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Discover, one of the four major US card networks, posted ongoing growth in loans, sales, and card spend on credit products.
That could be a response to the firm’s heavy focus on its rewards offerings, which make it simpler and cheaper to attract new customers. The firm has noted plans to push strong rewards offerings, like double rewards for new accounts. It’s clear that the firm is investing in this area — rewards costs increased by 16 basis points year-over-year (YoY) as a result of the double rewards investment. But that investment is helping the firm attract new business — Discover acquired a “post-recession record” number of new customers in Q2 2016 , many of whom could have been won over by the rewards offerings for new customers.
These customers are spending on their cards. Though PULSE — Discover’s debit network — declined in Q2 2016, credit spend on Discover-branded, Diners Club, and Network Partner cards, where Discover’s rewards programs live, rose. And “card growth” is skewing “60/40” between new and existing customers, according to CFO R. Mark Graf, because new accounts are quickly becoming engaged and driving growth.
But in order to continue posting gains, the company has two hurdles to overcome: Stiff competition: Though Discover’s rewards offerings may have been previously innovative, its competitors are acting “aggressively” in pursing potential customers with strong rewards offerings. That’s one factor leading to greater competition in the rewards card space. Discover isn’t willing to match unprofitable offers from other card issuers, which could temper growth moving forward.
Limited acceptance network: It’s also worth noting that Discover has the smallest acceptance network of the four major card brands in the […]
