Discover 2015 Annual Report Download - page 45

-29-
may face challenges in increasing international acceptance on our networks, particularly if third parties that we rely on
to issue Diners Club cards, increase card acceptance and market our brands do not perform to our expectations.
In addition, if we are unable to maintain sufficient network functionality to be competitive with other networks, or
if our competitors develop better data security solutions or more innovative products and services than we do, our
ability to retain and attract network partners and maintain or increase the revenues generated by our proprietary card-
issuing business or our PULSE business may be materially adversely affected. Additionally, competitors may develop
data security solutions which, as a consequence of the competitors' market power, we may be forced to use. As a result,
those competitors could subject us to adverse restrictions and our business may be adversely affected.
Our business depends upon relationships with issuers, merchant acquirers and licensees, which are generally
financial institutions. The economic and regulatory environment and increased consolidation in the financial services
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. We continue to face substantial
and intense competition in the payments industry, which impacts our revenue margins, transaction volume and business
strategies. Transaction processing volume on the Pulse network continued to decline in 2015. The loss of this volume
significantly impacts our payment services volume and profits, but does not significantly impact our overall profitability.
If we are unsuccessful in maintaining our international network business and achieving meaningful global card
acceptance, we may be unable to grow our international network business.
We continue to make progress toward, but have not completed, achieving global card acceptance across the
Diners Club network, the Discover Network and PULSE since we acquired the Diners Club network and related assets in
2008. This would allow Discover customers to use their cards at merchant and ATM locations that accept Diners Club
cards around the world and would allow Diners Club customers to use their cards on the Discover Network in North
America and on the PULSE network both domestically and internationally.
Our international network business depends upon the cooperation, support and continuous operation 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, our Diners Club network does not issue cards or determine the terms and conditions of
cards issued by the network licensees. 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 due to the potential deterioration in customer relationships and
related demand that could result. Further, Citigroup continues to own and operate network licensees generating a
portion of Diners Club network sales volume. If one or more licensees were to experience a significant impairment of
their business or were to cease doing business for economic, regulatory or other reasons, we would face the adverse
effects of business interruption in a particular market, including loss of volume, acceptance and revenue, and exposure
to potential reputational risk. Such conditions resulted in our acquisition of Diners Club Italy and financial assistance to
our Slovenian licensee. If similar conditions arise in the future, we may deploy resources and incur expenses in order to
sustain network acceptance. Additionally, interruption of network licensee relationships could have an adverse effect on
the acceptance of Discover cards when they are used on the Diners Club network outside of North America.
Also, as we have non-amortizable intangible assets that resulted from the purchase of Diners Club, if we are
unable to maintain or increase revenues due to the reasons described above, we may be exposed to an impairment
loss on the Diners Club acquisition that, when recognized, could have a material adverse impact on our consolidated
financial condition and results of operations. The long-term success of our international network business depends upon
achieving meaningful global card acceptance, which has included and may continue to include higher overall costs or
longer timeframes than anticipated.
The success of our student loan strategy depends upon our ability to manage the risks of our student loan portfolio
and the student lending environment. If we fail to do so, we may be unable to sustain and grow our student loan
portfolio.
Our private student loan portfolio has grown from $1.0 billion at November 30, 2010 to $8.8 billion at
December 31, 2015. The long-term success of our student loan strategy depends upon our ability to manage the credit
risk, pricing, funding, operations and expenses of a larger student loan portfolio, as well as grow student loan
originations. Our student loan strategy is also impacted by external factors such as the overall economic environment, a