulse becoming a business unit of the Riverwoods, Ill.-based card network, which is owned by New York investment firm Morgan Stanley. Pulse will retain its brand, management personnel, and Houston headquarters, and participating banks will continue to have a voice in the direction of the network through a “newly created oversight committee,” says Stan Paur, long-time president and chief executive of Pulse, in the statement released today. The merger combines a card company with 50 million credit card accounts and 4 million merchant locations with a major regional ATM and point-of-sale PIN debit network serving 4,100 member banks, credit unions, and savings institutions. The acquisition also hands Discover, which was started 20 years ago by Sears, Roebuck & Co. and has been up to now almost exclusively a credit card issuer and acquirer, a prime position in the sizzling market for PIN debit transactions. Both Discover and Pulse officials say in their announcement today that the combination will create benefits for banks, merchants, and cardholders of the two networks. Specifically, they refer to ways in which Discover's signature-based network complements Pulse's strength in PIN debit, and to the ways in which “Discover's positive merchant relationships” can be used to expand the two systems in tandem. While growth in ATM transactions has slowed in recent years, PIN debit transactions at merchant locations are one of the fastest-growing markets in electronic payments. Transaction volumes are expanding 21% annually as merchants, hoping consumers will use PIN debit rather than signature-debit cards, install PIN pads. PIN debit transactions typically cost merchants significantly less than signature-debit payments. Created by Texas banks more than two decades ago, Pulse, along with NYCE Corp. and Star Systems, is one of the few remaining regional electronic funds transfer networks. Earlier this year, it completed work on a new, state-of-the-art switch to handle current and expected transaction growth. The network links 250,000 ATMs and 3.3 million POS terminals around the country, and has its logo on 90 million cards. Metavante Corp. acquired NYCE this summer, and Star was acquired by First Data Corp. earlier this year.