Discover's journey from fintech darling to savvy strategist

Discover's aggressive technology strategy made it among the first participants in the Google, PayPal and Softcard mobile wallets at a time when most banks — and most consumers — had no idea what this new technology meant.

The perception now is that things have slowed considerably for Discover, especially the notion that it would be the first supporter of new payments technology. The turning point was Apple Pay, which Discover did not support until September of 2015, nearly a year after the mobile wallet's launch.

Perhaps Discover's extensive experience with other mobile wallets led it to balk at Apple's notoriously one-sided terms, even as other card brands and issuers bent over backward to be among the first Apple Pay supporters. Discover may have also been influenced by its own Pulse network's Debit Issuer Study, which found only a 0.68% average penetration of eligible debit cards loaded on Apple Pay a year after the mobile wallet's launch.

Either way, Discover clearly concluded that it was wise to wait on Apple Pay, and has taken the same pragmatic approach to new technology ever since.

Andrew Harrer/Bloomberg

"I think their position has been to become a good follower, not necessarily a leader" in mobile technology, said Brian Riley, director of card services for Mercator Advisory Group. "It has been clever in a lot of ways, especially when you look at the way they handled Apple Pay. Everyone else was paying a lot of money to be certified and Discover was not in that first round and let everything settle before they came in."

Discover hasn't sidelined itself completely; it's just gotten more selective.

A year ago, the company was an early adopter in using Apple's Face ID technology for authorization into the Discover mobile app. That announcement came just two months after Discover said it was the first major credit card issuer to allow its cardholders to redeem the card's Cashback Bonus rewards through Apple Pay.

Still, there's been a change in philosophy about how to approach new payments technology, even if there hasn't been a change in strategy at Discover.

"In the past, things were happening very quickly and there was an adoption rate mindset of just getting out to market on a few of those wallets," said Shaida Lynch, vice president of e-business at Discover. "Now, there is a proliferation of them and it is a little overwhelming landscape for our customers."

A slower approach also assures Discover customers and stakeholders that the card brand is being careful about its partnerships.

"We want to make sure we get the experience right," Lynch said. "We are still very much digitally oriented, as our bank is 100 percent digital, so we are not shying away from making those plays."

If it is any indication at all which way Discover will move in the future, CEO Roger Hochschild is already on the record as saying Amazon and Google are not threats to traditional financial services, but rather potential "partners with leading-edge capabilities."

Hochschild took over as CEO in October, while retiring CEO David Nelms stays on as executive chairman until he leaves the company in early 2019. He'll likely carry on most of Nelms' initiatives, particularly having a relationship with PayPal intact, as the two companies have worked for years to have some type of meaningful interaction in place.

The card brand's agreement to make PayPal payments available to Discover cardholders nearly two years ago reinforced Discover's desire for a relationship with the digital payments brand, considering that a previous agreement in 2011 to increase PayPal in-store transactions through Discover never gained momentum because major processors would not accept the transactions.

"Really for us, it is not about betting on new technologies and making sure we get all of the newest things out there that are flashy," Lynch said. "Our focus is more in making sure we are ready when the customers arrive."

Lynch points to the various partnerships with merchants and vendors that Discover has enjoyed over the years as examples of how the company is trying to customize experiences for its cardholders.

"We have not been aggressive, not because we don't think we can compete in this space, but more for how we go about approaching those technologies and how many different experiences and partnerships we are putting out there at once," Lynch added.

That approach should serve Discover well for years to come, Mercator's Riley said. "It took them a while, but they play well in the digital sandbox," he added. "They have all sorts of bilateral partnerships that give them card acceptance throughout the world and opens the door for the right technology advancements."

With even more of those advancements coming forward in e-commerce, voice-controlled virtual assistants and internet of things, Discover knows it has to pay close attention and make sure any decision passes its due diligence.

"Our digital strategy is part of the overall company strategy of the customer first," Lynch said. "We want to make sure we are delivering easy-to-use experiences that meet our security standards … otherwise, we aren't going to market with it."