Discover 2015 Annual Report Download - page 88

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Protection Products
We earn revenue related to fees received for providing ancillary products and services, including payment
protection and identity theft protection services, to customers. The amount of revenue recorded is generally based on
either a percentage of a customer's outstanding balance or a flat fee and is recognized as earned. Protection product
revenue decreased both for the year ended December 31, 2015 as compared to the year ended December 31, 2014,
and for the year ended December 31, 2014 as compared to the year ended December 31, 2013, reflecting the impact
of our no longer selling these products and eliminating related retention efforts.
Transaction Processing Revenue
Transaction processing revenue represents switch fees charged to financial institutions and merchants for
processing ATM, debit and POS transactions over the PULSE network, as well as various participation and membership
fees. Switch fees are charged on a per transaction basis. Transaction processing revenue decreased for the year ended
December 31, 2015 as compared to the year ended December 31, 2014 due to lower point-of-sale transactions.
Transaction processing revenue decreased for the year ended December 31, 2014 as compared to the year ended
December 31, 2013 reflecting the impact of merchant rerouting and lower rates.
Gain on Origination and Sale of Mortgage Loans
Gain on sale of mortgage loans consists of the net gain on the origination and sale of loans as well as the net
gain on the related interest rate lock commitments and the net gain or loss on forward delivery contracts. Revenue
related to mortgage banking operations declined for the year ended December 31, 2015 as compared to the year
ended December 31, 2014 primarily driven by the closure of our mortgage origination business. Revenue related to
mortgage banking operations declined for the year ended December 31, 2014 as compared to the year ended
December 31, 2013 primarily driven by an increase in mortgage interest rates that resulted in lower mortgage
refinance volume. Decline in revenue related to mortgage banking operation was also due to reduced margins in the
industry resulting from increased competitive pressure since the increase in mortgage rates.
Other Income
Other income includes royalty revenues earned by Diners Club, merchant fees, revenue from the transition
services agreement related to the acquisition of SLC, revenue from merchants related to reward programs, revenues
from network partners and other miscellaneous revenue items. Other income decreased for the year ended December
31, 2015 as compared to the year ended December 31, 2014 primarily due to decreased revenue for Diners Club
International resulting from the sale of Diners Club Italy in October, 2015. Other income decreased for the year ended
December 31, 2014 as compared to the year ended December 31, 2013 primarily due to certain merchant network
fees that were reclassified out of other income to discount and interchange revenue during 2014.
Other Expense
The following table represents the components of other expense for the periods presented (dollars in millions):
For the Years Ended December 31, 2015 vs. 2014 increase 2014 vs. 2013 increase (decrease)
2015 2014 2013 $ % $ %
Employee compensation and benefits .............. $ 1,327 $ 1,242 $ 1,164 $ 85 7% $ 78 7 %
Marketing and business development .............. 745 735 717 10 1% 18 3 %
Information processing and communications .... 349 346 333 3 1% 13 4 %
Professional fees ............................................ 610 450 410 160 36% 40 10 %
Premises and equipment ................................ 95 92 82 3 3% 10 12 %
Other expense .............................................. 489 475 488 14 3% (13) (3)%
Total other expense ................................... $ 3,615 $ 3,340 $ 3,194 $ 275 8% $ 146 5 %
Total other expense increased $275 million for the year ended December 31, 2015 as compared to the year
ended December 31, 2014. The increase was primarily driven by higher employee compensation and benefit costs and
higher professional fees. The growth in employee compensation costs resulted from growth in overall headcount driven