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John Owen, a retired banker and member of Discover Financial Services Inc.’s board of directors, has been appointed interim chief executive and president, replacing Roger Hochschild, who resigned Monday after five years running the company.
Riverwoods, Ill.-based Discover announced Hochschild’s departure following the card network’s disclosure in an earnings call last month that it had set aside $365 million on its balance sheet to compensate merchants and acquirers that Discover had been overcharging for transactions. The practice, which involved misclassification of certain cards into higher-rate tiers, dated as far back as 2007, company executives said on the July call.
Executives on that call also said they were discussing the matter with regulators. They added the company was dealing with an investigation by the Federal Deposit Insurance Corp. on compliance issues that are apparently unrelated to the transaction-overcharge flub.
Monday’s shakeup includes Hochschild’s departure from Discover’s board, though at least some industry experts express doubt the management move, coupled with the compensation allowance, will placate merchants. “It’s a hot, hot [topic], and somebody has to go on the chopping block,” says a veteran processing consultant who asked not to be identified. “But I don’t think that one sacrificial lamb will be enough.”
For its part, Discover’s board did not comment on the matter in announcing the management change. “The board and Roger have agreed that now is the right time to transition leadership, and we thank Roger for his 25 years of service to the company,” said board chairman Tom Maheras, in a statement. The company announced early Tuesday it will hold a “business update call” early Thursday.
More broadly, some observers see the overcharge issue at Discover as potentially explosive for merchants, many of which have complained for years about the cost of card acceptance. “It’s another nail in the coffin of interchange,” says the processing consultant, referring to the percentage of each transaction merchants pay to bank card acquirers and card companies like Discover and American Express.
Owen’s experience might be of service to Discover as it confronts the fallout from the pricing and regulatory issues. He joined Discover’s board last year following a career in finance and technology that included service as chief operating officer at Regions Financial Corp., from which he retired in 2021.
