Discover 2010 Annual Report Download - page 37

industry decrease our opportunities for new business and may result in the termination of existing business relationships if
a business partner is acquired or goes out of business. In addition, as a result of this environment, financial institutions
may have decreased interest in engaging in new card issuance opportunities or expanding existing card issuance
relationships, which would inhibit our ability to grow our payment services business.
If we are unsuccessful in maintaining the Diners Club network and achieving card acceptance across our networks, we
may be unable to sustain and grow our international network business.
In 2008, we acquired the Diners Club network, brand, trademarks, employees, and license agreements. We have
made significant progress toward, but have not completed, achieving card acceptance across the Diners Club network,
the Discover Network and PULSE to allow Discover customers to use their cards at merchant and ATM locations that
accept Diners Club cards around the world and to allow Diners Club customers to use their cards on the Discover
Network in North America and on the PULSE network domestically and internationally.
The success of our Diners Club business depends upon our ability to maintain the full operability of the Diners Club
network for existing Diners Club cardholders, network licensees and merchants. While a significant portion of Diners Club
support functions were successfully moved to us from Citigroup in 2010, we continue to rely on the assistance of Citigroup
during a transition period for certain network and operational support services. If we were to lose the assistance of
Citigroup, we may face difficulty maintaining operations at the same level. In addition, Citigroup owns and operates
network licensees generating a significant share of the Diners Club network sales volume. Citigroup has been reducing
assets outside its core businesses, including certain Diners Club businesses, by selling its ownership interest. If Citigroup
were to discontinue its support of a significant number of or key Diners Club network licensees, we may face difficulty
maintaining and growing our international network.
The success of our Diners Club business depends upon the cooperation and support of the network licensees that issue
Diners Club cards and that maintain a merchant acceptance network. As is the case for other card payment networks, Diners
Club does not issue cards or determine the terms and conditions of cards issued by the network licensees. Each licensee issuer
determines these. Further, unlike the Discover Network, we have only a small number of direct merchant relationships in the
Diners Club network. Instead, we rely on network licensees located outside the United States to help us sustain and grow our
international business. As a result of a number of factors, including any difficulties in achieving card acceptance across our
networks, network licensees may choose not to renew the license agreements with us when their terms expire. In addition, the
increasingly competitive marketplace for cross-border issuance and acceptance of credit cards may result in lower
participation fees for the Diners Club network. In addition, many of the merchants in the acceptance network, primarily small
and mid-size merchants, may not be contractually committed to the network licensees for any period of time and may cease to
participate in the Diners Club network at any time on short notice. If we are unable to continue our relationships with network
licensees or if the network licensees are unable to continue their relationships with merchants, our ability to maintain or
increase revenues and to remain competitive would be adversely affected.
We rely upon numerous other network partners for merchant acceptance for existing Diners Club customers. We have
rerouted almost all merchant transactions for foreign Diners Club cards transacting in North America from the
MasterCard acceptance network to the Discover Network, and we expect to complete this transition in 2011. If we are
unable to continue to offer acceptable North American merchant acceptance to Diners Club customers, we may
experience decreased transaction volume, which would reduce our revenues. The long-term success of our acquisition of
Diners Club depends upon achieving card acceptance across our networks, which could include higher overall costs or
longer timeframes than anticipated. If we are unable to successfully achieve card acceptance across our networks, we
may be unable to achieve the synergies we anticipate and grow our business internationally.
The success of our acquisition of The Student Loan Corporation depends upon our ability to maintain the full
operability of and integrate the new business. If we fail to do so, we may be unable to sustain and grow our student
loan business.
On December 31, 2010, we purchased The Student Loan Corporation (“SLC”), which significantly increased the size of
our student loan business, adding approximately $4.0 billion in private student loans (before the application of purchase
accounting) to our portfolio of $1.0 billion of private student loans at November 30, 2010. The success of this acquisition
depends upon our ability to maintain the SLC business at its current level and manage the risks resulting from our
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