By Sinéad Carew

Shares in Discover Financial Services tumbled more than 13% in after-hours trading on Wednesday after its quarterly earnings fell short of expectations and it announced a share repurchase pause as it investigates incorrect classification of credit card accounts from around mid-2007.

Discover, a U.S. provider of digital banking and payment services, last traded at $105.63 after closing the regular session up 15 cents at $121.85.

The company said it decided to pause share repurchases during its internal review. It said that from around mid-2007 it incorrectly classified certain credit card accounts into the highest merchant and merchant acquirer pricing tiers.

It said however that the revenue impact of incorrect card product classification was not material to consolidated financial statements.

For the second quarter the company reported adjusted earnings per share of $3.54 compared with Wall Street expectations for $3.67, according to data gathered by Refinitiv.

It reported revenue, net of interest expense, of $3.88 billion compared with $3.2 billion in the year-ago quarter.

As of June 30, Discover said its financial statements reflect a liability of $365 million within accrued expenses and other liabilities to provide refunds to merchants and merchant acquirers as a result of the card product misclassification.

The company said that given differences in individual merchant agreements and availability of historical data, "it is difficult to determine the final amount of potential refunds at this time."

(Reporting By Sinéad Carew; Editing by Josie Kao)