Discover 2009 Annual Report Download - page 16

Diners Club
Our Diners Club business maintains an acceptance network in over 185 countries and territories through its
relationships with 79 licensees, which are generally financial institutions. Diners Club itself does not directly issue credit
cards to consumers, but grants its licensees the right to issue Diners Club branded credit cards and/or provide card
acceptance services. Our licensees pay us royalties for the right to use the Diners Club brand, which is our primary source
of Diners Club revenues. Diners Club also earns revenue from providing various support services to its licensees, including
processing and settlement of cross border transactions. Diners Club also offers licensees a centralized service center and
internet services.
When Diners Club cardholders use their cards outside their host country or territory, transactions are routed and settled
over Diners Club’s network through its centralized service center. In order to increase merchant acceptance in certain
targeted countries and territories, Diners Club is working with merchant acquirers to offer Diners Club acceptance to their
merchants. These acquirers are granted licenses to market the Diners Club brand to existing and new merchants. As we
continue to work toward achieving card acceptance across our networks, we expect Discover customers to be able to use
their cards at merchant and ATM locations that accept Diners Club cards in a growing number of countries around the
world, and Diners Club customers to be able to use their cards on the Discover Network in North America and on the
PULSE Network domestically and internationally.
Third-Party Issuing Business
We have agreements related to issuing credit, debit and prepaid cards with a number of other financial institutions for
issuance of card products on the Discover Network. We refer to these financial institutions as “third-party issuers.” We
earn merchant discount and acquirer interchange revenue, net of issuer interchange paid, plus assessments and fees for
processing transactions for third-party issuers of signature cards on the Discover Network.
The following chart shows the third-party issuer transaction cycle:
* * *
**
*
Third Party Issuer
bills Cardholder
for amount of
transaction
Cardholder makes
payment to Third
Party Issuer
Third Party Issuer
reimburses Discover for
amount of transaction:
Discover pays issuer
interchange fee
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 Acquire
r
Acquirer submits
transaction to Discover
Network
Transaction submitted
to Third Party Issuer
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, disputes or other specifics.
PULSE has a similar transcation cycle.
Third Party
Issuer
Third Party Issuer
Cardholder
Discover Network** Merchant Acquirer
Merchant
Merchant submits
transaction to Discover
Discover reimburses
Acquirer for amount
of transaction less
acquirer interchange fee
Cardholder makes purchase at
Merchant accepting Discover
The discussion below provides additional detail around the supporting functions of our two segments. The consumer
lending, deposit and other consumer products issued through our Direct Banking segment, formerly referred to as our
U.S. Card segment, require significant investments in credit risk management, marketing, and customer assistance and
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