Recently, in an investor conference, Discover Financial Services (DFS) announced its plans to enter the checking and home equity businesses in 2013. Additionally, the company will launch a new banking platform during the year and expand the PULSE network to include all debit transactions.
DFS also plans to expand its market presence through product launches, extension of distribution channels and partnerships. Further, it will continue expanding card acceptances within the U.S. as well as internationally.
Discover Financial has set a long-term growth rate target of 2%–5% for card receivables, 5%-10% for other consumer lending and over 10% for payment volume. Further, the company wants to achieve return on equity of 15% and Tier 1 common ratio of about 9.5% in the long term.
DFS believes that its expertise in the credit card and savings business will facilitate the launch of the checking business. Similarly, proficiency in the personal and home loans businesses will help the company foray into the home equity business.
Discover Financial entered the home loan business in 2012, following the acquisition of Home Loan Center from Tree.com Inc. (TREE), and has already established a strong foothold in the business.
Considering that about 80% of Discover Financial’s clients are home owners and the home equity loan business witnessed initial signs of recovery in 2012, the company expects substantial demand for home equity loans. DFS intends to offer secured, fixed-rate home equity loans with values between $25,000 and $100,000.
So far in 2013, Discover Financial has already launched Discover Cashback CheckingSM – a checking account offering cashback rewards – and Discover it – a new credit card that charges no annual fee, over-limit fee, pay-by-phone fee, foreign transaction fee or any fee on the first late payment.
Further, the company has announced affiliations with Cadence Bank and Interswitch Limited to boost card acceptances and transaction volume. Discover Financial also collaborated with Facebook, Inc. (FB) to launch the Facebook Gift card program.
DFS currently carries a Zacks Rank #3 (Hold). Another company worth considering in the financial sector is Encore Capital Group, Inc. (ECPG), which carries a Zacks Rank #2 (Buy).
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