Discover 2011 Annual Report Download - page 46

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We rely on technology to deliver services. If key technology platforms become obsolete, or if we experience disruptions,
including difficulties in our ability to process transactions, our revenue or results of operations could be materially
adversely affected.
Our ability to deliver services to our customers and run our business in compliance with applicable laws and regulations
may be affected by the functionality of our technology systems. The implementation of technology changes and upgrades to
maintain current and integrated systems may, at least temporarily, cause disruptions to our business, including, but not limited
to, systems interruptions, transaction processing errors and system conversion delays, all of which could have a negative impact
on us. In addition, our transaction processing systems and other operational systems may encounter service interruptions at any
time due to system or software failure, natural disaster or other reasons. Such services could be disrupted at any of our primary
or back-up facilities or our other owned or leased facilities. We also outsource the maintenance and development of our
technological functionality in many cases to third parties, who may experience errors or disruptions that could adversely impact
us and over which we may have limited control. In addition, there is no assurance that we will be able to sustain our investment
in new technology to avoid obsolescence of critical systems and applications. A failure to maintain current technology, systems
and facilities or to control third-party risk, could cause disruptions in the operation of our business, which 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, 2011 and 2010, we
had $1.6 million and $2.3 million, respectively, of losses related to merchant chargebacks.
Our success is dependent, in part, upon our executive officers and other key employees. If we are unable to recruit, retain
and motivate key officers and employees to manage our business well, our business could be materially adversely affected.
Our success depends, in large part, on our ability to retain, recruit and motivate key officers and employees to manage
our business. Our senior management team has significant industry experience and would be difficult to replace. We believe we
are in a critical period of competition in the financial services and payments industry. The market for qualified individuals is
highly competitive, and we may not be able to attract and retain qualified personnel or candidates to replace or succeed
members of our senior management team or other key personnel. We may be subject to restrictions under future legislation or
regulation limiting executive compensation. For example, the federal banking agencies issued guidance on incentive
compensation policies at banking organizations and the Reform Act imposes additional disclosures and restrictions on
compensation. These restrictions could negatively impact our ability to compete with other companies in recruiting and
retaining key personnel and could impact our ability to offer incentives that motivate our key personnel to perform. If we are
unable to recruit, retain and motivate key personnel to manage our business well, our business could be materially adversely
affected.
Damage to our reputation could damage our business.
Recently, financial services companies have been experiencing increased reputational risk as consumers protest and
regulators scrutinize practices of such companies to maintain or increase business and revenues. Maintaining a positive
reputation is critical to our attracting and retaining customers, investors and employees. Damage to our reputation can therefore
cause significant harm to our business and prospects. Harm to our reputation can arise from numerous sources, including,
among others, employee misconduct, litigation or regulatory outcomes, failing to deliver minimum standards of service and
quality, compliance failures, and the activities of customers and counterparties. Negative publicity regarding us, whether or not
true, may result in customer attrition and other harm to our business prospects.
We may be unsuccessful in promoting and protecting our brands or protecting our other intellectual property, or third
parties may allege that we are infringing their intellectual property rights.
The Discover, PULSE and Diners Club brands have substantial economic and goodwill value. Our success is dependent
on our ability to promote and protect these brands and our other intellectual property. Our ability to attract and retain customers
is highly dependent upon the external perception of our company and brands. Our brands are licensed for use to business
partners and network participants, some of whom have contractual obligations to promote and develop our brands. The value of
our brands and our overall business success may be adversely affected by actions of our business partners and network
participants that diminish the perception of our brands.
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