Discover is on a roll this year and we’re barely into March. You may recall its bold decision to introduce a single credit card that allows a cardholder to define which features he’s more likely to use. Now, the credit card giant that’s consistently ranked number on in customer service satisfaction has announced that it would be offering home equity loans before the year is up.
In Los Angeles yesterday, Discover Financial Services announced it would roll out home equity loans this summer. This is its latest efforts to transition into traditional banking – and it’s a good one. Senior executives wasted no time in laying out its game plan for the programs to investors.
Making a Mark in Credit Cards
Remember, Discover quickly rose to become a formidable player in the credit card sector. As a result, it quickly became major competition to the names that were synonymous with credit – Visa, MasterCard and American Express. Now, though, Discover not only is offering a credit card product, the Discover It, that none of the other big players have come close to matching, but it’s making great strides in its mortgage products.
The company announced it would be offering fixed-rate home equity loans between $25,000 and $100,000 to homeowners. This, from executive Vice President of Consumer Banking and Operations, Carlos Minetti, along with an appealing array of other home equity loan products, would appear to homeowners whose goal was to consolidate their debt while also “complementing Discover’s personal loans”. Those, said Minetti, would be capped at $25,000. It’s probably a wise move to cap the total offerings.
It’s not likely, explained the executives, these programs will have any type of direct impact on the company’s bottom line this year and probably not next year either, but it’s laying the groundwork for its transition into mainstream banking. Along with its credit card products, the company also is now offering student loans, personal loans, automobile loans and now, mortgages. It’s not exactly clear on what the hopes are in terms of what Discover will look like ten years from now. Does it expect to compete with other big names like Capital One or Bank of America? Those answers haven’t been provided yet.
Acquisitions of the Quiet Kind
Last year, Discover quietly acquired Tree.com, a mortgage business that Discover paid $46 million in order to do so. Already, the financial giant has funded $2 billion in mortgages alone. It’s a risky move, especially considering how bad the last few years have been for the mortgage sector. Remember, millions of consumers wasted no time tapping into their home equity to cover their lifestyles and financial obligations. That, of course, is what’s blamed for the housing bubble burst of 2008. It’s also what ultimately led, at least in part, to the recession that begun in the same year. The circumstances are slightly different now, though – but still, it’s not an ideal environment.
Changing Economy, Consumer Mindset
Now, though, the tides have shifted and more opportunities are being seen and defined. Home prices are on the rise and already annual increases are higher than what they were eight years ago. It’s clear these shifts are once again going to affect the economy and consumer spending habits – this time, though, in a more positive way. Equity in our investments – specifically our homes – is no longer a proverbial “four letter word” and lenders are beginning to ease – albeit slightly – their approval processes. Discover’s timing couldn’t be better.
Minnetti also said that loss rates on new home loans have returned to pre-housing crisis levels – about 1 percent, which is down from around 3 percent to 4 percent during the worst of the downturn. He then went on to explain Discover’s existing customer base could provide “fertile ground for home equity loans”. He also noted that about 80 percent of the company’s credit card customers are homeowners. And speaking of Discover credit cards, if you’ve not heard about Discover IT, you should know that in its first few months, it’s already become the credit card to beat this year.
As mentioned, this latest Discover product is the latest offering in credit cards across the board. It emerged with promises of big changes in the way we view our credit cards as well as the way we handle our finances. With the Discover It card, there’s not only no annual fee, but your first late payment penalty fee – should you ever face it – is waived with no repercussions on your credit report or APR increases, either. There is also an absence of over the limit fees and no foreign transaction fees. Consumers can take advantage of the 5% cash back in rotating categories along with impressive financial tools that are easily accessed via the Discover site. Currently, the credit card comes with fourteen months a 0% intro APR on purchases and balance transfers. This is a great credit card offer and one consumers are turning to and quickly singing the praises of its unique approach to both consumer satisfaction and versatility.
So does this mean Discover is the credit card company to beat? Possibly. While it’s understandable to want to grow and evolve, it’s a risky time for any financial company to set such high and aggressive goals. The economy is still unpredictable, after all. There are no guarantees that the worst is behind us – and in fact, some say there are signs that we’re about to get a double dose of the worse of what the past three years brought us. That said, if Discover can pull this off, it’s positioning itself to become a leader in far more than consumer and small business credit cards. It could very well become the force that finally causes the too big to fail dynamic many banks are desperately holding onto to actually and finally fail. Time will tell though.
So what do you think about Discover breaking into the mortgage sector? Should it play it safe for awhile or is it a wise choice to keep an aggressive mindset? Also, are you using the new Discover It card? If so, let us know how it’s working for you. Is it everything it promised to be?
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