Discover reports upswing in Q4 volume as it continues pushing its pandemic recovery forward

Discover's total network volume in Q4 grew 6% year over year (YoY), with proprietary network volume experiencing a 5% YoY increase. The total network volume growth in Q4 represents a slight slowdown from Q3, when it grew 7% annually; however, its Q4 proprietary network volume shows signs of major improvement compared with the prior quarter, when growth remained flat.

All of Discover's key segments saw improved volume growth in Q4.Insider Intelligence

  • Discover's Q4 earnings report shows volume growth improvement across its main categories.
  • The company can leverage this growth to tweak its rewards offerings and continue its pandemic recovery.
  • Insider Intelligence publishes hundreds of insights, charts, and forecasts on the Payments & Commerce industry with the Payments & Commerce Briefing. You can learn more about subscribing here.

Volume was again driven primarily by its network partners segment, with this category growing a whopping 23% YoY. Notably, the company's debit card network, Pulse, experienced 10% annual growth as well, which reflects the impact of stimulus funds and higher debit transaction sizes during the coronavirus pandemic, Discover CEO Roger C. Hochschild said on the company's earnings call.

All of Discover's key segments saw improved volume growth in Q4—despite ongoing declines in the travel & entertainment (T&E) categories—bringing overall sales volume up 5% YoY.

  • Retail: Sales volume growth spiked 20% annually in Q4, up slightly from Q3 when it grew 18% YoY. Growth in Q4 was likely thanks to the ecommerce-heavy holiday shopping season.
  • Grocery: The category posted a 14% annual uptick in volume growth, remaining an important segment as the pandemic drives demand for essential purchases. The category improved slightly from Q3, when sales volume grew 13% YoY.
  • Restaurants: Restaurant volume growth dipped 10% YoY—and though it declined, it's an improvement over Q3, when volume growth fell 18% YoY. The segment was likely boosted by the pandemic-driven acceleration of food delivery apps.
  • Gas: Volume growth slipped 20% annually, showing minor recovery over Q3, when growth sank 23% YoY. Volume may have continued to slip in Q4 due to worsening pandemic conditions in the early winter months, forcing consumers to spend more time at home.
  • Travel: This segment was hit hardest but is seeing ongoing improvement: Q4 volume growth plunged 53%, up from when it tumbled nearly 60% YoY in Q3. Declines continue to be driven by the pandemic's negative impact on the travel industry.

Rewards will continue to play a key role in Discover's recovery—and by focusing rewards on growth categories, the company can offset T&E declines and grow overall card sales volume. Hochschild said that Discover's rewards program provides a lot of value for the company and that cash rewards specifically are beneficial.

This is demonstrated by Discover periodically tweaking its rewards offerings throughout the pandemic to reflect current shopping trends, as well as the company's recent move to allow travel cardholders to use reward points toward select nontravel purchases.

Continuing to cater rewards to current shopping habits can help induce increased consumer spending, enabling Discover to elevate overall volume and continue its recovery, especially as pandemic conditions improve thanks to additional government stimulus payouts and coronavirus vaccine administration.

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