David Nelms is going on an African safari this winter. An
adventurer who enjoys power boating, scuba diving and piloting
planes, Nelms should find that trip a lot more predictable than
running a consumer credit and payment company. The chairman and
CEO of Discover Financial Services has faced many challenges
since the financial crisis shook his industry.
With a market capitalization of $13 billion, Discover
is the sixth-largest U.S. credit card issuer; one in four U.S.
households uses its plastic. Its also the No. 2 U.S. card
company with its own network, after American Express Co. But
Riverwoods, Illinoisbased Discover almost didnt
make it after spinning out from Morgan Stanley in the third
quarter of 2007, just ahead of the Bear Stearns Cos.
More recently, the 11,000-employee firm has contended with
increased regulation thanks to the Credit Card Accountability
Responsibility and Disclosure (CARD) Act of 2009, which aims to
protect consumers from predatory lending practices.
But Nelms, who was named CEO in 2004 and chairman in 2009,
has much to celebrate. The Discover card is turning 25 with the
highest sales and lowest delinquency rates since its 1986
launch by Dean Witter Financial Services Group, then a division
of Sears, Roebuck and Co. In the third quarter of 2011, card
sales volume reached a record $26.3 billion, up 9 percent
from the same period in 2010. Meanwhile, credit card loans more
than 30 days past due hit an all-time low of 2.43 percent.
Nelms, 50, joined what is now Discover as president and COO
in 1998, the year after Dean Witter, Discover & Co. merged
with Morgan Stanley Group. The St. Petersburg, Florida, native,
who has an MBA from Harvard Business School, had previously
been vice chairman of credit card company MBNA America
Nelms helped to diversify Discovers business by
expanding into other banking areas, such as personal and
student loans, prepaid cards and deposit products. He also
acquired the Pulse debit and ATM network in 2005 and the Diners
Club International credit card network when Citigroup spun it
off in 2008. Diners Club gave Discover cardholders
entrée to millions of merchants in 185 countries and
Discover has a distinctly different business model from
MasterCard and Visa, both of which process payments made by
consumers using bank-issued cards that run on the banks
networks. Both a network and a direct bank, Discover issues its
own cards. Like American Express, the other major vertically
integrated card company, it holds all customer debt itself. If
that debt offers greater earning potential, it also makes
Discover more sensitive to economic shocks.