Discover 2010 Annual Report Download - page 15

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. 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 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, 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 integrating and expanding card acceptance across our networks, we
expect Discover customers to be able to use their cards at an increasing number of merchant and ATM locations that
accept Diners Club cards in a growing number of countries around the world, and Diners Club customers with cards
issued by licensees outside of North America 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.
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 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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