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<p align="justify">Discover Financial Services (DFS) is a public sector financial services holding company founded by Sears in 1985. The company is headquartered in Riverwoods, Illinois, USA. The company operates in the different segments of the financial services industry through its subsidiaries Diners Club International, Discover Bank, Discover Network, and Pulse. The company issues its credit cards along with that they operate commercial and consumer banking service. The primary business segment is digital payment processing, and it has numerous reciprocal arrangements for card acceptance across the globe. The company has no fees credit cards with global approval; DFS has a vast experience of being in the industry. Discover champions the policies of inclusion and diversity that have led to it being voted as the best place to work for Large US companies on Glassdoor in 2021 (Discover, 2021). Porter&#8217;s five forces analysis is a valuable tool to assess the business and financial risk DFS is exposed to in the global financial services sector.</p>
<h2>Competitive Rivalry in the Market</h2>
<p align="justify">DFS is one of the oldest companies in the industry, and the industry has an oligopolistic competitive environment. DFS has vast experience of digital payments frontiers, and it’s well placed in this sphere. Its main rivals are American Express, Mastercard, and visa. DFS is currently positioned at 231 among Fortune 500 global companies; it has reported a profit of $.9 billion and revenue of $13.9 billion (Fortune, 2021). American Express reported revenue of $38.1 billion and profit of $3.1 billion, and the company is the highest-ranked US payments processing company in the Fortune Global Index ranked at 67 (Fortune, 2021). Mastercard is ranked 191 in Fortune 500 index; the company made a profit of $6.4 billion and revenue of $15.3 billion (Fortune, 2021). Visa reported revenue of $21.4 billion and earned a profit of $10.7 billion, with a profit to income ratio of 52.6%, and the company is at 137th rank in Fortune 500 global companies (Fortune, 2021).</p>
<h2>Threat of Substitutes</h2>
<p align="justify">In the industry, the threat of substitutes is moderate to high. There is massive upside potential for the industry to grow and excel. From 2010 to 2019, revenues for the payments industry have grown 1.5 times more than the GDP growth rate (Albonico et al., 2020). The data-intensive nature and access to a swath of data make it a prime candidate to disrupt leveraging technology such as Natural Language Processing and Machine Learning. Total transaction value is expected to show an annual growth rate (CAGR 2021-2025) of 12.00% resulting in a projected absolute amount of US$10,520,219m by 2025 (Statista, 2021). The increased volume of transactions and the data is a testament that a company can achieve more efficiency by using technology. Today, more than ever, people use intelligent appliances, which has opened a new market segment for digital companies. Therefore, the threat of substitutes remains moderate.</p>
<h2>The Threat of New Entrants</h2>
<p align="justify">The threat of new entrants is to be moderate in the digital payments processing industry. There are inherent barriers to entry, such as compliance requirements and capital investment. There is a high compliance cost that needs to be borne by the payment processing companies (Cap Gemini, 2021). The firms are using exceptional outsourcing firms to take care of the legal compliance and reduce cost. Another barrier is the high initial investment required. The accelerated growth and potential for a good return on investment have attracted venture capital firms to invest in new startups, which has encouraged the new aspirants to disrupt the industry. The digital landscape has expanded due to the pandemic, which acted as a catalyst to accelerate the adoption of digital solutions. With all these factors, the threat of new entrants is assessed to be moderate to high</p>
<h2>Bargaining Power of Buyers</h2>
<p align="justify">The buyers&#8217; bargaining power depends on the underlying factors, such as buyer&#8217;s concentration, product differentiation, alternative products, and switching costs. The important buyers in the industry are banks, merchants with private cards, credit unions, and governments. Governments hold higher bargaining power as they can create regulatory pressure, bank and credit unions bring customers and increase the transaction volume, therefore, directly responsible for increased revenue. Moreover, banks and credit unions have merged, and they have formed a concentration allowing them to negotiate better terms. Now, these buyers are aware of their importance to the business, and when they are mindful of their significance, they can drive down prices and thus impact the company&#8217;s bottom line (Dess et al.,2006). In addition, buyer&#8217;s concentration and low switching cost can increase the buyer’s power to negotiate better terms (Porter, 2008). Therefore, buyers hold high bargaining power.</p>
<h2>Bargaining Power of Suppliers</h2>
<p align="justify">The bargaining power of suppliers consists of the state of the industry and underlying factors. In the industry, in general, suppliers can exercise moderately to low bargaining power. The vital suppliers for the card issuers are the specialist software providers responsible for providing vetted softwares for the payment companies. There is a stringent set of compliance requirements to ensure the system&#8217;s integrity is maintained and adequately protected against any potential breaches. Companies can choose from available service providers, and now leading companies deploy in-house teams to reduce reliance on vendors. Suppliers assert higher power if they are in concentration, and they can compromise the product quality (Tang, 2018). Another source of supply is expert financial, human resources; these people are in abundance and are willing to work in a good fast-paced environment. Therefore, suppliers have low bargaining power</p>
<h2>References</h2>
<p style="text-align: left;" align="left">Albonico, M., Nagy, T., Farroni, A. &; Digiacomo, N. (2020). The 2020 McKinsey Global Payments Report. Avaialable at: https://www.mckinsey.com/~/media/mckinsey/industries/financial%20services/our%20insights/accelerating%20winds%20of%20change%20in%20global%20payments/2020-mckinsey-global-payments-report-vf.pdf<br />
Cap Gemini (2021). The Impact of Regulatory Compliance on the Card Industry. Available at: https://www.capgemini.com/wp-content/uploads/2017/07/The_Impact_of_Regulatory_Compliance_on_the_Card_Industry.pdf<br />
Dess, G. G., Lumpkin, G. T. and Eisher, A. B (2006). Strategic Management. Text and cases. Internationaledition. London: McGraw-Hill.<br />
Discover. (2021). Company. Our Company. Awards and Recognition. Available at: https://www.discover.com/company/our-company/awards-and-recognition/<br />
Fortune. (2021). American Express. Available at: https://fortune.com/company/american-express/fortune500/<br />
Fortune. (2021). Discover Financial Services. Available at: https://fortune.com/company/discover-financial-services/fortune500/<br />
Fortune. (2021). Mastercard. Available at: https://fortune.com/company/mastercard/fortune500/<br />
Fortune. (2021). Visa. Available at: https://fortune.com/company/visa/fortune500/<br />
Porter, M., E. (2008). The Five Competitive Forces That Shape Strategy. Harvard Business Review (HBR). Available at: https://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy<br />
Statista. (2021). Digital Payments. Available at: https://www.statista.com/outlook/dmo/fintech/digital-payments/worldwide<br />
Tang, Y. J. (2018). Bargaining Power of Suppliers and Franchisers, and Corporate Performance―Evidence from Chinese Manufacturing Listing Companies in the Year 2005-2007. Chinese Industrial Economy, 10, 67-76.</p>
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