Discover and Pulse, the Next Visa/MasterCard?

By | April 10, 2008

PrintHow to Take Discover Network and Pulse Global with the Diners Club Acquisition.

Welcome to another edition of “If I Were CEO” where I reveal what my strategies would be if I were CEO of other companies.

Today’s issue deals with the acquisition of the Diners Club network by Discover Network, and their intent to combine the two networks over the next 2-3 years. The acquisition is both a coup and something that makes perfect sense at the same time. It’s a game changer for Discover Network, who is going from a regional network trailing behind rivals Visa, MasterCard and American Express in their primary region, the United States, to a global player with a presence in over 200 countries with one of the most internationally respected trade names: Diners Club International.

As I mentioned in another article, the reason why it makes perfect sense is because Citi really did not appear to be that interested in operating a network (after all, they disbanded the Diners Club network in the U.S. and Canada), and Discover Network desperately needed international acceptance to compete with its major rivals.

So what is next?

Well, the obvious thing, which was announced by Discover, is to merge the two networks, so that Discover Network cards can be used where Diners Club is accepted, and vice versa.

But what about branding? Discover Network is well known in the U.S. but not as well known overseas, while for Diners Club the opposite is true, with Diners Club being a respected brand overseas that has languished in the United States. Discover has already announced that it has no intentions of getting rid of the Diners Club name, which is a very smart move on their part. They have also announced that they will not issue Diners Club cards themselves either, leaving that to the Diners Club franchisees which are not included in the acquisition.

Branding on Diners Club Cards

One nice thing is that the current MasterCard / Diners Club Alliance sets a precedent that Discover Network can use to get their brand seen worldwide. Currently on every Diners Club card is the MasterCard logo. It is on the front on U.S. and Canada issued cards, and on the back for all other countries. There is also a note on the non-North American cards saying it uses the MasterCard network only in the U.S. and Canada. This lays the foundation for Discover Network to put its logo on every single Diners Club card out there, which would instantly make it an international brand in over 200 countries, without diluting the Diners Club brand. But I would go one step further, and instead of putting the Discover Network logo on the back of overseas cards, I would put it on the front, which would pave the way for a single acceptance mark worldwide.

Branding on Discover Network Cards

Now here is where it could get tricky. Unless Discover Network adopted a single acceptance mark worldwide (i.e. the Diners Club card is still a Diners Club card that is on the Discover Network), then there would need to be some way to tell Discover Network cardholders, and Diners Club merchants, the Discover Card is accepted. One way of doing that would be putting the Diners Club acceptance mark on the back of Discover Network cards (in addition to the Discover Network acceptance mark). The tricky part is that Discover Network has to make sure it does not look like it is issuing Diners Club cards, which it apparently has agreed not to do (most likely giving Citi the exclusive Diners Club franchise in the U.S.).

Segmenting the Brands

Discover has several brands now, including Discover Card, Discover Network, Diners Club and Pulse. Discover Card is known for its cash back rewards program and being hard to get approved for. Diners Club is known for being a T&E (Travel & Entertainment) product targeted at the rich, corporations or travelers. Pulse is known for being a PIN-based debit ATM and POS network in the United States, with cards typically attached to a checking account. The Discover Network brand, on the other hand, is something Discover is trying to create. Their strategy appears to be to try to make Discover Network (as opposed to Discover Card) a general purpose card network like Visa or MasterCard. They are trying to get a variety of banks to issue cards on their network (like how Visa, MasterCard, Diners Club and more recently American Express have multiple independent banks issuing cards on those networks).

Right now Diners Club franchisees hold the right to issue Diners Club cards in their respective countries or regions. That would not change, as is evident in Discover’s statement that they will not issue Diners Club cards, nor will they extend any credit overseas as a result of this acquisition. So Citi will continue to issue Diners Club cards in the U.S. (and other countries it serves), and Discover Bank will continue issuing Discover Network cards in the U.S., and other banks will continue issuing Diners Club or Discover Network cards as their license allows.

One thing that may be useful for Discover is to give the Diners Club franchisees a right to issue plain non-Diners Club Discover Network cards (if they want), perhaps using the Diners Club name for the high end clients, and Discover Network for everyone else. In fact, Discover could potentially sign up other banks to issue Discover Network cards in those countries (since Diners Club franchisees are most likely guaranteed exclusivity for the Diners Club brand in their region, but not guaranteed exclusivity as far as Discover Network is concerned).

Market Discover Network as the network the cards travel on, and Diners Club as the elite club of cardholders who get special benefits. Give the Diners Club franchisees the option to issue Discover Network cards or allow other banks in their region to if they decline.

Acceptance Marks at Merchant Point of Sale

One thing that would make things easier for cardholders is if merchants showed all the logos of the cards they accepted. This means offering merchants POS material that includes all the cards that a merchant can accept. So, in the U.S., merchants should be provided with acceptance marks for Discover Network, JCB and China UnionPay (since there are already alliances in place for that), and once the networks are merged, Diners Club as well. Overseas, once the networks are merged, merchants should display both the Diners Club and Discover Network acceptance marks. This would help increase card usage since cardholders who are not informed about the merger of the Discover / Diners Club networks or the alliances with JCB or China UnionPay would see the logo from their card and use the establishment and their card.

Pulse, An International Debit Network?

I would also seriously look at integrating Pulse with ATMs on the Diners Club network or at the franchisees banks. They could use the same infrastructure as the Discover Network/ Diners Club combined network to create an international PIN-based debit network branded Pulse. The reason why Pulse should be used as the name of the PIN-based ATM/POS network is because of the brand segmentation I mentioned earlier. Pulse for PIN-based debit, Discover Network for the credit card and signature debit network, and Diners Club for the exclusive T&E products. Also, using a separate logo for the PIN-based debit cards would also allow other alliances to work, such as the U.S. Pulse Network, U.K. Link Network alliance. ATMs accepting Pulse would simply add the Pulse logo, and it would not matter if it was processed on Discover Network, Pulse Network, LINK Network or Diners Club Network or potentially others. If Discover could pull this off, this truly would be a coup, as Pulse would go from a regional ATM/debit player to a global one overnight, which would put it in the class of MasterCard’s Cirrus/Maestro and Visa’s Plus/Interlink, rather than the regional class that includes Star and NYCE in the U.S.

Summary

I don’t have access to agreements or have any insider information, but if I were CEO of Discover right now, this is what I would be doing.

The Discover Network / Diners Club Network combination makes perfect sense and I am glad that they saw that too. Discover may be the number four network in the U.S., but considering how aggressive it is being in expanding, that could change over time, especially with this acquisition.

Good luck and until next time.


 

Scott M. Stolz

Entrepreneur, Educator, Author.
Helping people embrace life's opportunities.™