Discover 2009 Annual Report Download - page 45

We depend, in part, on third parties for the development of and access to new technologies. We expect that new
services and technologies relating to the payments business will continue to appear in the market, and these new services
and technologies may be superior to, or render obsolete, the technologies that we currently use in our card products and
services. As a result, our future success may be dependent on our ability to identify and adapt to technological changes
and evolving industry standards and to provide payment solutions for our customers, merchants and financial institution
customers.
Difficulties or delays in the development, production, testing and marketing of new products or services may be caused
by a number of factors including, among other things, operational, capital and regulatory constraints. The occurrence of
such difficulties may affect the success of our products or services, and developing unsuccessful products and services
could result in financial losses, as well as decreased capital availability. In addition, the new products and services
offered may not be attractive to our customers and merchant and financial institution customers. Also, success of a new
product or service may depend upon our ability to deliver it on a large scale, which may require a significant capital
investment that we may not be in a position to make. If we are unable to successfully introduce and maintain new income-
generating products and services, it may impact our ability to compete effectively and materially adversely affect our
business and earnings.
We rely on technology and on third parties to deliver services. If key technology platforms become obsolete, or if we
face difficulties processing transactions or in managing our relationships with third-party service providers, our
revenue or results of operations could be materially adversely affected.
We have a large technology staff utilizing current technology. There is no assurance that we will be able to sustain our
investment in new technology to avoid obsolescence of critical systems and applications. Further, our transaction
authorization and settlement systems, and our clearing system for transactions between Diners Club network licensees,
may encounter service interruptions due to system or software failure, fire, natural disasters, power loss, disruptions in
long distance or local telecommunications access, terrorism or accident. Some of our transaction processing systems are
operated at a single facility and could be subject to service interruptions in the event of failure. Our services could be
disrupted by a natural disaster or other problem at any of our primary or back-up facilities or our other owned or leased
facilities.
We also depend on third-party service providers for many aspects of the operation of our business. For example, we
depend on third parties for the timely transmission of information across our data transportation network and for other
telecommunications, processing, remittance and technology related services, including ancillary transaction processing
services for the PULSE Network and authorization, clearing and settlement services for the Diners Club network.
Regardless of whether as a result of natural disaster, operational disruption, terrorism, termination of its relationship with
us, or any other reason, if a service provider fails to provide the communications capacity or deliver services that we
require or expect, the failure could interrupt our services and operations and hamper our ability to process customers’
transactions in a timely and accurate manner or to maintain thorough and accurate records of those transactions. Such a
failure could adversely affect the perception of the reliability of our networks and services and the quality of our brands,
and could materially adversely affect our transaction volumes, our revenues and/or our results of operations.
Merchant defaults may adversely affect our business, financial condition, cash flows and results of operations.
As an issuer and merchant acquirer in the United States on the Discover Network, and as a holder of certain merchant
agreements internationally for the Diners Club network, we may be contingently liable for certain disputed credit card
sales transactions that arise between customers and merchants. If a dispute is resolved in the customer’s favor, we will
cause a credit or refund of the amount to be issued to the customer and charge back the transaction to the merchant or
merchant acquirer. If we are unable to collect this amount from the merchant or merchant acquirer, we will bear the loss
for the amount credited or refunded to the customer. Where the purchased product or service is not provided until some
later date following the purchase, such as an airline ticket, the likelihood of potential liability increases. For the years
ended November 30, 2009 and 2008, we had $5.8 million and $10.5 million, respectively, of losses related to merchant
chargebacks.
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