EXECUTIVE SUMMARY
- As organizations grow and release products, management tend to lose focus on few small areas where they can save money, expenses spent on office and supplies, expenses on teams and so on.
- There are many places that Discover Financial Services is over spending money and this paper points out few places where it can be saved and explaining in detail how and where it can be saved.
- I would be detailing out on the introduction, literature review, empirical analysis (explaining about the problem statement and providing the solution for the problem) and finally conclusion.
INTRODUCTION
Discover Financial Services is a credit card company that was established in 1986 being both issuer and acquirer like American Express ranking currently third after Visa and Mastercard. Discover Cards rank 7th in the top credit cards list having its own network and being both the issuer and acquirer with $139.03 billion in sales volume/transactions, 57.8 million cards in circulation, 2.1 million locations (worldwide), 10.4 million merchants (in U.S), 185 countries/territories, $10.7 billion net revenue, $2.7 billion net income. Discover introduced many new offers like $0 annual fee, no foreign transaction fee, no late fee for first time, free fico score.
Overlooking of expenses at small price differences is often very common in businesses. This is happening even at Discover Financial Services; I will be using the concepts that I read in Managerial Economics to save some money for the organization that I currently work.
LITERATURE REVIEW & EMPIRICAL ANALYSIS
PROBLEM STATEMENT
- Plastic credit cards being weak and not long lasting, causing more investment in reprinting and reproducing the cards
- Vendors moving employees between different clients for more money thus knowledge leaving the organization with them as there is no documentation or right process to transfer the knowledge between the old and new employees.
SOLUTION
- Plastic Cards doesn’t have much strength to hold for longer time, the life span being for 2years and then printing them again for the existing customers upon breaking of credit cards costs the companies 5 times the production cost than the Carbon-fiber cards/Metal cards. Carbon Fiber being the same cost as plastic could make it last long for 10 years which is 5 times the existing plastic cards. This could bring down the production and printing cost being spent on a credit card.
$2 is being spent on the production and printing cost of plastic credit card for 2years, that would be $115.6 million for 57.8 million
$57.8 million * $2 = $115.6 million
existing customers and it would be $1156 million
$115.6 million * 10 = $1156 million
for 20 years, but if the carbon fiber credit card is provided to customer, it would be the same $2 for 20 years for one card, which would save >$1040.4 millions
$1156 million – $115.6 million = $1040.4 millions
of amount that is being spent on production and printing cost of one credit card because of the strength and durability of carbon fiber card being used.
- Contracting is a good way to save money, especially to get people experience in certain areas that the company do not want to invest in hiring and training. This holds true no more as the vendors started to play by moving the contractors for more price and demand between different clients they have, this eventually led to knowledge leaving the company.
If an average of $110 is being spent for 8 months, that would end up with $1,40,800
$110 * 8 months * 160 hours = $1,40,800
instead if an intern/graduate student is hired and taught all the work along with the contractors that would end up with $1,20,000 (The $1,20,000 is considered base on hiring the contracts for 3 months at $110 per hour and hiring the fresh graduates for $40 an hour and make them work together, then increase the hourly rate of fresh graduates to $60 an hour)
($110 * 3 months) + ($40 * 3 months) + ($60 * 5 months) = $1,20,000
which would save around $30,000
$1,40,000 – $1,20,000 = $20,000 for 8 months
$20,000 * 3 / 2 = $30,000
per year per person. There are 2000 contractors that does the normal stuff at Discover and that would save >$60 million
$30,000 * 2,000 people = $60 million
CONCLUSION
Analysis of a product should be done based on both short-term and long-term. Proper research and considering for continuous improvement should always be open in an organization and always look for opportunities to save money for the organization. From the time the company has been established, Discover has been using the plastic cards and I think that they forgot to analyze on the long-term benefits of using a quality and durable product as there has been many advancements in the outside world for materials.
There are various other places that money can be saved that encourages the company to hire and invest on new college hires instead of contracts which brings in more fresh ideas and new talent for the company that will finally benefit for the organization. This money can be invested on training for the new college hires and few other places that can help them grow professionally.
REFERENCES
Jessica, M. (Aug 02, 2019) – “What Are the Largest U.S. Credit Card Companies?” Retrieved on October 15, 2019 from https://creditcards.usnews.com/articles/what-are-the-largest-us-credit-card-companies
Wallethub (April 23, 2018) – “American Express vs. Discover: Which is better (at home and abroad)?” Retrieved on October 15, 2019 from https://wallethub.com/answers/cc/american-express-vs-discover-2140663734/
Wallethub (April 25, 2018) – “Discover vs. Visa: What are the pros and cons?Retrieved on October 15, 2019 from https://wallethub.com/answers/cc/discover-vs-visa-2140663845/
Lindsay, K. (Sep 18, 2018) – “What Makes Discover and American Express Different from Visa and Mastercard.” Retrieved on October 15, 2019 from https://www.nerdwallet.com/blog/credit-cards/discover-amex-issue-process-own-cards/
Joe, R. (n.d.) – “Where and How Widely are Visa, Mastercard, Discover and American Express Credit Cards Accepted?’ Retrieved on October 15, 2019 from https://www.valuepenguin.com/where-visa-mastercard-american-express-discover-accepted
Tim, P. (July 26, 2019) – “Discover Credit Cards: Advantages and Disadvantages.” Retrieved on October 15, 2019 from https://www.investopedia.com/articles/personal-finance/020515/discover-credit-cards-advantages-disadvantages.asp
Steve, D. (May 24, 2019) – “Is Discover set for the next downturn?” Retrieved on October 15, 2019 from https://www.chicagobusiness.com/finance-banking/discover-set-next-downturn
Kevin, W. (June 11, 2019) – “Capital One, Discover prepping for next downturn.” Retrieved on October 15, 2019 from https://www.americanbanker.com/news/capital-one-discover-prepping-for-next-downturn