Join        Login             Stock Quote

Durban Exclusivity Rules To Benefit Discover Financial's PULSE Network

 March 05, 2012 01:32 PM

The new Durban rules over debit cards could benefit Discover Financial Services' (NYSE:DFS) debit/ATM network PULSE.

Under Durbin, debit cards must carry two unaffiliated networks. Hence it is mandated that other PIN debit networks such as PULSE could win some market share from Visa (NYSE:V) by adding their brands at the back of the card. In this case, "Visa" plus "Interlink" debit card would become either "Visa" plus "Maestro" or "Visa" plus "PULSE."

Discover Financial generates 2.5 percent of its revenue from PULSE. Currently, the majority of Visa's debit cards enjoy exclusivity, meaning they carry exclusively the "Visa" and "Visa Interlink" brand.

[Related -Discover Financial Services (DFS) Q4 Earnings Preview: What To Expect?]

With a base of about 4,400 financial institutions, Pulse added 129 card issuers to its network, a notable acceleration versus virtually nil in 2010. ATMs accepting PULSE increased about 30,000 to 380,000, which is estimated to represent over 85 percent of ATMs nationwide.

PULSE indicates 130 new issuers joined the Pulse network, and suggests more large request for proposals (RFPs) ahead of April 1.

"Ahead of April 1, we expect to see more issuers shift to PULSE, which could accelerate the growth of network transaction/volumes in 2H12," Susquehanna Financial analyst James Friedman wrote in a note to clients.

The analyst said while PULSE only contributes about 2.5 percent of Discover Financial's revenue, various assumptions regarding market share shift suggest the company's revenues could accelerate as much as 70 basis points (bps).

[Related -Using Discover Financial Services (DFS) To Explain How To Get The Most Out Of Trading Earnings Iestimates]

Assuming 5 percent of Visa's PIN volume would shift to PULSE, Visa's PIN transaction volume would decline to 10.1 billion from 10.6 billion, while PULSE's PIN transaction volume would increase 14 percent to 4.4 billion.

"Assuming average revenue per PULSE transaction remains $0.05 per transaction, DFS's US Debit revenue and total net revenue would increase to $205 mln and $7.09 bln from $180 mln and $7.06 bln, respectively, ~14% and 40 basis point increase," Friedman wrote.

An another scenario assumes Visa's PIN transaction volume would shift 10 percent to PULSE. Based on fiscal 2011 financials, Visa's PIN transaction volume would decline to 9.6 billion from 10.6 billion. On the other hand, PULSE's PIN transaction volume would increase 28 percent to 4.9 billion.

"Assuming average revenue per PULSE transaction remains the same ($0.05 per PIN transaction), DFS's US Debit revenue and total net revenue would increase to $230 mln and $7.12 bln from $180 mln and $7.06 bln, respectively, ~28% and 70 bps increase," the analyst added.

Late last week, Discover Financial announced a flurry of new issuers that are cobranding Pulse to comply with Durbin exclusivity rules. Discover Financial said total transaction volume on the PULSE network grew 16 percent in 2011, totaling more than 3.8 billion transactions. Total dollar volume rose 19 percent to $140 billion.



Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

rss feed

Latest Stories

article imageWorld Growth: Mediocre or Pathetic?

The recent disappointing performance of the world economy has been labelled as the "new mediocre" by read on...

article imageSurvey Data For US Services Sector Hint At Mild Q2 Rebound

Yesterday’s discouraging numbers on job growth in April via the ADP Employment Report raise doubts about a read on...

article imageADP: US Job Growth Stumbled In April

Employment growth at US companies slowed in April to the weakest gain in three years, according to this read on...

article imageBogle Says Indexing Destined To Win The Battle Of The Quants

Vanguard founder John Bogle gave a powerful speech last month at the Q Group’s Spring Seminar that lays out read on...

Popular Articles

Daily Sector Scan
Partner Center

Related Articles:

Buyback Favorites In Finance-Sector
More Articles on: Finance

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.