Discover 2011 Annual Report Download - page 16

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4
When PULSE enters into a network-to-network agreement with another debit network, the other network’s participating
financial institutions’ debit cards can be used at terminals in the PULSE network. PULSE does not have a direct relationship
with these financial institutions and the other network bears the financial responsibility for transactions of those financial
institutions' cardholders and for ensuring compliance with PULSE’s operating rules.
Diners Club
Our Diners Club business maintains an acceptance network in over 185 countries and territories through its relationships
with over 80 licensees, which are generally financial institutions. We do not directly issue Diners Club credit cards to
consumers, but grant our 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.
We also earn revenue from providing various support services to our Diners Club licensees, including processing and
settlement of cross border transactions. We also provide a centralized service center and internet services to our licensees.
When Diners Club cardholders use their cards outside the host country or territory of the issuing licensee, transactions
are routed and settled over the Diners Club network through its centralized service center. In order to increase merchant
acceptance in certain targeted countries and territories, we are working with merchant acquirers to offer Diners Club and
Discover acceptance to their merchants. These acquirers are granted licenses to market the Diners Club brands to existing and
new merchants. As we continue to work toward achieving full card acceptance across our networks, Discover customers have
begun to use their cards at an increasing number of merchant and ATM locations that accept Diners Club cards around the
world. Diners Club cardholders with cards issued by licensees outside of North America are now 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:
The discussion below provides additional detail concerning the supporting functions of our two segments. The credit
card, student loan, personal loan and deposit products issued through our Direct Banking segment require significant
investments in credit risk management, marketing, customer service and technology, whereas the operation of the Discover
Network and our Payment Services business requires that we invest in technology as well as relationships with issuers,
merchants and merchant acquirers.
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