Discover 2011 Annual Report Download - page 14

2
Direct Banking
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 credit card balances makes up approximately 90%
of our total interest income. We also charge customers other fees, including fees for late payments, balance transfer transactions
and cash advance 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.
Our credit card customers' transactions in the U.S. 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 is set
forth in contractual agreements with each such merchant and is based on 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. See "Marketing - Rewards/Cashback Bonus" for further discussion of our programs offered.
The following chart shows the Discover card transaction cycle as processed on the Discover Network:
Student Loans
We help students and parents finance education costs at select schools by offering private student loans and related
services. Private student loans are intended to supplement any financial aid that may be available through grants, scholarships
or under the federal government's Direct Lending Program. Historically, we have offered both federal and private student loans.
However, effective July 2010, federal legislation required all federal student loans to be made directly by the federal
government, and as of November 30, 2011, our remaining federal student loan portfolio was classified as loans held for sale. In
December 2011, we agreed to sell substantially all of our remaining federal student loan portfolio. For more information, see
"Management's Discussion and Analysis of Financial Condition and Results of Operations - Recent Developments."
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