Brought to you by Discover . . . your partner in payment services Issue #3 • WINTeR 2011

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Welcome to HorizonSM As the new year begins, I would like to take this opportunity to thank you for your continued interest in our publication. I hope you find it valuable and insightful.

Although this past year had its challenges with legislative issues and a slow economy, 2011 appears to have some exciting opportunities on the horizon. Using new advances in technology, Discover will continue providing you with the latest products and services. Be sure to read this issue’s articles on our latest innovations in mobile commerce, including Isis,™

Discover® Zip® and the Marketing Platform.

As we all know, loyalty is a key driver of your business. At Discover, we strive to help you attract and maintain loyal card members. Co-brand and private label programs are two areas that can increase brand awareness and customer loyalty. We have included some information about Discover product capabilities and asked Auriemma Consulting to give us their perspective on these growing markets.

Please continue to provide us with your comments and ideas. We look forward to sharing more exciting information with you in the year to come.

Best Regards,

Kevin O’Donnell Group Executive, Credit Issuance

Customer loyalty in the card space, like in all industries, can and does mean many things. In co-brand or private label card partnership programs, creating, building and maintaining customer loyalty is all about the ability of the partners — bank, brand and network — to work in lockstep to create maximum value card programs for its mutual customers. If done right, cardholder loyalty will increase, and the partnership will reap many benefits, specifically increased brand product sales, higher credit card usage and tenure, and a profitable card program.

But what happens when the economy turns downward and government legislation affects the way banks do business? The impact has surely been felt in the economics of cardholder partnership programs: bank P&Ls are tighter, cardholders may be offered fewer rewards, and loyalty will suffer.

What to do?Traditionally, loyalty levers that drive a card partnership deal include: • Financial contribution from the bank to

the brand (typically royalties, bounties, marketing support)

• Credit card product (pricing, annual fee)• Value proposition (brand partnership and

related rewards) • Customer service• Credit risk policy (FICO, approval rates,

credit lines, etc.)

In the current environment, all levers will need to be explored for opportunities. Bank and brand agreements will emphasize profit- sharing arrangements where partners will “live or die” together. Reward platforms will be even more customized for profitable

cardholder segments. With financials as tight as they are today, however, the ability to impact customer loyalty through the traditional levers has been constrained.

There is a need for alternate approaches to attracting customer enthusiasm.

One area of significant but still untapped potential is the use of emerging technologies to positively impact the customer experience and attractiveness of a program. Technology can drive customer loyalty by improving the convenience and functionality of the card. It can also help generate buzz, attracting the ever-growing market segment that enjoys the “cool” new features of the digital and wireless age.

Most of the card industry is focused on mobile technology; some are taking action, others are taking a “wait and see” approach. Contactless cards are already in the market and RFID-enabled stickers (to be adhered to mobile phones or other personal devices) are currently being tested. Mobile applications allow cardholders to manage their bank accounts using their smartphones, though the penetration of these apps has been fairly limited to date. It remains to be seen whether these tools will generate significantly stronger customer loyalty in the co-brand or private

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IN THIS ISSUEMobile Marketing — Timely, Relevant and Empowering .............................................. 2

Suite of Products to Enhance Loyalty .................... 3

Joint Venture to Build National Mobile Commerce Network .............................. 4

Discover Orange Bowl ..................................... 4

Did You Know? ............................................... 4

Creating Maximum Value Card ProgramsLeveraging technology to build loyalty in credit card partnershipsBy Bob Taglin, Director, and Eric Marks, Managing Director, Auriemma Consulting Group, Alliance Development Practice

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Mobile phones, once considered a luxury, are now among the most common personal items that an average American carries. Today, over 240 million Americans, ages 13 and older have mobile phones, and close to 20% have smartphones. As the capability of mobile phones continues to improve, we are witnessing their utility expand beyond the traditional role of voice and data into the realms of payment and commerce. Mobile phones provide the opportunity for more targeted interactions, using consumer preferences and behavior to reach out to consumers in real time.

According to a Firethorn Consumer Survey conducted in February 2010, 85% of consumers said that they like to be on top of their finances daily, and three-quarters (76%) wish there was an alternative to carrying around a wallet stuffed with cards, money, offers, coupons, etc. Strong evidence from a recent Mobile Money Study suggests that over 60% of consumers want mobile commerce capabilities and would use them frequently. Currently, the majority of mobile activities circle around consumers seeking information (e.g., shopping confirmation, order status, store hours), but more consumers are beginning to use mobile phones to actually perform “commerce” such as comparison shopping or looking for deals.

Card issuers are in a position to use mobile commerce on a personal level to build deeper engagement and long-term loyalty. Mobile marketing can be used to increase revenue, build stronger brand images and provide insight into customer preferences.

The unique nature of mobile phones can also greatly enhance target-marketing efforts. Campaigns can be customized to

gain new customers, increase customer loyalty and cross-sell products. More efficient targeting typically leads to improved response rates and reduced costs. Because mobile offer campaigns are real-time digital campaigns, they can be quickly adapted to changing market conditions.

Improved, real-time analytical data allows companies to predict and measure responses to a campaign more reliably. Mobile provides superior authentication and therefore can be useful in checking the rapid proliferation of discount offers, as in the case of offers distributed on the Internet. Better response predictability ensures that the outcome and performance of a digital campaign can be predicted with more confidence (lower variability from forecast), leading to more confidence on the part of content providers in mobile as a channel for new offers.

Discover Network used a customer-centric approach to develop our loyalty product concept. In our view, the mobile solution is not just about delivering an offer … it must be accompanied by the right type of offers, a set of tools and payment vehicles, and delivered with the right type of communication mechanisms, integrated and delivered on a real-time, relevant basis.

Most experts agree that mobile commerce will be the future of payments and the key to delivering loyalty. At Discover, we believe that both mobile and contactless cards will continue to evolve into fully mobile tools as technology continues to advance. n

Mobile Marketing — Timely, Relevant and EmpoweringBy Joyce Chen, Senior Loyalty Manager, Discover Network

Creating Maximum Value Card Programs (continued from page 1)

label space. Other mobile initiatives offering potential for loyalty impact will require significantly more definition, development and investment.

ACG believes that mobile applications may present the best near-term opportunities to drive cardholder loyalty, as well as generate card and brand product spend. An example is location-based services, which would leverage a mobile phone’s GPS capability, enabling banks to identify (based on the location of the phone) the exact shopping location of their cardholders. This creates a potential new marketing channel with a simple message: “Take advantage of a deal in the store you are in right now.” Participating cardholders would receive text message offers of co-brand or private label bonus points, general store discounts and/or free gifts from the store they are in or from nearby merchants. New card-offered features could be downloaded by cardholders. The potential capability to provide relevant offers in real time is an exciting one to both cardholders and co-brand or private label partners. Furthermore, the barcodes and magnetic stripe technologies required are already

largely available for use by the parties involved.

In the partnership marketplace, all key loyalty levers must be utilized, but mobile technology has “game changing” potential, particularly in a tight economic environment in which customer loyalty is all the more important, but which requires creativity to drive. nThe views expressed in the preceding article are those of Auriemma Consulting Group, and do not necessarily reflect the views of Discover.

About Auriemma Consulting GroupAuriemma Consulting Group (ACG) is a full-service management consulting firm serving the payments and lending industries since 1984. With offices in New York and London, ACG’s Alliance Development practice helps companies create payment and lending partnerships that deliver long-lasting value. We work across the partnership lifecycle helping our clients to understand, plan, structure, select, negotiate, and manage successful partnership agreements.Bob Taglin, DirectorBob is a director and a long-tenured member of ACG’s Alliance Development practice. Eric Marks, Managing Director Eric leads ACG’s Alliance Development practice.

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Suite of Products to Enhance LoyaltyThe race to drive customer loyalty and revenues today centers around new ways to create value. As your business partner, we have created a variety of value-added products that center on the key to this strategy: using value-added services to drive loyalty.

Private label card products are branded with a merchant brand only and are only accepted at proprietary merchant locations. Although the card has no utility beyond these specific merchant locations, it can provide many ways to introduce new card features, including innovative payment and rewards programs. Discover’s Private Label Plus adds functionality to the standard private label program by supporting instant credit, merchant acceptance filtering, promotional financing, in-store payments, account look-up and maintenance.

Cash Over is an exclusive feature of Discover cards that allows cardholders to get cash back with their purchase without a PIN and with no transaction fees. It is designed to increase customer convenience and build merchant loyalty. Research shows that loyal shoppers increased their shopping trips with a participating merchant 17% year-over-year after they tried Cash Over. More than 33,000 supermarket, warehouse club, dollar and other retail locations nationwide offer Discover® Cash Over – with thousands of new locations coming soon!

Marketing Platform delivers the key ingredients of a loyalty solution: timeliness, relevancy and empowerment. Our Marketing Platform is an intelligent decisioning engine designed to deliver a suite of loyalty solutions to consumers. Its flexible architecture allows you as an issuer to easily create customized, targeted campaigns, and at the same time provides instant consumer insights that can trigger communications.

Marketing Platform is about more than offers, coupons or rewards. It is designed to take these loyalty point solutions, run them through an advanced analytical engine, and on a real-time basis, interrogate consumer’s

behavior/segmentation data, to determine what is the right offer to send to them via the right channel. The Marketing Platform will not change the offers, but it makes these offers much more targeted and delivers them in a way that makes sense to the consumer.

Discover® Zip®, an innovative payment solution that enables fast, secure transactions via contactless technology is back and now better than ever. Customers simply place a Zip-enabled device near a Zip contactless reader to

make a payment and be on their way. Merchants can increase volume and encourage customers to keep coming back by speeding them through their checkout lanes.

Recurring Payments with a credit card or debit card helps consumers simplify their lives and better manage their finances by automating payment of recurring or installment charges.

Research shows that consumers reward their credit and debit Recurring Payments billers with longer account retention and lower customer service costs.

Co-branded credit cards

feature the merchant brand on the card and are accepted everywhere a general-purpose card is accepted. For instance, the Walmart® Discover® co-brand card is accepted not only at Walmart, but also everywhere Discover cards are accepted. Co-branded cards can drive usage and build awareness. With our extensive resources and collaborative way of doing business, we can shape a co-branded card product around the specific needs and goals of any business.

Contact your Discover Network Relationship Manager for details on these products and more. n

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Upcoming Industry Events • WBA/FIPCO Bank Executives Conference,

February 7–9, 2011, Pfister Hotel, Milwaukee, WI

• NAFCU Strategic Growth Conference (National Association of Federal Credit Unions), March 15–17, 2011, Ft. Lauderdale, FL

• 23rd Annual Card Forum & Expo, April 27–29, 2011, Miama Beach, FL

In the last issue of Horizon, we announced our four-year, five-game deal with ESPN and the Orange Bowl Committee which includes the 2013 Discover BCS National Championship Game. The first Discover-sponsored Orange Bowl was held on January 3, 2011. It was one of the top five most watched college football games in ESPN history with 10.7 million viewers. n

AT&T Mobility, T-Mobile USA and Verizon Wireless are hard at work building their joint venture ISIS,TM a national mobile commerce network that will fundamentally transform how people shop, pay and save.

Isis’s initial focus is building a mobile payment network that utilizes mobile phones to make point-of-sale purchases. By utilizing smartphone and near-field communication (NFC) technology to modernize the payments process, Isis will deliver new levels of competition and value to consumers and merchants. Isis expects to introduce its service in key geographic markets during the next 18 months.

Michael Abbott, Chief Executive Officer of Isis and a veteran financial services executive with extensive experience in the payment and technology industries, seems confident that the new mobile commerce network will successfully use existing merchant relationships to provide an enhanced, more convenient, more personalized shopping experience for consumers. “While mobile payments will be at the core of our offering, it is only the start. We plan to create a mobile wallet

that ultimately eliminates the need for consumers to carry cash, credit and debit cards, reward cards, coupons, tickets and transit passes.” says Abbott.

Founding members AT&T Mobility, T-Mobile USA and Verizon Wireless collectively provide wireless services to more than 200 million consumers who will have access to the Isis service. Isis is working with Discover Network, currently accepted at more than seven million merchant locations nationwide, to develop an extensive mobile payment infrastructure for the joint venture.

Barclaycard US, part of Barclays PLC, is expected to be the first issuer on the network, offering multiple mobile payment products to meet the needs of every customer.

“We believe the venture will have the scope and scale necessary to introduce mobile commerce on a broad basis. In the beginning we intend to fully utilize Discover’s national payment infrastructure as well as Barclay’s expertise in contactless and mobile payments,” said Abbott. “Moving forward, Isis will be available to all interested merchants, banks and mobile carriers.” n

Discover Orange Bowl

Joint Venture to Build National Mobile Commerce Network

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Did You Know?2011 Sweepstakes Discover is now offering the 2011 Discover Sweepstakes. Talk to your Discover relationship manager to find out how to participate.

Discover Spending MonitorSM The Discover Spending Monitor now captures data specific to consumers from the credit union demographic. Check out the latest release at www.discoverfinancial.com/surveys/spending.shtml

NHL Sponsorship Increasing brand awareness with NHL sponsorshipIn an effort to build consumer awareness, Discover is expanding its sponsorships. Discover is now an Official Partner of the NHL® in the U.S. for 2011. This sponsorship includes NHL All-Star Weekend, NHL Winter Classic, NHL Awards™ and the NHL Entry Draft. As part of the deal, Discover has also become the presenting sponsor of the NHL All-Star Game.

If you have any article topics that you would like to see included in Horizon, please contact Jodi McCullough, Credit Issuance, at jodimccullough@discover.com

© 2011 DFS Services LLC