Discover Financial Services last month announced a partnership with eBay Inc.'s PayPal unit involving mobile wallets. The new technology makes it possible to use cellphones for transactions, by tapping phones on wireless-capable payment terminals, instead of swiping a card.
PayPal, primarily an online payments service, is expanding its brick-and-mortar payment services to more than 7 million stores across the U.S. that accept Discover cards. Those retailers will be able to process PayPal payments beginning next year, so that people can pay using PayPal cards, and, later, mobile devices. Retailers will be able to use the point-of-sale systems that they already have in their stores to accept PayPal payments.
For Discover, it's an expansion of its payments network, and follows recent deals with foreign card networks to expand acceptance of Discover cards globally.
During a conference call Thursday to discuss Discover's third-quarter results, CEO and Chairman David Nelms was asked about the PayPal deal by Keefe, Bruyette & Woods analyst Sanjay Sakhrani.
QUESTION: How should we think about this opportunity strategically for Discover? Could we see more of these types of opportunities as mobile wallets evolve in the marketplace?
ANSWER (Nelms): "We've been talking for quite some time about our strategy in the payments area, to be the most flexible and best partner for a number of other players. You've seen us execute that strategy with a number of foreign networks, ranging from the Japanese, Chinese and Koreans, to open up our network to their cardholder base, and to provide full acceptance across the U.S. for them.
So, one way to think about this is PayPal is entirely consistent with that. It is different because they have a huge customer base, and they are very big online, and uniquely focused and positioned.
I don't think there will be any deal exactly like this one, because no one else is positioned as uniquely, and in some cases, as well as PayPal. ... They have been in it (mobile wallets) a long time, they have enhanced it, and they have got a huge customer base, a huge volume online. We're opening up the offline to them, and doing it in a way that is backward-compatible with existing terminals, and future-ready for all the new technologies that will be deployed at point of sale.
So I expect us to continue executing that strategy. We're very focused and excited about PayPal, but we'll also continue to do different kinds of deals with multiple other parties over time."