Discover 2015 Annual Report Download - page 52

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• Security attacks can originate from a wide variety of sources and geographic locations.
• We rely on many third-party service providers and network participants, including merchants, and, as such,
a security breach or cyber-attack affecting one of these third parties could impact us. For example, the
financial services industry continues to see attacks against the environments where personal and identifiable
information is handled. For additional information see the risk factor "— We rely on third parties to deliver
services. If we face difficulties managing our relationships with third-party service providers, our revenue or
results of operations could be materially adversely affected."
• To access our products and services, our customers may use computers and mobile devices that are beyond
our security control systems.
We are subject to increasingly more risk related to security systems as we increase acceptance of the Discover
card internationally, expand our suite of online direct banking products, enhance our mobile payment technologies,
acquire new or outsource some of our business operations, expand our internal usage of web-based products and
applications, and otherwise attempt to keep pace with rapid technological changes in the financial services industry.
Our efforts to mitigate this risk increase our expenses. While we continue to invest in our cybersecurity defenses, if our
security systems or those of third parties are penetrated or circumvented such that the confidentiality, integrity and
availability of information about us, our customers, transactions processed on our networks or third parties with which
we do business is compromised, we could be subject to significant liability that may not be covered by insurance,
including significant legal and financial exposure, actions by our regulators, damage to our reputation, or a loss of
confidence in the security of our systems, products and services that could materially adversely affect our business. For
additional information on risks in this area, see the risk factors below regarding fraudulent activity, the introduction of
new products and services, the use of third parties for outsourcing, technology generally, and laws and regulations
addressing consumer privacy and data use and security.
If we cannot remain organizationally effective, we will be unable to address the opportunities and challenges
presented by our strategy and the increasingly dynamic and competitive economic and regulatory environment.
To remain organizationally effective, we must effectively empower, integrate and deploy our management and
operational resources and incorporate global and local business, regulatory and consumer perspectives into our
decisions and processes. In order to execute on our strategy to be the leading direct bank and payments partner, we
must develop and implement innovative and efficient technology solutions and marketing initiatives while effectively
managing legal, regulatory, compliance, security, operational and other risks as well as expenses. Examples include the
implementation of a broader rollout of our checking product, the expansion of our new core banking platform beyond
deposits, and a structure for a more competitive global network business. If we fail to develop and implement these
solutions, we may be unable to expand quickly and the results of our expansion may be unsatisfactory. In addition, if
we are unable to make decisions quickly, assess our opportunities and risks, execute our strategy, and implement new
governance, managerial and organizational processes as needed in this increasingly dynamic and competitive
economic and regulatory environment, our financial condition, results of operations, relationships with our business
partners, banking regulators, customers and shareholders, and ultimately our prospects for achieving our long-term
strategies, may be negatively impacted.
We may be unable to increase or sustain Discover card usage, which could impair growth in, or lead to diminishing,
average balances and total revenue.
A key element of our business strategy is to increase the usage of the Discover card by our customers, including
making it their primary card, and thereby increase our revenue from transaction and service fees and interest income.
However, our customers' use and payment patterns may change because of social, legal and economic factors, and
customers may decide to use debit cards or other payment products instead of credit cards, not increase card usage, or
pay their balances within the grace period to avoid finance charges. We face challenges from competing card products
in our attempts to increase credit card usage by our existing customers. Our ability to increase card usage also is
dependent on customer satisfaction, which may be adversely affected by factors outside of our control, including
competitors' actions and legislative/regulatory changes. Existing legal and regulatory restrictions limit pricing changes
that may impact an account throughout its lifecycle, which may reduce our capability to offer lower price promotions to
drive account usage and customer engagement. As part of our strategy to increase usage, we have been increasing the
number of merchants who accept cards issued on the Discover Network. If we are unable to continue increasing
merchant acceptance or fail to improve awareness of existing merchant acceptance of our cards, our ability to grow
usage of Discover cards may be hampered. As a result of these factors, we may be unable to increase or sustain credit
card usage, which could impair growth in or lead to diminishing average balances and total revenue.