What the Discover / Diners Club Acquisition Means to Diners Club Card Holders

By | April 10, 2008

There has been a lot of coverage of Discover‘s acquisition of the Diners Club Network from Citi, and some people may have a lot of questions about what that means.

Like all the articles pointed out, Discover is only purchasing the Diners Club Network, which means Citi will continue to issue Diners Club cards both here and abroad (Citi issues cards in a variety of countries, not just the U.S.).

diners-discover-logoCurrently Diners Club cards are processed on the MasterCard network in the U.S. and Canada and the Diners Club network outside the U.S. In fact, U.S. cards have the MasterCard logo on the front, and foreign ones have the MasterCard logo on the back (with fine print saying U.S. & Canada only for MasterCard). Diners Club cards issued on the MasterCard network, use the MasterCard network worldwide.

Discover said it would take 2-3 years before they can integrate the two networks. Perhaps this is because of the contract between Diners Club and MasterCard is locked in for another couple years, or possibly because of technical issues. There is also the issue of the JCB and China UnionPay alliances as well, that depending on the wording of their respective agreements, could cause some interesting side effects. For example, prior to the acquisition of Diners Club Network, no one issued any Discover Network cards in Japan or China, so JCB and China UnionPay had no competition from Discover in their home markets, but now Discover has Diners Club franchisees in both countries… and its own Diners Club network in each country, which makes things interesting. That is a complicated issue that deserves another article.

Technically there is no Diners Club network in the U.S. anymore, it only exists outside the U.S. This will actually make it easier for Discover Network to integrate with Diners Club Network. Seeing how Citi let the Diners Club Network disappear in the U.S. (i.e. they started using MasterCard’s network instead, disbanding their own Diners Club network in the U.S.) shows that Citi really had no interest in running a network. The purchase by Discover makes perfect sense for both companies. Citi gets the cash it needs, Citi sheds a network it is not really that interested in operating, and Discover gets a ready made network that already has a footprint in 200 countries, expanding its international coverage and making it a true world player like Visa, MasterCard and American Express.

Citi said it will continuing issuing U.S. & Canada Diners Club Cards on the MasterCard Network.  They did not say if they would also issue on Discover Network, just that their current cardholders will stay on the MasterCard network.

And I am sure that the combined Discover/Diners Club would give Discover more leverage to get merchants to accept their cards, plus, depending on what payment processor you use, processing Discover Network cards is the same discount rate as processing Visa or MasterCard, which eliminates the cost objection some merchants have. In fact all new merchants who sign up for a merchant account with the biggest payment processors automatically accept Discover Network when they apply to accept Visa and MasterCard, and get one statement and the same discount rate for all three card types. Discover is being very aggressive about getting its acceptance to be as universal as MasterCard and Visa, and eliminating the barriers and excuses merchants have for not accepting Discover Network.

Speaking of international acceptance, Discover Network has alliances with JCB in Japan and China UnionPay in China. Discover Network is actually the most widely accepted foreign card in China (and perhaps Japan) as a result. Depending on the terms of those alliance agreements, Diners Club cards could be accepted in China and Japan because of these alliances. Citi may still charge you exchange rate fees, but that is the policy of the issuer, not the network. Remember, Discover only bought the network. Your terms with your issuer (i.e. Citi in the U.S.) will not change.


Scott M. Stolz

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