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Discover vs. MasterCard
 Jan 22, 2009

What are the pros and cons of using Discover vs. Mastercard credit cards? In this article we will review the history of both Discover and Mastercard. We will also compare Discover versus Mastercard. This may help you choose the right credit card for you.

Discover and MasterCard are two of the most well known credit card brands out there. There are some differences between these credit cards, including how they evolved as credit card companies and issuers. However, when it comes to credit card terms for consumers, it can be hard to distinguish between the benefits offered by the two. Really, for the most part, the only substantial difference between using Discover and MasterCard is the convenience: You should determine which is more likely to be accepted at most places.

Discover's history of exclusion

One of the hurdles that Discover has is that it is actually an issuer, rather than merely a brand or a transaction processor. Up until 2007, Discover was owned by Morgan Stanley (before that, Dean Witter and before that, Sears the company that first issued Discover). Right now Discover has its own range of financial services and even issues debit cards now as well as credit cards. From an investing standpoint, Discover is at a disadvantage because, as an issuer, the company is on the hook for credit card defaults of those who use the Discover brand.

Discover recently settled with MasterCard and Visa for what it says was a violation of antitrust laws. Discover alleged that it was excluded from profiting from the great growth in credit by the practices of MasterCard and Visa in which the two companies insisted that issuing banks not offer Discover. Although Discover's suit sought $6 billion, the company settled in October 2008 for $2.75 billion.

MasterCard: The Second Most Popular Card in the World

Unlike Discover, which issues its own cards, MasterCard is more of a payment processing company. Banks and other financial services organizations issue the cards with the MasterCard brand and MasterCard processes transactions, earning a fee for each. This gives MasterCard an advantage from an investing standpoint, since it means that the company is not hurt by defaults from indebted consumers who default.

MasterCard started out in 1966 as a rival to the BankAmericard (later Visa). It was called Master Charge, and issued through a group of banks known as the Interbank Card Association. The idea was to allow a widely accepted card. MasterCard is now an independent company. Some of the best holdings are those in Europe, which are available when you purchase MasterCard stock. MasterCard is widely accepted all over the world; the only card that is accepted in more places is Visa.

Choosing a credit card: Discover or MasterCard

Depending on your needs, you will consider different types of cards. For the most part, you should look at what the issuer has to offer. Discover and various MasterCard issuers offer the following options:

  • No annual fee.
  • Low introductory interest rates.
  • Different fees.
  • Rewards programs, including cash back.
  • Generous credit lines.

For those who have never had credit cards before, Discover can actually be a good choice. Many individual issuers with MasterCard can be pickier about consumers. Discover generally allows larger credit lines to those with no credit. This is why many college students get a Discover card as their first card.

In the end, you need to evaluate which card is the best for you. Evaluate cards on an individual basis, and choose the best combination of features for you.

Related Article: Discover vs. American Express >>

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