Discover 2010 Annual Report Download - page 45

Customer data also may be stored on systems of third-party service providers and merchants that may have inadequate
security systems. Third-party carriers regularly transport customer data, and may lose sensitive customer information.
Unauthorized access to our networks or any of our other information systems potentially could jeopardize the security of
confidential information stored in our computer systems or transmitted by our customers or others. As we increase
acceptance of the Discover card internationally, we may experience additional risks related to security systems. If our
security systems or those of merchants, processors or other third-party service providers are compromised such that this
confidential information is disclosed to unauthorized parties, we may be subject to liability. For example, in the event of a
security breach, we may incur losses related to fraudulent use of cards issued by us as well as the operational costs
associated with reissuing cards. Although we take preventive measures to address these factors, such measures are costly
and may become more costly in the future. Moreover, these measures may not protect us from liability, which may not be
adequately covered by insurance, or from damage to our reputation.
The financial services and payment services industries are rapidly evolving, and we may be unsuccessful in
introducing new products or services on a large scale in response to this evolution.
The financial services and payment services industries experience constant and significant technological changes, such
as continuing development of technologies in the areas of smart cards, radio frequency and proximity payment devices,
electronic commerce and mobile commerce, among others. The effect of technological changes on our business is
unpredictable.
We depend, in part, on third parties for the development of and access to new technologies. We expect that new
services and technologies relating to the payments business will continue to appear in the market, and these new services
and technologies may be superior to, or render obsolete, the technologies that we currently use in our card products and
services. As a result, our future success may be dependent on our ability to identify and adapt to technological changes
and evolving industry standards and to provide payment solutions for our customers, merchants and financial institution
customers.
Difficulties or delays in the development, production, testing and marketing of new products or services may be caused
by a number of factors including, among other things, operational, capital and regulatory constraints. The occurrence of
such difficulties may affect the success of our products or services, and developing unsuccessful products and services
could result in financial losses, as well as decreased capital availability. In addition, the new products and services
offered may not be attractive to our customers and merchant and financial institution customers. Also, success of a new
product or service may depend upon our ability to deliver it on a large scale, which may require a significant capital
investment that we may not be in a position to make. If we are unable to successfully introduce and maintain new income-
generating products and services, it may impact our ability to compete effectively and materially adversely affect our
business and earnings.
We rely on technology and on third parties to deliver services. If key technology platforms become obsolete, or if we
face difficulties processing transactions or in managing our relationships with third-party service providers, our
revenue or results of operations could be materially adversely affected.
We have a large technology staff utilizing current technology. There is no assurance that we will be able to sustain our
investment in new technology to avoid obsolescence of critical systems and applications. Further, our transaction
authorization and settlement systems, and our clearing system for transactions between Diners Club network licensees,
may encounter service interruptions due to system or software failure, fire, natural disasters, power loss, disruptions in
long distance or local telecommunications access, terrorism or accident. Some of our transaction processing systems are
operated at a single facility and could be subject to service interruptions in the event of failure. Our services could be
disrupted by a natural disaster or other problem at any of our primary or back-up facilities or our other owned or leased
facilities.
We also depend on third-party service providers for many aspects of the operation of our business. For example, we
depend on third parties for the timely transmission of information across our data transportation network and for other
telecommunications, processing, remittance and technology related services, including ancillary transaction processing
services for the PULSE network and authorization, clearing and settlement services for the Diners Club network.
Regardless of whether as a result of natural disaster, operational disruption, terrorism, termination of its relationship with
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