Discover is a financial services company known primarily for its credit card services. Discover prides itself on innovation in financial products and customer service and is a familiar name in the credit card and banking industries. Introduced by Sears in 1985, Discover was a part of Dean Witter and then Morgan Stanley until 2007, when it became an independent company.

Discover runs the Discover Network, a payment network for its credit cards and also offers personal loans, student loans, home equity loans, and banking services such as savings and current accounts. With its direct banking and payment services, Discover has made an impact on the financial services industry – and is currently one of the largest card issuers in the United States. The Discover credit card stands out because it has higher-than-normal credit limits and no annual fee, and it's also one of the first credit cards to provide cash-back rewards on purchases. Discover has made banking and credit card management more accessible for its customers by focusing on financial technology, specifically mobile banking and online transactions. In Discover's annual report, the business disclosed a net income of US$2.9 billion in 2023.

Below, we'll discuss what businesses should know about accepting Discover as a payment method, from its key features and primary customers to requirements and best practices.

What's in this article?

• How Discover works
  
• Where is Discover used?
  
• Who uses Discover?
  
• Benefits of accepting Discover
  
• Challenges of accepting Discover
  
• Discover security measures
  
• Requirements for accepting Discover as a payment method
  
• Alternatives to Discover
  

How Discover works

Discover is both a credit card issuer and a card network, which is somewhat unique in the industry. Discover's operations emphasise direct customer relationships, competitive credit offerings, strong security measures and comprehensive digital services – features that have allowed Discover to remain a major player in the financial services market. Here is how Discover works both as a payment method and a financial services company.

• Credit card issuance
  Discover issues its own credit cards directly to customers rather than using a third-party bank. This direct-to-consumer model allows Discover to retain more control over its credit offerings and customer service experiences.

• Credit card network
  As a card network, Discover processes transactions that cardholders make with its credit cards. When a cardholder makes a purchase, Discover handles the transfer of funds from the cardholder's account to the merchant account, including authorising the transaction, settling the funds and ensuring security measures are in place to prevent fraud.

• Interest and fees
  Discover earns revenue through interest on outstanding credit card balances and fees such as late-payment fees. The fee structure is relatively customer-friendly: Discover offers many card options with no annual fees and no foreign transaction fees.

• Rewards programme
  Discover cards are known for their cash-back rewards programmes. Cardholders earn a percentage of their purchases as cash back, including 1% cash back on all purchases and 5% cash back in rotating categories quarterly, up to a quarterly maximum. The "Discover Cashback Match" programme allows cardholders to automatically receive an unlimited dollar-for-dollar match on all of the cash they've earned at the end of the first year.

• Customer service
  Discover is known for its dedicated customer service, which includes 24/7 live customer support that helps resolve issues quickly and maintain a high level of customer satisfaction.

• Digital banking services
  In addition to credit cards, Discover offers online and mobile banking services. This includes current and savings accounts, personal loans, student loans and home loans. Discover's digital platforms provide an integrated view of all the company's financial products.

Where is Discover used?

Discover cards are most popular in the US, where customers choose them because of their flexible payment options and customer-friendly features such as cash-back rewards. Discover cards are widely accepted across the US, which adds to their appeal as a payment method.

Discover's global reach isn't as extensive as some other major credit card companies such as Mastercard and Visa. Discover has been making efforts to expand internationally, but it faces challenges because of the established dominance of other credit card networks. The card's acceptance varies across different countries and regions. Outside of the US, Discover is most widely accepted in Canada and Mexico. Discover does not have a major presence in Europe and Asia because of factors including local customer habits, business preferences and differing regulatory environments.

As part of Discover's strategy to expand globally, it has partnered with local payment networks to tap into existing infrastructure and customer trust.

Who uses Discover?

Discover's tailored products and services have helped it maintain a strong position in the competitive credit card market, catering to a range of market segments and creating a suite of offerings with diverse appeal. The primary customers and business types that use Discover are outlined below.

• Retail customers
  Retail customers form the backbone of Discover's customer base. Typically, these cardholders choose Discover for everyday purchases because of the card's superior rewards structure. Another big draw is that it has no annual fee, eliminating the cost of holding the card.

• Students
  The student population is another key focus for Discover. Discover's student cards are designed to introduce students to credit building and allow them to earn cash back. Nearly 32% of college students in the US consider no annual fee as the top feature when choosing a credit card, which aligns well with Discover's specific features.

• Small business owners
  Small business owners represent another important segment for Discover. They often seek straightforward rewards and reliable customer service, both of which are key features of Discover.

• Online shoppers
  Online shoppers are increasingly turning to Discover for its security features and partnerships with online retailers. Discover runs promotions with online shopping portals that can lead to substantial savings for customers, such as exclusive deals and discounts on popular e-commerce sites.

• Travellers
  International travellers use Discover because it does not charge foreign transaction fees, making it a cost-effective payment option abroad. While Discover isn't as widely accepted across the globe as some competitors, its international reach is growing and the card is now accepted in more than 200 countries.

• Tech-savvy customers
  Tech-savvy customers are attracted to Discover's digital offerings, such as its highly rated mobile app. The app has user-friendly features such as free Social Security number alerts and the ability to freeze your account if you lose your card.

• E-commerce and online services
  E-commerce platforms and online services appreciate Discover's security features, such as tokenisation and fraud protection measures. The company has also been expanding its digital wallet integrations, making it easier for online businesses to accept Discover.

Benefits of accepting Discover

Businesses that accept Discover cards as payment may see benefits including lower transaction fees and access to a broad customer base. The benefits of accepting Discover are outlined below.

• Inclusion in Discover Deals
  Discover has a unique programme called Discover Deals that gives cardholders special discounts or cash-back bonuses. Businesses that partner with Discover can be featured in this programme, driving Discover cardholders to these businesses and increasing their sales and customer acquisition.

• Access to Discover Network
  Businesses that accept Discover become part of the Discover Network, which is often directly marketed to Discover cardholders and can increase visibility and customer traffic for participating businesses.

• High customer loyalty
  Discover cardholders are often very loyal because of the card's customer-friendly features. By accepting Discover, businesses can tap into this loyal customer base. Cardholders may choose to buy from businesses that accept Discover over those that don't in order to take full advantage of their Discover cash-back rewards.

• Lower chargeback rates
  Discover has lower chargeback rates compared to some other card networks, which can be a major advantage for businesses that frequently deal with costly and time-consuming chargeback processes.

• Strong security features
  Discover's advanced security features, which include instantly freezing lost or stolen cards and proactive fraud monitoring, directly benefit businesses. Reduced fraud risk means fewer fraudulent transactions, chargebacks and associated costs.

• Marketing support
  Discover occasionally runs marketing campaigns spotlighting businesses that accept their cards, which can be a boon for small or medium-sized businesses that don't yet have the substantial marketing budget of larger corporations but are looking for more exposure.

• Easy digital integration
  Discover is easily integrated with modern POS systems and e-commerce platforms, which can enhance the customer's checkout experience.

• Competitive costs
  Discover is known for its transparent and competitive pricing structure for businesses. This can be especially beneficial for small businesses looking to cut costs.

Challenges of accepting Discover

Businesses that accept Discover cards may run into the following challenges. The decision to accept Discover should be based on a business's specific customer base, financial considerations and market presence.

• Limited international acceptance
  While Discover is widely accepted in the US, its international acceptance is more limited compared to Visa and Mastercard. This can be a challenge for businesses with a global customer base or those in the tourism industry that cater to international customers.

• Customer perception
  Some customers may not perceive Discover as favourably as other major credit cards because of its limited marketing presence.

• Transaction processing time
  Depending on the payment processor, the time it takes to process Discover card transactions and settle funds can vary, which can, in turn, affect cash flow management.

Discover security measures

Discover implements the following security measures to protect cardholders and businesses.

• Fraud protection: Discover's fraud protection system continuously monitors transactions for unusual activity. This proactive surveillance includes checking for unexpected spending patterns, locations and transaction types. If the system detects potential fraud, Discover immediately alerts the cardholder through various channels, including phone calls, emails and text messages.

• Freeze it®: Discover's Freeze it® feature empowers cardholders to take immediate action if their card is lost or stolen. By using the Discover mobile app or website, cardholders can freeze their account in seconds, blocking new purchases, cash advances and balance transfers. This immediate response capability is important in preventing fraudulent charges.

• Social Security number alerts: Discover scans the dark web – a part of the internet known for illicit activities – for the cardholder's Social Security number. If Discover detects the number on any high-risk websites, it alerts the cardholder. This feature, which is free for the customer, is important for preventing identity theft and related fraud.

• Zero liability protection: Discover's zero liability protection ensures cardholders are not held responsible for any unauthorised purchases. This policy builds trust with cardholders because they know they won't bear the financial burden of fraud.

• Secure account logins: Discover account security follows strong login protocols that reduce the chance of unauthorised access, including multi-factor authentication, a process in which two or more pieces of evidence are required to access an account.

• Encryption: Discover uses advanced encryption technology to protect data during transaction processing, ensuring that sensitive information such as card numbers and personal details are transmitted securely and unauthorised parties cannot access them.

• Identity theft protection: If identity theft occurs, Discover provides support to affected cardholders including guidance on next steps to secure their credit and identity and assistance in the complex process of identity restoration.

Requirements for accepting Discover as a payment method

Businesses must complete the following steps and meet the following requirements to accept Discover as a payment method. Some are standard for most credit cards, while others are unique to Discover.

• Merchant account setup: To work with Discover, businesses need a merchant account, a type of bank account that allows them to accept credit and debit card payments. Businesses can set up this account through a bank, an independent sales organization, or a payment service provider.

• Payment processing agreement: To accept Discover, businesses must enter into an agreement with a payment processor that handles Discover transactions. This agreement will outline the terms, fees and other details of processing Discover card payments.

• POS system compatibility: Businesses must confirm that their point-of-sale (POS) system is compatible with Discover card processing, ensuring the system can handle the electronic processing of credit card transactions.

• Compliance with PCI standards: Businesses that accept Discover Global Network must comply with the Payment Card Industry Data Security Standard (PCI DSS), which ensures that all businesses that store, process or transmit credit card information maintain a secure environment. Discover also requires businesses and their agents to be compliant with the Payment Card Industry Secure Software Standard and, for businesses accepting PIN entry on POS terminals, with the Payment Card Industry PIN Security Requirements. This compliance requirement applies to all acquirers, service providers and agents that process Discover transactions.

Alternatives to Discover

Businesses have many alternative payment methods to consider in Discover's primary markets. When choosing which payment methods to accept, businesses should consider their customer base, transaction volume, geographical location and specific business needs.

For example, a high-end international retailer might prefer American Express for its affluent customer base. A local supermarket, on the other hand, might use local credit card networks or direct bank transfers for their lower fees and regional popularity. Businesses that aim to attract young, tech-savvy customers or reduce their reliance on traditional banking systems may choose digital wallets and cryptocurrencies. Below are the pros, cons and key features of alternative payment methods that compete with Discover.

Visa and Mastercard

Visa and Mastercard are credit card networks with a vast global presence, making them ideal for businesses that want maximum card acceptance and customer reach, especially in international markets. These cards are popular because of their extensive reward programmes, but may have higher processing fees compared to Discover, which could be an important consideration for small businesses.

American Express

American Express is known for attracting customers with higher spending power and is best suited for high-end retailers or services where customers expect American Express acceptance. American Express has extensive rewards programmes, which appeal to a specific customer base, but charges higher merchant fees compared to Discover.

Local credit card networks

Local credit card networks are ideal for local businesses or businesses in areas where these cards are popular with customers. Local card networks might be more widely accepted than global players in some regions and often charge lower merchant fees, but their usage and acceptance may be limited to specific regions or countries.

Debit cards and direct bank transfers

Debit cards and direct bank transfers are a preferred payment method in markets where credit card usage is lower. Customer trust in direct bank transactions tends to be high, though these services don't offer the same level of customer protection or rewards as credit cards. On the business side, debit cards and direct bank transfers typically involve lower processing fees than credit cards and they're an ideal choice for businesses in regions with lower credit card penetration or those looking to minimise transaction costs.

Digital wallets

Digital wallets such as Apple Pay, Google Pay and Samsung Pay are a good fit for businesses that want to offer cutting-edge payment technology and appeal to younger, tech-oriented customers. Digital wallets integrate seamlessly with mobile devices and come with enhanced security features such as tokenisation and biometric authentication. Their acceptance can vary, however, making them a less popular payment method than more traditional options, and setup requires compatible POS systems.

PayPal

PayPal is a globally recognised payment processor with high customer trust, especially for online purchases. PayPal could be a good choice for businesses that have a major online presence or deal with international transactions and it's increasingly accepted in physical shops. PayPal can, however, have higher fees and account restrictions compared to traditional merchant accounts.

Cryptocurrencies

Cryptocurrencies such as Bitcoin and Ethereum are an emerging payment option well-suited for businesses that want to position themselves at the forefront of payment technology and attract a specific customer demographic. This payment method appeals to a tech-savvy customer base and comes with potentially lower fees for businesses. However, these currencies have higher volatility and are not yet widely accepted as a payment method.