Discover Cards Gain China Entry

[HenryTo]

Another American company takes advantage of the China Story:
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Discover Cards Gain China Entry

By ROBIN SIDEL
Staff Reporter of THE WALL STREET JOURNAL
May 27, 2005

Discover Financial Services Inc., the credit-card unit of Wall Street securities firm Morgan Stanley, said it was teaming up with China's card-payment network in a venture that will allow Discover cards to be accepted in China.

The move represents Discover's first significant global foray; the company has only a slight presence in parts of Canada, Mexico and the Caribbean. Unlike cards offered by rivals American Express Co., Visa International and MasterCard International Inc., Discover's cards aren't accepted in Europe.

It also is Discover's latest effort to compete more aggressively in the card business as it prepares to be spun off from its corporate parent. Morgan Stanley announced plans in April to divest itself of Discover, which produces just under 20% of the financial-services company's pretax net income. The company hasn't disclosed many details about the pending deal.

Discover, of Riverwoods, Ill., has formed an alliance with China UnionPay, which is China's national bank-card association and payment network. Discover cards will be phased in for acceptance at China UnionPay's 80,000 automated teller machines and by the more than 365,000 merchants who currently accept China UnionPay cards.

"We think this is a great opportunity for our cardholders," said Roger Hochschild, Discover's president.

Discover is the seventh-largest U.S. credit-card issuer, with more than 50 million cardholders. Last year, it entered the fast-growing debit market by acquiring Pulse EFT, a big debit-card processor. That deal is particularly significant for the latest transaction because most of the China UnionPay cards are debit cards, which now can be processed by Discover. Discover receives a fee for transactions processed on its networks.

The pact has a reciprocal element. Discover and China UnionPay said they will pursue ways to enable acceptance of the Chinese cards by Discover merchants and cash machines in North America.

Visa and MasterCard already have a presence in China. Visa-branded credit and debit cards generated about $3.2 billion of spending last year in China, for example. Last year, American Express began issuing cards in China through an alliance with Industrial & Commercial Bank of China.

Write to Robin Sidel at robin.sidel@wsj.com