India’s Booming Card Market Attracts Discover Financial

Discover Financial (NYSE:DFS) announced last month that it has entered into a strategic alliance with the National Payments Corporation of India (NPCI). ^[1] This will allow cardholders to use Discover and Diners Club International cards at ATMs and point-of-sale terminals across the country. This move by Discover is clearly aimed at gaining a foothold in the developing Asian nation recognized as one of the fastest-growing global markets for cards. Discover Financial should expect to face stiff competition from Visa (NYSE:V), MasterCard (NYSE:MA) and American Express (NYSE:AXP) who already have an established presence in the country.

See our complete analysis of Discover Financial here

Discover operates a payments network and issues its own credit cards, unlike Visa and MasterCard that only process transactions. This is one of the reasons why Discover has a significantly smaller footprint internationally compared to Visa and MasterCard.

But the company has been able to circumvent this limitation, at least partially, by entering into strategic alliances in various countries. Discover has a network-to-network alliance with UnionPay in China, JCB in Japan, BCcard in Korea and DinaCard in Serbia. It has been particularly keen to establish franchises in India and China in order to capture growth in these markets.

The volume of credit card transaction in India grew a whopping 58% year-on-year in the nine-month April to December period last year – from about $9.3 billion in 2010 to well over $14.3 billion. ^[2] The total card transaction volume for the country during the 2011-2012 fiscal is estimated to be close $20 billion, with this figure poised to grow by 20%-30% in the coming years.

Discover’s focus in India hence comes as no surprise, as the growing market affords plenty of potential for the company. By tweaking the chart above, you can see the impact that higher volumes of transactions processed in a year has on Trefis price estimate for Discover.

We are currently in the process of updating our $26 price estimate for Discover Financial’s stock.

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1. Discover Financial Services and National Payment Corporation of India Announce Strategic Alliance Enabling Increased Network Acceptance, Mar 7, 2012, Press Release [↩]
2. Indian credit card transaction volume surged in 2011, Agile-News, Feb 15 2012 [↩]