Discover Card
Encyclopedia
The Discover Card is a major credit card
, issued primarily in the United States
. It was originally introduced by Sears
in 1985, and was part of Dean Witter
, and then Morgan Stanley
, until 2007, when Discover Financial Services
became an independent company. Novus, a major processing center, used to be partners with the company as well. The Novus logo has since been retired and now the Discover Network logo has replaced it.
Most cards with the Discover brand are issued by Discover Bank. Discover Card transactions are processed through the Discover Network payment network
. As of February 2006, the company announced that it would begin offering Discover Debit cards
to banks, made possible by the Pulse
payment system, which Discover acquired in 2005.
Organization (brokerage) and Coldwell, Banker & Company
(real estate) in 1981 as an attempt to add financial services to its portfolio of customer services. Ray Kennedy, Sr., – father of country
singer Ray Kennedy
– who was the credit manager
for Sears, conceived of the card. Together with the Discover Card (and its issuing bank, the Greenwood Trust Company, owned by Sears), this was named the Sears Financial Network. Early Discover Cards bore a small embossed symbol representing the Sears Tower
, the company's headquarters at the time.
Unlike other attempts at creating a credit card to rival MasterCard
and VISA
, such as Citibank
's Choice card
, the Discover Card quickly gained a large national consumer base. It carried no annual fee, which was uncommon at the time, and offered a typically higher credit limit than similar cards. Cardholders could earn a "Cashback Bonus," in which a percentage of the amount spent would be refunded to the account (originally 2%, now as high as 5%), depending on how much the card was used. Retailers were wooed by merchant fees significantly lower than those of other widely-accepted credit cards. The Discover Card was also noteworthy for being the only credit card accepted by the U.S. Customs Service to pay customs duty.
However, the plan to create a one-stop financial-services center in Sears stores was not as successful as Sears had hoped, and its promotion of the Discover Card was thought both to hurt Sears turnover and to restrict the card's potential. Other retailers resisted it, as they believed they would be helping their competitor.
In light of these developments, and of strong competition both from Wal-Mart
and from so-called category killer
s such as Toys "R" Us, Sears began to face difficulties in the late 1980s. Sears sold its financial businesses in 1993, and began to accept MasterCard and Visa in addition to its store credit card and the Discover Card. The Discover Card became part of the Dean Witter financial services firm. Dean Witter Discover merged with Morgan Stanley in 1997. In 2000, Greenwood Trust changed its name to Discover Bank.
In October 2004, the Supreme Court
upheld a ruling in Discover Card's favor that challenged exclusionary policies of Visa and MasterCard. Before this ruling, Visa and MasterCard would not allow banks to issue a Discover Card if they issued a Visa or MasterCard. Within days of the court ruling, Discover Card filed a lawsuit in federal court seeking damages from Visa and MasterCard. In 2005, Discover Card acquired PULSE
, an electronic funds transfer
association, allowing it to issue and market debit and ATM cards.
Shortly after the 2004 Supreme Court
ruling, Discover also struck its first deal to have its card issued by another bank, GE Consumer Finance
, which now issues three cards for retailer Wal-Mart
and its wholesale warehouse stores, Sam's Club
; transactions for both cards are processed on the Discover Network. Sam's Club exclusively accepted Discover Card for many years, although, since November 2006, it has also accepted MasterCard for purchases.
HSBC
has also issued credit cards processed through the Discover Network, and branded with the Discover logo, since its acquisition of card issuer Metris in late 2005. Metris had originally signed an agreement with Discover in September 2005, only three months prior to the HSBC acquisition.
Morgan Stanley
was long thought to want to sell the Discover Card business, and in April 2005, it announced that it would divest Discover Financial Services as an independent company within six months. However, by June industry sources reported that Morgan Stanley was reassessing its plan to spin off Discover. Finally, in August 2005, the company confirmed it would not sell Discover. In yet another reversal, in December 2006, Morgan Stanley announced it would, again, spin off Discover as a standalone company by the end of August 2007. The spin-off was finalized ahead of schedule, on June 30, 2007.
Credit card
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...
, issued primarily in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
. It was originally introduced by Sears
Sears, Roebuck and Company
Sears, officially named Sears, Roebuck and Co., is an American chain of department stores which was founded by Richard Warren Sears and Alvah Curtis Roebuck in the late 19th century...
in 1985, and was part of Dean Witter
Dean Witter Reynolds
Dean Witter Reynolds was an American stock brokerage and securities firm catering to retail clients. Prior to its acquisition, it was among the largest retail firms in the securities industry with over 9,000 account executives and was among the largest members of the New York Stock Exchange...
, and then Morgan Stanley
Morgan Stanley
Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
, until 2007, when Discover Financial Services
Discover Financial
Discover Financial Services is an American financial services company, which issues the Discover Card and operates the Discover and Pulse networks...
became an independent company. Novus, a major processing center, used to be partners with the company as well. The Novus logo has since been retired and now the Discover Network logo has replaced it.
Most cards with the Discover brand are issued by Discover Bank. Discover Card transactions are processed through the Discover Network payment network
Payment system
A payment system is a system used for transferring money. What makes it a "system" is that it employs cash-substitutes; traditional payment systems are negotiable instruments such as drafts and documentary credits such as letter of credits. With the advent of computers and electronic...
. As of February 2006, the company announced that it would begin offering Discover Debit cards
Debit card
A debit card is a plastic card that provides the cardholder electronic access to his or her bank account/s at a financial institution...
to banks, made possible by the Pulse
Pulse (interbank network)
PULSE is an interbank electronic funds transfer network in the United States. It serves more than 4,400 U.S. financial institutions and includes more than 380,000 ATMs, as well as POS terminals nationwide...
payment system, which Discover acquired in 2005.
History
At the time the Discover Card was introduced, Sears was the largest retailer in the United States. It had purchased the Dean Witter ReynoldsDean Witter Reynolds
Dean Witter Reynolds was an American stock brokerage and securities firm catering to retail clients. Prior to its acquisition, it was among the largest retail firms in the securities industry with over 9,000 account executives and was among the largest members of the New York Stock Exchange...
Organization (brokerage) and Coldwell, Banker & Company
Coldwell Banker
Coldwell Banker is a large real estate franchise founded in 1906 in San Francisco.Coldwell Banker has an international presence, with offices on six continents, 46 countries and territories...
(real estate) in 1981 as an attempt to add financial services to its portfolio of customer services. Ray Kennedy, Sr., – father of country
Country music
Country music is a popular American musical style that began in the rural Southern United States in the 1920s. It takes its roots from Western cowboy and folk music...
singer Ray Kennedy
Ray Kennedy (country singer)
Ray Kennedy is an American country music artist. He has recorded three studio albums: one on Columbia Records and two on Atlantic Records...
– who was the credit manager
Credit manager
A credit manager is a person employed by an organization to manage the credit department and make decisions concerning credit limits, acceptable levels of risk and terms of payment to their customers. In companies, the role of Credit manager is variable in its scope...
for Sears, conceived of the card. Together with the Discover Card (and its issuing bank, the Greenwood Trust Company, owned by Sears), this was named the Sears Financial Network. Early Discover Cards bore a small embossed symbol representing the Sears Tower
Sears Tower
Sears' optimistic growth projections were not met. Competition from its traditional rivals continued, with new competition by retailing giants such as Kmart, Kohl's, and Wal-Mart. The fortunes of Sears & Roebuck declined in the 1970s as the company lost market share; its management grew more...
, the company's headquarters at the time.
MasterCard
Mastercard Incorporated or MasterCard Worldwide is an American multinational financial services corporation with its headquarters in the MasterCard International Global Headquarters, Purchase, Harrison, New York, United States...
and VISA
VISA (credit card)
Visa Inc. is an American multinational financial services corporation headquartered on 595 Market Street, Financial District in San Francisco, California, United States, although much of the company's staff is based in Foster City, California. It facilitates electronic funds transfers throughout...
, such as Citibank
Citibank
Citibank, a major international bank, is the consumer banking arm of financial services giant Citigroup. Citibank was founded in 1812 as the City Bank of New York, later First National City Bank of New York...
's Choice card
Choice (credit card)
Choice was a credit card test marketed by Citibank in the United States, announced in 1977 and first issued in 1978. It was one of the first cards to offer a cash-refund program and no annual fee. Choice was intended to create a rival to Visa, MasterCard, and American Express, but proved...
, the Discover Card quickly gained a large national consumer base. It carried no annual fee, which was uncommon at the time, and offered a typically higher credit limit than similar cards. Cardholders could earn a "Cashback Bonus," in which a percentage of the amount spent would be refunded to the account (originally 2%, now as high as 5%), depending on how much the card was used. Retailers were wooed by merchant fees significantly lower than those of other widely-accepted credit cards. The Discover Card was also noteworthy for being the only credit card accepted by the U.S. Customs Service to pay customs duty.
However, the plan to create a one-stop financial-services center in Sears stores was not as successful as Sears had hoped, and its promotion of the Discover Card was thought both to hurt Sears turnover and to restrict the card's potential. Other retailers resisted it, as they believed they would be helping their competitor.
In light of these developments, and of strong competition both from Wal-Mart
Wal-Mart
Wal-Mart Stores, Inc. , branded as Walmart since 2008 and Wal-Mart before then, is an American public multinational corporation that runs chains of large discount department stores and warehouse stores. The company is the world's 18th largest public corporation, according to the Forbes Global 2000...
and from so-called category killer
Category killer
Category killer is a term used in marketing and strategic management to describe a product, service, brand, or company that has such a distinct sustainable competitive advantage that competing firms find it almost impossible to operate profitably in that industry...
s such as Toys "R" Us, Sears began to face difficulties in the late 1980s. Sears sold its financial businesses in 1993, and began to accept MasterCard and Visa in addition to its store credit card and the Discover Card. The Discover Card became part of the Dean Witter financial services firm. Dean Witter Discover merged with Morgan Stanley in 1997. In 2000, Greenwood Trust changed its name to Discover Bank.
Business developments
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
upheld a ruling in Discover Card's favor that challenged exclusionary policies of Visa and MasterCard. Before this ruling, Visa and MasterCard would not allow banks to issue a Discover Card if they issued a Visa or MasterCard. Within days of the court ruling, Discover Card filed a lawsuit in federal court seeking damages from Visa and MasterCard. In 2005, Discover Card acquired PULSE
Pulse (interbank network)
PULSE is an interbank electronic funds transfer network in the United States. It serves more than 4,400 U.S. financial institutions and includes more than 380,000 ATMs, as well as POS terminals nationwide...
, an electronic funds transfer
Electronic funds transfer
Electronic funds transfer is the electronic exchange or transfer of money from one account to another, either within a single financial institution or across multiple institutions, through computer-based systems....
association, allowing it to issue and market debit and ATM cards.
Shortly after the 2004 Supreme Court
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
ruling, Discover also struck its first deal to have its card issued by another bank, GE Consumer Finance
GE Consumer Finance
GE Money is part of GE Capital operating division of General Electric. The division, headquartered in London, claims 130 million global customers and offers a range of financial products, including private label credit cards, personal loans, bank cards, auto loans and leases, mortgages, corporate...
, which now issues three cards for retailer Wal-Mart
Wal-Mart
Wal-Mart Stores, Inc. , branded as Walmart since 2008 and Wal-Mart before then, is an American public multinational corporation that runs chains of large discount department stores and warehouse stores. The company is the world's 18th largest public corporation, according to the Forbes Global 2000...
and its wholesale warehouse stores, Sam's Club
Sam's Club
Sam's Club is a chain of membership-only retail warehouse clubs owned and operated by Wal-Mart Stores, Inc., founded in 1983 and named after Wal-Mart founder Sam Walton. , the Sam's Club chain serves more than 47 million U.S. members...
; transactions for both cards are processed on the Discover Network. Sam's Club exclusively accepted Discover Card for many years, although, since November 2006, it has also accepted MasterCard for purchases.
HSBC
HSBC
HSBC Holdings plc is a global banking and financial services company headquartered in Canary Wharf, London, United Kingdom. it is the world's second-largest banking and financial services group and second-largest public company according to a composite measure by Forbes magazine...
has also issued credit cards processed through the Discover Network, and branded with the Discover logo, since its acquisition of card issuer Metris in late 2005. Metris had originally signed an agreement with Discover in September 2005, only three months prior to the HSBC acquisition.
Morgan Stanley
Morgan Stanley
Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
was long thought to want to sell the Discover Card business, and in April 2005, it announced that it would divest Discover Financial Services as an independent company within six months. However, by June industry sources reported that Morgan Stanley was reassessing its plan to spin off Discover. Finally, in August 2005, the company confirmed it would not sell Discover. In yet another reversal, in December 2006, Morgan Stanley announced it would, again, spin off Discover as a standalone company by the end of August 2007. The spin-off was finalized ahead of schedule, on June 30, 2007.