Business model of Discover

Customer Segments

Discover Financial offers a range of credit, debit, and loan services to a varied client portfolio. The bulk of the Company’s customers can be organised principally into the following categories:

• Consumers, comprising the general consumer market, with its student loans products specifically targeting students attending eligible non-profit undergraduate and graduate schools, or undertaking postgraduate studies and training, including bar studies and residencies.
• Small and Medium-Sized Businesses, comprising small and medium-sized business of all forms, including sole traders, small accounting firms, administrative service providers, and independent consultants; and
• Financial Institutions, comprising various large banking institutions and other financial service providers.

Discover Financial does not specifically name any of its customers on its website or in its annual report.

Discover Financial principally derives its revenue from customers in the US. The Company, however, does generate a small portion of its revenue through royalty and licensee revenue received from Diners Club licensees, mainly derived from sources outside of the United States.

Value Propositions

Discover Financial provides value to its customers in the following ways:

• Its reputation and track record, with the Company established as a reliable provider of debit, credit, loan, and other financial services to a varied client base, with a track record for providing high-quality and effective products;
• Its broad range of products, with the Company providing a range of credit and loan options to its customers, including student and post-graduate loans, home loans, and personal loans, as well as credit card and deposit products;
• Its use of technology, with the Company utilising state-of-the-art technology across its enterprise to ensure it is able efficiently to serve its customers, and manage risk and service network partners, merchants and merchant acquirer relationships;
• Its commitment to financial education, with the Company seeking to educate consumers on various financial matters, offering various online learning resources and guidance; and
• Its industry expertise and experience, with the Company employing teams of high-qualified financial services professionals, led by a team of experienced industry executives.

Channels

Discover Financial operates a website at www.discover.com, through which it provides information on its various products, services, and online resources. The Company also operates several online banking platforms, including separate client portals for its banking, credit card, student loans, home equity loans, and personal loans. These online channels are complemented by the Company’s mobile app. Customers are also able to apply for certain products, including credit cards, directly via the Company’s website.

Discover Financial operates dedicated sales teams organised by operating segment and division, which are able to serve customers directly. In addition to applying for product online, customers are able to apply for loan and credit products by phone, or by mail, with the Company operating a network of call centres with dedicated staff to service these products. The Company also has dedicated teams that work closely with its financial clients, including as part of its PULSE and Diners Club offerings.

Discover Financial serves clients through its network of automated teller machines and point-of-sale terminals across the US, which provide debit facilities to consumers and process payments through third-parties. The Company additionally obtains deposits from consumers through its various affinity relationships and through third-party securities brokerage firms that offer the Company’s deposits to their customers.

Customer Relationships

Discover Financial provides a range of products and services to its customers on a self-service basis, operating several online banking portals, as well as a mobile application. These platforms, and the Company’s website, enable customers to manage their accounts, make payments, apply for products, and access resources and tools without interacting with members of the Company’s sales and support teams. The Company’s network of automated teller machines also provides a self-service channel for consumers.

Much of Discover Financial sales and processing are completed via its direct sales personnel, who are able to provide personalised assistance and guidance to consumers, identifying the most appropriate products for their individual circumstances. The Company also has dedicated teams that manage the Company’s relationships with financial institutions, with which the Company seeks to maintain longstanding relationships.

Discover Financial provides a range of support resources to its customers. This includes various online resources, including FAQS, forms and document, financial education guides, and security information. Customers are also able to contact support personnel across the Company’s various operating divisions over the phone or by post in order to receive assistance tailored to their needs. Alternatively, customers are able to follow Discover Financial’s activities and interact with the Company directly through it social media accounts, including with Facebook, Twitter, and LinkedIn.

Key Activities

Discover Financial is a banking holding company. Through its subsidiaries it operates as a direct banking and payment services company.

Its operations are aligned into two reportable business segments: Direct Banking, which comprises the Company’s consumer banking and lending products, notably its Discover-branded credit cards issued to individuals and small businesses on the Discover Network and other consumer banking products and services, such as personal loans, home equity loans, and other consumer lending and deposit products; and Payment Services, which includes the Company’s PULSE and its Network Partners businesses, which respectively concern the Company’s operation of an automated teller machine, debit and electronic funds transfer network, and its provision of payment transaction processing and settlement services on the Discover Network.

Key Partners

Discover Financial works closely with a range of partner companies and organisations across its two operating segments. These partners can be categorised broadly as:

• Supplier and Vendor Partners, comprising suppliers of services, tools, and equipment that support the Company’s operations enterprise-wide, as well as certain companies to which the Company is able to outsource certain non-technical functions;
• Network Partners, comprising the Company’s network of financial partners, including financial institutions, commercial service providers, and merchants, with which the Company collaborates on providing payment processing services on the Discover Network;
• Affinity Partners, comprising various third-party financial institutions and securities brokerage firms that offer the various deposit products to customers on behalf of Discover Financial; and
• Community and Charitable Partners, comprising various non-profits and charitable organisations, with which the Company works on various community and social projects around the world.

Discover Financial has launched a number of partnerships in recent years. This includes payment processing partnerships with Nigeria’s Interswitch, and Creditcall Corp in the US, as well as a tie-up with PayPal on mobile payment solutions.

Key Resources

Discover Financial’s key resources are its technologies and intellectual properties, its online platforms and website, its IT and communications infrastructure, its network of call centres and offices, its partnerships, and its personnel.

Discover owns and controls a number of intellectual properties that are key to its activities, including patents and trademarks. Searches of records published by the US Patent and Trademark Office identified a number of patent applications which name Discover Financial as the assignee, including applications entitled ‘Colored metallic credit card’, ‘Redemption of credit card rewards at a point of sale’ and ‘Transaction card with glowing indicator’.

Discover Financial owns and or leases eight principal properties across seven states in the US. This includes four owned properties, including the Company’s corporate headquarters, two call centres and a processing centre, and four leased properties, including two call centres, the Company’s PULSE headquarters, and a Student Loan Corporation office.

Cost Structure

Discover Financial incurs costs in relation to the development of its technologies and online platforms, the maintenance of its IT and communications infrastructure, the operation of its call centres and other physical infrastructure, the implementation of advertising and marketing campaigns, the procurement of professional services, the management of its partnerships, and the retention of its personnel.

In 2105 Discover Financial recorded employee compensation benefits costs – including the payment of salaries to the Company’s workforce of employees – in the amount of $1.33 billion. The Company also recorded marketing and business development costs totalling $745 million, professional fees totalling $610 million, and information processing and communications costs totalling $349 million.

Revenue Streams

Discover Financial generates revenue through the provision of various banking, credit, and deposit services to consumers and small businesses. Its revenue is principally derived from the collection of transaction fees associated with many of its products, the collection of royalties and license fees, the collection of fees associated with the provision of other ancillary services, and interest income earned on loan receivables.

In 2015 Discover Financial generated revenue net of interest expense in the amount of $8.74 billion, up slightly on the $8.48 recorded by the Company in 2014. The majority of the Company’s revenue is derived from its credit card business.