The Riverwoods, Ill., credit card lender announced a deal with eBay (EBAY - Get Report) unit PayPal, for PayPal's customers to be able to use the service to make purchases at the 7 million retail locations that currently accept Discover, beginning in the second quarter of 2013.
Discover went on to say that PayPal would also be brought "potentially to millions of international merchant locations in the future." Discover Payment Services president Diane Offereins said that "the establishment of this relationship is a major industry milestone, which will help shape the emerging payments landscape by bringing together an established direct banking and payments company with a leading commerce enabler to create an alternative payments option for consumers at the point of sale."
KBW analyst Sanjay Sakhrani rates Discover "Outperform," with a $40 price target, and said on Wednesday that the PayPal deal was "clearly a big win for the network side of the business as it exemplifies the value-added services it can provide and the optionality of the company's business model." The analyst added that "while there are likely to be some costs associated with the roll-out, we think it should be manageable for the company," and estimated that "Discover could earn 10-20 bps of the transaction, which would be consistent with