Discover Financial Services Is Jilted by Apple, but Don't Give Up on Discover Yet

NEW YORK (TheStreet) -- Rumors have been plentiful since the Oct. 20 launch of Apple's (AAPL) Apple Pay without Discover Card that the future of Discover Financial Services (DFS) is bleak. But new voices are speaking up that the company’s delay in joining Apple Pay may be tactically wise and that, in fact, a still better marriage offer may be on the table.

For its part, Discover has explicitly expressed a keen interest in Apple Pay. At the recently concluded Money20/20 conference in Las Vegas -- focused on emerging payments -- Discover CEO David Nelms in a keynote said, “Apple Pay is important.” He suggested that Discover would in fact join the party eventually. “We expect to be participating. We don’t know when,” said Nelms.

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Experts increasingly say that Discover’s delay is plain smart. After the euphoria that greeted Apple Pay’s launch, many consumers have been forced to confront the limited merchant base. There just are not that many places to pay with an iPhone 6.

Nelms in fact noted that. “It will take longer than people think to get merchant adoption.”

Meantime, said Matthew Goldman, CEO of credit card optimization service Wallaby, there are persistent signs that Discover is struggling with getting in sync with current technology needs. It has yet to issue EMV cards -- a.k.a. chip and PIN cards -- said Goldman. It also is widely said that Discover is lagging in creating the security tokens Apple requires of Visa (V) , MasterCard (MA) and American Express (AXP) in processing transactions.

“But Discover will get there,” said Goldman.  None of these steps are daunting. It’s essentially a matter of throwing enough money and bodies at technical problems with known solutions.

Greg Garson, an associate partner who focuses on financial services with consulting firm High Start, agreed that a delayed entry into Apple Pay has few negatives for Discover. He elaborated that early embracers of Apple Pay are the ones that face the risks as the system shakes out. “From a market development standpoint, it is smart to stand back,” said Garson.

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He said that early Apple Pay adopters who had been Discover loyalists may abandon the card, but probably only temporarily. “It will be easy for Discover to get them to switch back to using its card once they are in Apple Pay.”

Bottom line: Garson sees only pluses for Discover in delaying inclusion in Apple Pay.

Nick Clements, founder of MagnifyMoney.com, a Web site about maximizing benefits of credit card balance transfer offers, and former head of the UK Consumer Business for Barclays' (BCS) Barclaycard, said: “No, you can’t count Discover out. If I were them, I would not be rushing to get into Apple Pay. I am sure Discover can get in when they are ready and want to.”

Discover, too, may have better merchant relationships than do the bank-focused Visa and MasterCard, and Apple may need to expand acceptance of Apple Pay, suggested multiple sources. Discover could be that lever.

But the zinger -- which circulated broadly in the corridors at Money20/20 -- is that Discover may be working on a deal with the Merchant Customer Exchange’s CurrentC mobile payments platform.

That WalMart  (WMT) -led initiative -- supposed to launch in early 2015 at more than 80 national retailers including Best Buy (BBY) and CVS (CVS) -- has often been said to exclude traditional credit cards because of the high fees (called “interchange”) imposed on merchants in accepting Visa, MasterCard and American Express.

At Money20/20 in a keynote, however, Dekkers Davidson, CEO of the Merchant Customer Exchange, flatly said that CurrentC will include “open loop” credit cards, that is, cards usable at many merchants as opposed to store brand cards, for instance.

The rumors prompted a question to Nelms at Money20/20 about Discover and MCX which prompted the answer, “We generally sympathize more with merchants than do other [credit card] networks. We were born out of Sears.”

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Discover has always strived to be flexible with merchants, he said. But that answer was a bit ambiguous.

Is a deal between CurrentC and Discover in the works? In response to a question from this reporter, Jon Drummond, director of public relations for Discover, emailed: “We're not offering comment at this time on CurrentC.”

But were that marriage consummated -- and Visa and MasterCard excluded from CurrentC -- suddenly, not being in Apple Pay just might seem unimportant.

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