Discover’s Credit Volumes Take a Hit, but the Pulse Debit Network Posts a 12% Increase

Discover Financial Services on Wednesday became the first major payment network operator to report its second-quarter performance, and things weren’t pretty on the credit card side in the wake of the Covid-19 pandemic. Volumes on Discover’s Pulse debit network, however, rose by double digits.

Taking the biggest hit was the Diner’s Club International network, which posted quarterly volume of $4.34 billion, down 49% from $8.47 billion a year earlier. Diner’s Club volume depends heavily on travel-and-entertainment spending outside of North America and is especially sensitive to the slowdown in business activity caused by the pandemic.

Reflecting reduced Discover credit card purchase volume, volume on the proprietary Discover Network declined 15% to $32.3 billion from $37.9 billion in 2019’s second quarter.

But with consumers using debit cards more during the pandemic months, Pulse posted volume of $52.9 billion, up 12% from $47.4 billion a year earlier. Pulse’s higher volume was “driven by higher average spend per transaction related to the pandemic, the impact of [federal] stimulus funds available to consumers, and growth in e-commerce transactions,” Riverwoods, Ill.-based Discover said in an investor presentation.

The fourth component of Discover’s Payment Services unit, Network Partners, saw its volumes rise 22% to $7.28 billion, driven mainly by growth in the AribaPay business-to-business operation. 

The four networks combined posted volume of $96.8 billion, down 3% from $99.7 billion a year earlier. Quarterly transactions on the Discover Network dropped 16% to 565 million, but Pulse saw its transaction volume rise 2% to 1.21 billion. In all, transactions totaled 1.77 billion, down 4% from 1.85 billion a year earlier.

Reduced transaction volume helped push gross discount and interchange revenue down 18% year-over-year to $622 million. Discover’s Payment Services unit, which includes the network operations, reported pre-tax income of $23 million, a 50% decrease from $46 million a year earlier.

Discover generates most of its income from credit card, student, and personal loans. The company added $1.3 billion to its provision for credit losses and reported a net loss of $368 million compared with net income of $753 million in 2019’s second quarter.