Discover Completes Acquiring Hat Trick, More Processors in Wings

Discover Financial Services LLC last week completed a summer hat trick of partnerships with bank card merchant acquirers to broaden acceptance of its brand, and the card unit of Morgan Stanley says it's not finished. Discover announced its latest deal, involving Atlanta-based RBS Lynk Inc., one day after news broke of a pact with Global Payments Inc. (Digital Transactions News, Sept. 11). The first involved leading merchant processor First Data Corp. (Digital Transactions News, July 14). And, as it indicated it would do in July, Riverwoods, Ill.-based Discover continues to talk with more leading acquirers. “We do expect to be announcing, hopefully, a few more agreements before the end of the year,” says Gerry Wagner, vice president of merchant sales. Though they differ in some details, all three pacts involve the outside acquirers signing small and mid-sized merchants for Discover acceptance, with the acquirers owning the new accounts and buying unspecified numbers of Discover's smaller merchant accounts. Discover says it intends to continue owning its large merchant accounts directly. The RBS Lynk deal essentially has three components, according to Thomas Konz, senior vice president of marketing. The first, which will take effect by the end of November, involves making Discover acceptance a core RBS Lynk service in addition to Visa/MasterCard acceptance for all new merchants going forward. Second, starting in early 2007 RBS Lynk will roll out Discover acceptance to its existing merchants who don't take the brand. And third, RBS Lynk has an option to take over the Discover relationships of merchants in its portfolio that already take Discover. The sales pitch for merchants is straightforward: instead of dealing with two processors, they'll only need to deal with one. And they'll get combined statements listing Visa/MasterCard and Discover transaction activity. RBS Lynk will be responsible for processing, settlement, risk management, and customer service. “They don't have to settle twice,” says Konz. “It's basically a consolidation that we'll be able to provide.” Discover will set wholesale prices, but RBS Lynk will set the discount rates that merchants actually pay. Even though Discover won't own as many accounts as it otherwise would as its acceptance base grows, the revenue effect still will be positive, according to Wagner. Konz wouldn't reveal RBS Lynk's merchant base or transaction numbers, but says his firm ranks “near the top 10.” Discover says it has about 4.5 million acceptance sites, but those include ATMs as well as point-of-sale locations. First Data, according to a recent TowerGroup report, commands 51% of U.S. transaction volume and Global, which TowerGroup ranks as No. 5, 5%. “We were looking at where we could get the most coverage, who out there has command of market share, and secondarily who has a good footprint in small to mid-sized merchants,” Wagner says, adding that “we've had just a great relationship with Lynk over many years.” RBS Lynk is a subsidiary of Rhode Island-based Citizens Financial Group, which is owned by United Kingdom-based Royal Bank of Scotland Group.