iscover Financial Services let a trickle of water through the sluice gates five years ago when it began to work with ISOs. The stream turned to rolling rapids last month when the closed network opened its system to First Data Corp.

The companies announced that First Data will provide processing for Discover Network acceptance as part of an integrated service to small and medium-sized merchants.

More agreements between Discover and other processors are on the way. At least one is being negotiated and should come before the end of the year, said Harit Talwar, Executive Vice President of Discover Network.

"This is a great opportunity, not just for small merchants but for ISOs who link with various acquirers," he said. "This will provide ISOs the opportunity to price products and services in a more integrated fashion." It is something the acquiring and ISO communities have asked for.

First Data has a competitive advantage being the first processor whose ISOs and merchant level salespeople can market integrated card services that include Discover, he said. First Data will be responsible for pricing, processing, authorization, settlement, risk management and customer service on its merchant accounts.

"First Data is stepping up to provide an all-in-one payment processing solution for small to mid-sized merchants," said Henry C. (Ric) Duques, Chairman and Chief Executive Officer of First Data, on an earnings conference call in July.

"We already have extremely robust acceptance by both large and small merchants," Talwar said. "This is an opportunity to improve efficiency for small merchants and the scope of responsibility for acquirers of small merchants."

All under one roof

"This agreement signals a monumental shift in the marketplace. Merchants will have ... Visa, MasterCard and Discover transactions processing under one agreement with one discount rate, one integrated statement, one funding source and one customer-service number," Duques said.

Although Discover will lose some revenue from its current merchant accounts, the network will be able to streamline costs.

The agreement and other recent changes reflect Discover Network's new momentum, which began with a U.S. Supreme Court ruling in a Justice Dept. lawsuit against Visa's and MasterCard's exclusionary rules, Talwar said.

That ruling allowed acquiring banks to issue all card brands. Discover recently appointed a Merchant Advisory Council, which will mirror an issuer advisory council and an oversight committee comprised of financial institutions.

The merchant advisors will address trends like security and fraud protection, merchant support, and new payment technologies, but will not advise on interchange rates. The councils reflect Discover's transition since the ruling, Talwar said.

"Discover is evolving from a single-card company to multiple issuers and multiple acquirers," Talwar said. "Discover has always been a strong player, but you're seeing a stronger player since the ... ruling.

"We have always been proud about our corporate governance, which has been open, transparent, well-regulated and trustworthy."