JPMorgan Won't Rule Out 'Difficult' Discover Purchase

Thursday, 02 Sep 2010 01:59 PM

 

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JPMorgan Chase has not ruled out the possibility of buying the Discover Financial Services network or another payments processing network, but such a deal would be "very difficult," an executive told Reuters.

"It’s always an opportunity," Chase Card Services Chief Executive Gordon Smith said in an interview on Wednesday.

Banks earn fees from merchants every time their customers pay for something with a credit or debit card. But the banks must also pay independent payments networks, like Visa and MasterCard, to help them process the transactions.

Large U.S. banks like JPMorgan Chase could minimize the fees they pay Visa and MasterCard by buying Discover's undervalued network business, analysts said this week. Discover lends directly to consumers, but it also competes with Visa and MasterCard to process banks' transactions.

Discover is the fourth largest U.S. card processing network. Visa is the largest network, followed by MasterCard and American Express.

"It's one of those things where you sit down with a piece of paper thinking, it's a great idea, why don't you own your own (network)?" Smith said.

But "executionally it's very difficult — not impossible, but it's something we can always think about," he said.

It would be hard for Chase to compete with Visa or MasterCard in processing transactions abroad, Smith said.

Discover has been making efforts to build up its international network business. But it does not yet have the same coverage that Visa and MasterCard do, meaning that few U.S. consumers are able to use their Discover cards outside the country.

For the time being, Smith said that JPMorgan Chase is minimizing the fees it pays Visa and MasterCard through a more traditional method: intense negotiation. The bank is the top issuer of Visa credit cards, and one of the top MasterCard issuers.

"What we've chosen to do is negotiate very aggressively with both Visa and MasterCard, and get very very good deals with them," he said.

"Visa has never been more pleased with its relationship with Chase. We remain committed to helping Chase grow its business and meet the needs of its cardholders," Visa spokesman Will Valentine said in an email to Reuters.

MasterCard had no comment, while a representative for Discover did not respond to a request for comment.

© 2014 Thomson/Reuters. All rights reserved.

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