RIVERWOODS, Ill. – Discover Financial Services, the third biggest credit card brand, said net income for its second quarter ended May 31 declined 10% to $537 million as the parent of PULSE EFT network set aside more reserves and expressed growing concern about Visa’s pricing actions.

The new fee structure by the unnamed competitor took advantage of its 70% market share and created an uneven playing field, Discover CEO David Nelms said yesterday on his quarterly earnings call. Visa introduced a new fee structure in April called Fixed Acquirer Network Fee to push more transactions to its network that is expected to hurt other card processors.

Discover said it set aside $232 million in the second quarter to cover future bad debts, up 32% from the same quarter last year, despite the fact the company’s credit card loan delinquencies and net charge-offs reached historic lows. However, executives have said they expect to set aside more money to cover loan losses, known as a provision, as customer loan balances increase.

Second quarter revenues grew 5% to $1.66 billion.

Discover, known for its Diner’s Cards and PULSE network, has been expanding its financial services to include private student loans and home mortgages.



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