Discover Financial, Corner Bank Ink Deal

Zacks Equity Research
March 28, 2014

Although shares of Discover Financial Services (DFS) declined marginally in two trading sessions post the company’s decision to form a new Diners Club franchise in Switzerland, the news is expected to draw bullish sentiment on the stock going forward. To form this new franchise, the company‘s subsidiary, Diners Club International, has allied with a leading Swiss banking organization, Cornèr Bank Ltd. In return, Cornèr Bank’s payment card division – Cornèrcard – will be in charge of a Diners club issuing business in Switzerland.

Why Cornèr Bank?

Cornèrcard is a prominent name in the Swiss card payment space and boasts a successful history of innovation. Banking upon Cornèrcard’s strong brand value and expertise, Discover Financial wants to cash in on the available opportunities in the Swiss card market.

Why Switzerland?

With the global shift toward the plastic mode of payments, Switzerland is also adopting the trend gradually. According to research firm - Research and Markets Switzerland’s card industry grew at a 4-year CAGR of 3.61% from 21.9 million cards in 2008 to 25.2 million in 2012. With the Swiss population showing eagerness in using cards instead of cash for meeting daily transaction needs, there is scope for significant upside, and thus card payments are expected to grow at a four-year CAGR of 2.95% by 2017-end. Hence, in this situation, Discover Financial has chosen Switzerland to form the new franchise to capitalize on this wide pool of opportunities.

Our Take

Founded in 1950, Diners Club International has become a globally recognized brand when it comes to card payments. The Diners Club cards are being accepted at millions of merchant locations in about185 countries (Switzerland being one of them) and territories. The above deal is an added feather in its cap, as the new franchise is expected to help Discover Financial strengthen its operating and competitive leverage. Moreover, the strong reputation and market knowledge of Cornèrcard blends well with Discover Financial’s growth strategies. We expect the deal to help the company bolster its membership base, thereby contributing to long-term growth.

Zacks Rank
Discover Financial currently carries a Zacks Rank #3 (Hold). However, other players in the financial services space which look attractive at current levels include World Acceptance Corp. (WRLD), Tree.Com, Inc. (TREE) and Global Payments Inc. (GPN). All three carry a Zacks Rank #2 (Buy).

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