(DFS) Discover Partners with PayPal

Recently, Discover Financial Services (DFS) announced a partnership with eBay Inc.’s (EBAY) PayPal under which the latter’s customers will have access to Discover’s merchant network. According to Reuters, PayPal will issue payment cards to its users in the U.S. in 2013, giving them access to Discover’s 7 million retail locations. Further, the service is expected to be available at international merchant locations of Discover soon.

The alliance is expected to boost Discover’s transaction volume and consequently, the revenues of the payment services segment, since PayPal has a large customer base. It will give Discover’s customer alternative payment option at all point-of-sale locations.

Moreover, it will not increase Discover’s merchants’ expenses as they need not use any new hardware or software for the arrangement. Further, PayPal’s 50 million American customers will be assured of the prompt and secure transactions that they are used to, while having access to wider payment options.

Discover constantly strives to provide flexible and convenient payment options to cardholders in order to boost its card acceptances and enhance its competitive strength against bigger card giants, such as MasterCard Incorporated (MA) and Visa Inc. (V). Earlier this month, the company announced that it has entered into a partnership with Google Inc. (GOOG).

The alliance with Google will enable Discover cardholders to access their credit card using a compatible smartphone by means of Google Wallet. The partnership is going to be beneficial for Discover by helping it attract the technology-friendly younger crowd towards its products.

Back in February of this year, Discover’s subsidiary, PULSE, signed an agreement with Obopay Inc., which allowed the company’s debit card customers to transfer their money instantly through mobile phones using Obopay’s ‘Mobile Money for Banks and Credit Unions’.

Discover currently carries a Zacks #2 Rank, which translates into a short-term Buy rating. We maintain a long-term ‘Outperform’ recommendation on the stock.

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