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CORRESP

 CONFIDENTIAL TREATMENT REQUESTED BY DISCOVER FINANCIAL SERVICES

PURSUANT TO 17 C.F.R. § 200.83 (RULE 83)

 CERTAIN PORTIONS OF THIS LETTER HAVE BEEN OMITTED FROM THE VERSION

FILED VIA EDGAR. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH

RESPECT TO THE OMITTED PORTIONS. INFORMATION THAT WAS OMITTED IN THE

EDGAR VERSION HAS BEEN NOTED IN THIS LETTER WITH A PLACEHOLDER

IDENTIFIED BY THE MARK “[***].”

October 24, 2024

 Via
EDGAR

 U.S. Securities and Exchange Commission

 Division
of Corporation Finance

 100 F Street, NE

 Washington,
D.C. 20549

Attention:
 Michael Henderson

 
 Marc Thomas

Re:
 Discover Financial Services

 
 Form 10-K For the Year Ended December 31, 2023

 
 Response Dated October 4, 2024

 
 File No. 001-33378

Dear Messrs. Henderson and Thomas:

 Discover Financial Services
(“Discover,” “DFS”, “the Company”, “we”, “our”), is pleased to provide this response to the comments of the Staff (the “Staff”) of the Division of
Corporation Finance (the “Division”) of the U.S. Securities and Exchange Commission set forth in its letter, dated October 11, 2024 with respect to the above-referenced annual report on Form
10-K.

 For the Staff’s convenience, the text of the Staff’s comments is set forth below in bold,
followed in each case by our response.

 Form 10-K For the Year Ended December 31, 2023

Item 8. Financial Statements and Supplementary Data

Notes to the Consolidated Financial Statements

26. Immaterial Restatement of Prior Period Financial Statements, page 144

1.
 As it relates to Discover management’s incorrect classification of Consumer cards as Commercial cards,
and as we relayed in a telephone conference with Discover’s management on October 2, 2024, we have considered the information conveyed in both your letter dated September 3, 2024 and during a conference call with Discover’s
management on September 17, 2024. Based on that information, we object to the Company’s methodology for the correction of errors in the application of ASC 605, Revenue Recognition, as well as ASC 606, Revenue from Contracts with Customers.
Please provide to us a revised analysis that reassesses the methodology it has employed to correct

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 CONFIDENTIAL TREATMENT REQUESTED BY DISCOVER FINANCIAL SERVICES

PURSUANT TO 17 C.F.R. § 200.83 (RULE 83)

the revenue errors under ASC 250 related to the incorrect classification of Consumer cards as Commercial cards, including how you propose to correct your historical financial statements. The
reassessment should contemplate the Consumer rates and tiers in effect during the respective periods and the historical classification of properly classified Consumer cards in those respective periods.

Response:

 We respectfully acknowledge the
Staff’s comment and its objection to the Company’s methodology for the error correction we originally recorded in our financial statements for the second quarter of 2023. In response to the Staff’s comments, management reconsidered
its evaluation of the impact of the card product misclassification (the “Misclassification”).1

Why the gross overcharge estimate is inconsistent with ASC 606

The Company’s estimate of gross overcharges using the original Tiering Simulation2 was approximately
$1.1 billion as of June 30, 2023. Refinements to the Tiering Simulation over the subsequent quarters revised that gross estimate to $985 million. [***] As noted in our letter to the Staff dated September 3, 2024, we evaluated the
error correction as a corollary of measuring the restitution liability estimate under ASC 450-20 rather than as a refund obligation under ASC Topic 606.

The pricing of transactions on Discover Bank’s Consumer credit cards is dependent on the tier in which the cards are placed. Discover’s Consumer
credit card product tiers as defined in our Program Documents are generally defined as:3

 [***]

The gross overcharges estimated through the Tiering Simulation reflects only the impact of re-tiering Discover Bank
cards inappropriately classified as Commercial into the Consumer tiers; the estimated gross overcharges do not reflect the re-tiering of other Discover Bank Consumer cards that we would have expected to occur
were the cards to have been reclassified as Consumer cards using the assumptions used in the refined Tiering Simulation. [***] The net result of these two measurement elements was the $365 million in the Company’s estimate as of
June 30, 2023.4

1
 Throughout this letter, references to “cards” refers to credit cards accepted on the Discover
Network, unless indicated otherwise.

2
 As described in our letter to the Staff dated September 3, 2024, and as used in this letter, the term
“Tiering Simulation” refers to the estimation methodology that was used as the basis for initially estimating the restitution plan liability as of June 30, 2023. Both the gross and net overcharge estimates are derived from the Tiering
Simulation. After certain refinements, the Tiering Simulation became the basis for computing the pricing overcharges component of the settlement of the putative class action with merchants, merchant acquirers and other intermediaries. [***]

3
 As used in this letter, the term “Program Documents” refers collectively to materials published and
distributed by Discover Network including Merchant Operating Regulations, Acquirer Operating Regulations, Credit Operating Regulations, fee guides and manuals, technical specifications, and other documents that govern the relationships between
Discover Network, on the one hand, and merchants, merchant acquirers, and issuers (including Discover Bank) on the other.

4
 [***] Those factors were adjusted for in the refined Tiering Simulations performed for the third quarter of
2023 and later periods. Those differences notwithstanding, all Tiering Simulations provided the computations supporting the two elements described above.

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 CONFIDENTIAL TREATMENT REQUESTED BY DISCOVER FINANCIAL SERVICES

PURSUANT TO 17 C.F.R. § 200.83 (RULE 83)

 In simulating these impacts, the Company applied 2023 tiering guidelines and 2022 pricing data and
extrapolated the sales mix across the historical periods to derive the original $365 million estimate. [***] The second table in Appendix A provides details on the assumptions and data used in the various Tiering Simulations.

We acknowledge the error that was corrected in June 2023 should have been limited to the excess revenue associated with sales on Discover Bank cards that were
inappropriately placed in the Commercial tier and not reflect any re-balancing of Consumer tiers that hypothetically would have resulted using assumptions in the Tiering Simulation. To determine the adjustment
required to correct our revenue error, we calculated the difference between the amounts charged for Commercial cards with the corresponding amount that we estimate would have been charged had the impacted cards been classified as Consumer cards in a
manner consistent with the relevant Program Documents. While this is similar to the first element of the aforementioned Tiering Simulation, a different analysis was required to derive an estimate that would be appropriate under ASC 606. 

Revised analysis to estimate the revenue error in conformity with ASC Topic 606

When determining the revenue error in conformity with ASC 606, we focused on our rights and obligations under our contracts with our customers that were in
place each year. ASC 606-10-25-2 notes that contracts are enforceable as a matter of law and can be “written, oral or
implied by an entity’s customary business practices”. [***]

 Accordingly, in response to the Staff’s objection to our prior measurement of
the error, we performed a revised analysis which (i) [***] and (ii) utilized annual historical sales data for each of the years 2016 to 2023 and relevant tiering guidelines in modeling the revenue impact of the Misclassification. Our revised
analysis only includes the impact of Discover Bank cards inappropriately classified in the Commercial tier and does not include any impact of Discover Bank cards being re-tiered within the Consumer tier. This
resulted in a different tiering allocation (as compared to the Tiering Simulation) of many of the misclassified Commercial cards [***]. Management believes these changes better align the revenue error estimate with the enforceable contractual rights
we had in the historical periods.

 [***] Accordingly, determining what Consumer tier any individual misclassified card would have been assigned to, and
the revenue difference that would have resulted from that assignment, is necessarily an estimate.

 In estimating the revenue error, there are several
limitations that necessitate the use of assumptions and extrapolations. [***] That is, the resulting calculation reflects the transaction price the Company would have been entitled to, based on the contracts in place at the time, had Discover Bank
credit cards been properly classified [***].

 To quantify the revenue error consistent with enforceable rights under the relevant Program Documents during
the periods impacted by the Misclassification, we compared the amount billed in the incorrect Commercial card tier classification to what we estimated would have been billed to merchants had the cards been tiered in Consumer card product tiers based
on assumed tier assignments determined as described above. This approach maximizes the use of adequately verified actual historical data and a distribution of accounts among the Consumer card tiers consistent with our historical contractual tiering
rules. The conclusion of our analysis resulted in an estimated revenue overstatement of $526 million as of June 30, 2023. This represented the best estimate of the revenue error in a manner consistent with revenue recognition guidance
under ASC 606 (and ASC 605, prior to the adoption of ASC 606).

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 CONFIDENTIAL TREATMENT REQUESTED BY DISCOVER FINANCIAL SERVICES

PURSUANT TO 17 C.F.R. § 200.83 (RULE 83)

 By comparison, the $985 million gross overcharge figure that was referenced in our prior letter and was
the basis for our first quarter 2024 reserve increase, was based on a method that calculated restitution consistent with ASC 450 and ASC 405 (an expected settlement approach) rather than one based on revenue measurement under ASC 606. Furthermore,
it relied on a re-tiering simulation based on a single year of data. The $985 million estimate does not reflect what would have been billed for Discover Bank Consumer cards in the aggregate had the
Discover Bank cards inappropriately classified as Commercial been properly classified without any adjustment to other properly classified Consumer cards. Rather, it was one element of a simulation used to determine [***].

For the avoidance of doubt, the Company does not believe the amount determined as part of the first element of the Tiering Simulation, in isolation,
quantifies the error to revenue that resulted from the Misclassification. Had we only used the first element of our Tiering Simulation to determine the tiering that would have existed, our tier allocation would have been substantially biased in
favor of our lower-priced tiers, as opposed to being allocated in a manner that would have allowed the Company to maintain its pricing strategy in a manner consistent with the enforceable contracts. [***]

The first table presented in Appendix A of this letter is a tabular comparison of (i) the Tiering Simulation used as the basis for determining
restitution offered and ultimately agreed upon with certain counterparties impacted by the Misclassification, including how that computation was refined between June 30, 2023 and the first quarter of 2024, and (ii) the revenue error
estimation methodology. [***] The “ASC 606 Revenue Error Measurement” leverages the best combination of relevant data in compliance with relevant Program Documents and is thus the most closely aligned with ASC 606.

2.
 Explain whether any additional analysis is required under other relevant GAAP and provide us with a
supporting analysis with specific citation to relevant accounting guidance. For example, this analysis should explain whether any additional liabilities were required to be recognized, the type of liability that results from the revenue correction
(e.g., refund liability, financial liability, contingent liability, etc.) as well as the appropriateness of disclosures previously provided. This analysis should also address whether and how your subsequent accounting after the second quarter of
2023 will be revised as a result of your reevaluation.

 Response:

Other relevant GAAP

 In addition to the analysis to
estimate the error correction consistent with revenue recognition guidance under ASC Topics 605 and 606 which is described above, we also considered what other accounting implications may have been triggered. The discussion below assumes we
corrected our revenue error determined to be $526 million in the second quarter of 2023 and considers the following consequential impacts were identified and evaluated:

Other liabilities related to the revenue error

Had we originally measured the revenue error at $526 million as of June 30, 2023, as noted above, this would have represented the refund liability
under ASC 606-10-32-10 as of that date. Because the re-tiering of Discover Bank cards
inappropriately classified as Commercial was not completed until November 2023, we recorded an incremental $20 million refund liability for estimated overcharges that were assessed through that time. This amount was reflected as a reduction to
revenue with a corresponding increase to the refund liability. Settlement payments totaling $12 million were made in the fourth quarter of 2023. Had we recorded the revenue error at $526 million as of June 30, 2023, our refund
liability would have stood at $534 million at December 31, 2023.

 4

 CONFIDENTIAL TREATMENT REQUESTED BY DISCOVER FINANCIAL SERVICES

PURSUANT TO 17 C.F.R. § 200.83 (RULE 83)

 Settlement liability

On February 19, 2024, the Company announced an agreement to merge with Capital One Financial Corporation (the “Merger”). [***] At this time, the
Company had already been in discussions with many of its merchant and merchant acquirer customers [***] the Board of Directors of the Company ultimately decided to settle the Misclassification matter using the gross amount that resulted from the
Tiering Simulation. Had we recorded the revenue error at $526 million as of June 30, 2023, as a result of the Board resolution we would have recorded an additional $640 million settlement liability in the first quarter of 2024. See
tables on page 8 for a reconciliation of these impacts. Due to this change in circumstances as of the end of the first quarter of 2024, management concluded an additional contingent liability should be recorded in accordance with ASC 450-20-25-1.

 We considered but rejected
a view that the additional contingent liability should be reflected as an additional reduction to revenue (i.e., an additional refund liability) for the following reasons:

•

 The amount is in excess of what we concluded to be our actual revenue error as discussed in our response to
Question 1 above. This is because the additional contingent liability is not the result of a difference between amounts billed for Discover Bank cards inappropriately classified as Commercial cards and amounts that would have properly been billed
(based on enforceable contracts at the time) had those cards been properly classified as Consumer cards. Rather, the additional amount accrued in the first quarter of 2024 reflects additional consideration the Company resolved to pay in order to
quickly settle any and all disputes, avoid any further reputational damage, [***].

•

 We do not anticipate all of the additional amounts accrued in the first quarter of 2024 will ultimately be paid
to our customers. [***] We therefore do not belie