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With the credit crisis still blowing at gale force, Discover Financial Services managed to grow its second-quarter transaction and dollar volume thanks mostly to its Pulse PIN-debit network and Diners Club International more than offsetting weak credit card volume. Riverwoods, Ill.-based Discover reported Thursday that it handled a total of 1.13 billion transactions in the quarter ended May 31, up 5.1% from 1.07 billion transactions in fiscal 2008's second quarter. But transactions on the Discover Network fell 1.2% to 366.3 million from 370.6 million a year earlier. In contrast, volume on the Discover-owned Pulse network grew 8.4% to 762.2 million transactions from 703.4 million in the 2008 period. Dollar volumes brought out even more dramatic differences within the Discover family. Total volume grew 10.6% to $58.7 billion from $53.1 billion in fiscal 2008's second quarter. But volume on Discover-branded cards issued by third-party financial institutions plunged 16.4% to $1.34 billion from $1.60 billion a year earlier. And proprietary Discover Network credit card volume dipped 7% to $22.0 billion from $23.6 billion in the year-earlier period. Sales volume on the Discover Card fell 4% to $21 billion. Pulse's dollar-volume increase of 4.7% to $29.1 billion from $27.8 billion was less than Pulse's transaction increase, but nonetheless positive. And Diners Club, which Discover bought in June 2008, brought in $6.24 billion in new volume. Discover chairman and chief executive David W. Nelms noted at a conference call for analysts that dollar volume on Discover-branded cards fell in part because of lower gas prices this year and also because Discover hasn't been running a gasoline-targeted promotion as it did earlier. Gasoline purchases account for about 10% of Discover volume. But he told analysts that he expects total volumes to pick up in the second half. “Our Pulse volumes were at an all-time record this quarter, so I felt good about that,” he said in response to a question. “The 5% year-over-year [total network] volume increase is lower than we'd like, and I'm hopeful that the full year, including all four quarters compared to last year, gets into that double-digit volume increase.” Nelms also said Discover continues to add merchants thanks to its program of enlisting bank card merchant acquirers to sign and service new Discover acceptors. “We are thick and heavy on increasing our acceptance of our card,” he said. While most of the nation's acquirers are now participating, it will still take time for many of the merchants they're bringing on board to turn on Discover acceptance, he said. One analyst asked Nelms about the bills pending in Congress that would regulate interchange (Digital Transactions News, June 12). Nelms noted that the card industry “is going through a lot of change” and he would prefer things to “settle out” a bit before Congress steps in. “I'm not crazy about some of the suggestions, and I'm not sure I see a need,” he said. Higher reserves and losses took a toll of Discover's earnings, which came in at $225.8 million, down 3.6% from a year earlier. Discover's antitrust settlement with Visa Inc. and MasterCard Inc. (Digital Transactions News, Oct. 28, 2008) brought in $295 million after taxes.
