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Recently, Discover Financial Services (DFS - Analyst Report) expanded its business alliance with Japan Credit Bureau (JCB). The expanded relationship will allow the U.S. ATM acquirers to route all JCB transactions over PULSE – Discover Financial’s ATM, debit and electronic funds transfer network.

Earlier, the cards of this Japanese company were accepted only for point-of-sale transactions over the PULSE network. The 7-year old alliance also allows Discover Financial’s cards to be accepted on the JCB network in Japan.

However, now Discover Financial’s PULSE network has become JCB’s preferred network for global ATM transactions and hence, the two companies have expanded the partnership. As a result, the 415,000 ATMs falling in the purview of PULSE’s American network will begin accepting JCB transactions from Aug 2013.

The alliance is expected to boost the transaction volume on Discover Financial’s PULSE network. This in turn will boost the revenues of Discover’s Payment Services segment.

The agreement is a part of Discover Financial’s global network-to-network strategy. The company is widening its network to provide wider options to individual and institutional clients.

So far in 2013, Discover Financial has announced affiliations with Birmingham-based Cadence Bank and Nigeria-based Interswitch Limited to boost card acceptances and transaction volume. Apart from that, the company launched Discover Cashback CheckingSM – a checking account offering cash back rewards – and Discover It – a new credit card that charges no annual fee, over-limit fee, pay-by-phone fee, foreign transaction fee or any fee on the first late payment – to expand its market presence.

Discover Financial has set a long-term growth rate target of 2%–5% for card receivables, 5%–10% for other consumer lending and over 10% for payment volume. Further, the company wants to achieve return on equity of 15% and Tier 1 common ratio of about 9.5% in the long term.

Discover Financial currently carries a Zacks Rank #2 (Buy). Other stocks in the financial sector that are worth a look are Credit Acceptance Corp. (CACC - Snapshot Report), Visa Inc. (V - Analyst Report) and Regional Management Corp. (RM - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).

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