Discover Financial (NYSE:DFS) is looking to expand its card services beyond the American shores. The company has entered the Russian market in collaboration with Russian Standard Bank (RSB) and will start issuing Discover cards in the country.  This is Discover’s first incursion into Europe and is in-line with the company’s strategy to expand its operations. Discover also entered the residential mortgages business with the acquisition of the Home Loan Center business from Tree.com, in June, this year. (For more details, please refer to our article: Discover Financial Enters The Mortgage Business At Just The Right Time)
Our $39 price estimate for Discover Financial’s stock is in-line with the current market price.
Discover Strikes The Hot Iron
As with the mortgage business, Discover’s entry into the Russian market appears to be well-timed. Although Russia is still primarily a cash based society, recent research by MasterCard (NYSE:MA) revealed that card payments are rapidly gaining popularity in the country.  In 2011, the percentage of Russians using bank cards rose by 11% year-on-year to 75%, and the total number of credit cards in circulation in the country reached 11 million according to Euromonitor. 
The percentage of Russians that paid for purchases with plastic cards increased from 27% in 2010 to 40% in 2011. Revenue earned through credit cards is Discover’s most important business, accounting for 42% of the Trefis price estimate for the company’s stock. As plastic money gains popularity amongst the Russian populace, we expect Discover’s foray to pay-off with a steady increase in sales volume.Notes:
- Discover Financial Services and Russian Standard Bank Announce Discover Card Issuance in Russia, Press Release, 4th Sept, 2012 [↩]
- Financial discipline may slip as Russians use more credit cards, Russia Beyond The Headlines, 31st August, 2012 [↩]
- Euromonitor International [↩]