By Andrew R. Johnson
Discover Financial Services (DFS) is adding checking accounts to
its array of financial-services products as the credit-card lender
continues to build out its online bank.
The accounts are expected to help Discover further broaden its
base of consumer deposits to provide a cheap source of funding for
its loans.
Like its credit cards, Discover's checking accounts will come
with a rewards program that will earn customers cash back on
purchases. They will earn 10 cents for every debit-card purchase,
online bill payment and check they write, the Riverwoods,
Ill.-based company said Wednesday.
Many banks have eliminated rewards programs tied to debit-card
purchases and raised monthly fees on checking accounts in the wake
of the Durbin Amendment, a provision in 2010's Dodd-Frank financial
overhaul legislation that cut in half the fees debit-card issuers
receive from merchants when a customer makes a purchase. Those fees
are one of the primary ways banks fund rewards programs.
Discover said its accounts, which it has long planned to make
available, will not carry monthly fees or minimum balance
requirements, and will come with free checks. The accounts are
currently available to a "limited number" of Discover credit
cardholders and will be rolled out to all cardholders this year. It
plans to make them available to non-customers in 2014.
"We combined what customers most want in a checking account with
the latest technology," Roger Hochschild, president and chief
operating officer of Discover, said in a statement.
Checking accounts add to the growing list of financial products
Discover has rolled out in recent years to diversify beyond
credit-card lending, its biggest source of revenue. The company
also offers savings accounts and certificates of deposit, and has
ventured into student loans, personal loans and, most recently,
mortgages, which it added last year.
The company is aiming to wrestle away customers from
branch-based banks by marketing directly to consumers online, which
it says allows it to offer products more cheaply than its big-bank
competitors.
Offering additional deposit products allows the company to grow
a cheap funding source for its loans. Other lenders, including
American Express Co. (AXP), Capital One Financial Corp. (COF) and
CIT Group Inc. (CIT), have increased their reliance on deposits
since the financial crisis.
Discover Chairman and Chief Executive David Nelms said in
December lowering its cost of funds was "our reason for launching"
checking accounts.
"We don't expect this to necessarily make money as a product,
except that it's going to be over time a good, low-cost, stable
source of funds," Mr. Nelms said during a conference call.
Discover had $27.9 billion in direct-to-consumer deposits as of
Nov. 30.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
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