Discover 2009 Annual Report Download - page 14

our geographic distribution, see Note 5: Loan Receivables to our consolidated financial statements and for quantitative
information concerning our royalty revenue, see Note 18: Other Income and Other Expense.
Below are descriptions of the principal products and services of each of our reportable segments.
Direct Banking
Our Direct Banking segment, formerly referred to as our U.S. Card segment, includes Discover card-branded credit
cards issued to individuals and small businesses on the Discover Network and other consumer products and services,
including personal loans, student loans, prepaid cards and other consumer lending and deposit products offered through
our Discover Bank subsidiary.
Credit Cards
We offer credit cards to consumers and small businesses. Our credit card customers are permitted to “revolve” their
balances and repay their obligations over a period of time and at an interest rate set forth in their cardmember
agreements, which may be either fixed or variable. The interest that we earn on revolving balances is our primary source
of revenue. We also charge customers other fees, including fees for late payments, balance transfer transactions, cash
advance transactions and foreign currency transactions. We also offer various products and services in connection with
our credit card business, such as Payment Protection, Identity Theft Protection, Wallet Protection, Credit ScoreTracker and
other fee-based products. Payment protection services are also available to our personal loan customers.
Our credit card customers’ transactions are processed over the Discover Network. Where we have a direct relationship
with a merchant, which is the case with respect to our large merchants representing a majority of Discover card sales
volume, we receive discount and fee revenue from merchants. Discount and fee revenue is based on pricing that varies
due to a number of factors including industry practices, special marketing arrangements, competitive pricing levels and
merchant size.
Where we do not have a direct relationship with a merchant, we receive acquirer interchange and assessment fees
from the merchant acquirer that settles transactions with the merchant. The amount of this fee is based on a standardized
schedule and can vary based on the type of merchant or type of card (e.g., consumer or business). Most of our cards
offer the Cashback Bonus rewards program, the costs of which we record as a reduction of discount and interchange
revenue.
The following chart shows the Discover card transaction cycle as processed on the Discover Network:
*
Cardmember makes
payment to Discover
Discover bills
Cardmember for
amount of transaction
Direct Merchant
Discover reimburses
Merchant for amount
of transaction less
discount fee
Indirect Merchant
Acquirer reimburses
Merchant for amount
of transaction less
discount fee
Merchant submits
transaction to Acquirer
Acquirer submits
transaction to Discover
This is a simplified illustration of a typical credit card transaction. It does not reflect certain operations and assessment fees, cash or balance
transfer transactions, authorizations, dis
p
utes or other s
p
ecifics.
Discover
Cardmember
Discover Network/
Discover Bank Merchant Acquirer
Merchant
Merchant submits
transaction to Discover
Discover reimburses
Acquirer for amount of
transaction less acquirer
interchange fee
Cardmember makes purchase at
Merchant accepting Discover
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