Discover Financial Services will soon add checking accounts to its financial-service product offerings as part of an effort to compete with bank branches for customers.
The online checking accounts could help Discover expand its consumer deposit base, which provides a source of cheap funding for its lending operations. Discover, which is best known for its cash-back program for credit cards, has also been working to expand by offering student loans, mortgages and savings accounts, Fox Business reports.
“Our strategy objective is to be the leading direct bank,” Discover President and COO Roger Hochschild said, according to Fox Business.
The new checking accounts will include a rewards program that allows customers to earn 10 cents cash back for every debit purchase, online bill payment and check. Many banks have gotten rid of rewards programs for debit cards and increased monthly checking account fees as part of an effort to recoup revenue lost as a result of the Durbin Amendment cap on interchange fees.
Discover said that the accounts will not be accompanied by monthly fees or minimum balance requirements, and customers will receive free checks, as well as access to ATMs and a check-deposit mobile app. Only a limited number of Discover credit cardholders will be able to access the accounts initially, but the program will become available to non-customers next year, Fox Business reports.
The company is seeking to acquire branch-based bank customers by direct marketing to consumers online, which will allow it to offer products at a cheaper price than megabank competitors.
Donald Fandetti, an analyst at Citigroup, said that Discover’s biggest challenge will be to influence customers to view the company as more than a credit card provider.
“One hurdle would be…educating the consumer that these products are available,” Fandetti said, according to Fox Business. “They have a very strong card business and a growing student-lending business, so all of this…is kind of additive.”