Discover (DFS) posted higher than expected earnings this week on the strength of their third-party payment processing network. Interestingly, while the lending business is struggling, customers are increasingly turning toward plastic (either credit or debit) when it comes to making payments. This translates directly into profits for Discover (and other card issuers) as they take a small cut of every payment processed over their network.
In the case of Discover, third party payment processing volume was up 33% over last year, which helped to offset a 20% decrease in the performance of their card business. In other words, even when faced with increased delinquency rates, Discover has managed to grow their overall business. Because Discover bought the Diner’s Club brand from Citigroup (C) in April, their third party processing performance is expected to improve further in the future.
[Source: AP News]