Nov. 2, 2018 | by Elliot Maras
Jordan McKee of 451 Research, left, poses a question to Roger Hochschild of Discover Financial Services.
Discover Financial Services is known to many as a credit card processor, but Roger Hochschild, the new president and CEO, sees the company playing a partnership role to many of the smaller, emerging financial networks. Partnership was a recurring theme as Hochschild shared his vision for the company during the Money20/20 conference in Las Vegas.
Interviewed by Jordan McKee, research director at 451 Research, Hochschild said his vision for the company is to be a leading direct bank and payments processor as banking moves from branches to digital. At a time when fintechs are bringing a lot of innovation to financial services, Hochschild said the company plans to focus on innovation that adds value to both partners and customers.
While Hochschild is excited about many of the innovations taking place today, such as electronic wallets and P2P payments, he sees his company's biggest opportunity in direct banking. While fintechs are bringing new tools to the table, businesses and consumers are still looking for a bank they can trust.
"The winning product is the one that will add value for consumers," he said. This is important to keep in mind, he said, as technology continues to offer new capabilities.
Notably missing from Hochschild's remarks was any of the concern Discover Card executives expressed over the summer about industry competition and pricing in the personal loan business. One reason could be the company's track record that gives it a strong competitive standing.
"They are a very well substantiated company and their lending business is doing well," Kevin Morrison, a senior analyst at Aite Group, told Mobile Payments Today. "At the end of the day, it comes down to underwriting and risk, and what kind of margin you need to make on that business. They've been doing it forever, so I think they have a very good model."
"It makes sense that it's an area of concern," Morrison, added. "Now you have people like SoFi and others who are heavily marketing personal loans."
While he exuded optimism, Hochschild was quick to note that economies undergo positive and negative cycles, and one of his goals is to make sure that Discover positions itself to weather the next downturn. Companies prepared for downturns are better positioned to invest for the future. On this count, he noted Discover has performed well in the past.
"We do truly have a unique collection of assets," Hochschild noted, citing the company's suite of consumer banking products in addition to its credit card services.
Focus on partnerships
Hochschild insisted that Discover's technology ensures its flexibility as a financial partner and its ability to take a customized approach to different markets. The goal of these partnerships, he said, is to pursue mutual success. Discover has for years partnered with merchant acquirers, a focus that Hochschild said will continue.
For example, he said he wants to "widen the aperture" of EMVCo, a partnership which also includes American Express, Mastercard, UnionPay Visa and JCB, that facilitates the global interoperability and acceptance of payment systems.
Morrison agrees that Discover has done a good job with partnerships in the payment services side of their business, and he's anxious to see what they do in the direct banking side of the business.
"They have that model that I think sets them apart in the industry," he said, referring to the ability to bring direct banking and merchant payment services in one organization. "I think it will be interesting to see how they leverage that infrastructure and business model going forward."
"They have room to grow, and I think there are some markets out there that they will be able to invest in," he said, adding that he is curious to see whether their next steps are in acquisitions or partnerships.
While he did not wish to reveal a lot about the specific partnerships the company is working on at present, Hochschild pointed to the company's track record.
Apple selected Discover to leverage Apple Pay Cash, which allows consumers to make purchases in stores, in apps and on the web, with merchants, he noted. The Discover Network payment network handles Apple Pay Cash transactions. Discover has also partnered with PayPal, Venmo, Synchrony Bank and SAP, he added.
As financial services become increasingly global, Discover plans to play in a more global economy, Hochschild said, as it looks to work with global merchant acquirers. Here is an area where he sees a role for network-to-network partnerships.
Local payment networks are emerging worldwide, he said. Discover's role will be to enable these local networks to maintain their own brands but provide them with good technology, such as EMV compliant hardware. In many countries, such as India, governments are supporting the development of payment networks.
Hochschild does not downplay the challenges that global networks present. There are cases in which a local network uses a technology that is not compatible with more broadly used networks.
Discover looks for partners that take a long-term perspective on financial services. "You don't want to work with people that have a short-term technology," he said. In addition, it is important to find partners that present a good cultural fit.
Electronic wallets emerge
Hochschild echoed numerous other conference speakers in pointing to the rise of electronic wallets as a major force in financial services. He envisions more merchant-specific wallets.
"It's all about enhancing the functionality beyond the payment," Hochschild said. In saying this, he does not discount the contributions of the dominant networks, noting that electronic wallets have been successful leveraging the existing networks.
Not all aspects of electronic wallets are exciting to people, he said, but the wallets are bringing a lot of time saving conveniences. He related the ease he experienced in buying a transit ticket with Apple Pay.
While digital wallets are growing, Hochschild insisted that credit cards aren't going away. He expects P2P tools will find their way into the B2C space, but they won't displace credit and debit cards.
Asked about the secure remote commerce protocol that EMVCo proposed last year for e-commerce, Hochschild said there is a clear consumer benefit. While the SRC has not been supported by all merchants, Hochschild said the protocol is still in its early stage.
Asked what makes Discover a good company to work with, Hochschild pointed to the company's culture, which instills a companywide focus on customer experience. He noted the company pioneered email alerts for payments in the late 1990s and also took a pioneer role in online payments.
Topics: Card Brands, EMV, Mobile/Digital Wallet, Trends / Statistics
Elliot MarasElliot Maras is the editor of KioskMarketplace.com and FoodTruckOperator.com.
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