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Discover vs. Visa
 Jan 29, 2009

How does Discover measure up to Visa in comparison? This article will review the history and credit card offers of both Visa and Discover. We also compare the pros and cons of Discover vs. Visa.

When it comes to your credit card, you want one that works well for you. Some of the things you should consider include:

  • Interest rate
  • Annual fees
  • Usability
  • Rewards
  • Other fees
  • Credit line

Depending on your goals and your needs, one credit card might be better than another. It is important to carefully consider the differences between card issuers and specific cards. Understanding the history behind credit card companies can also help.

History of Discover card

Originally, the Discover card was issued by Sears. At the time (1985), Sears was in the midst of trying to provide financial services as part of its retail offerings. At the time that Discover was first issued, it was one of the very few credit cards that did not carry an annual fee (no it is easy to find a card without an annual fee). Additionally, Discover gained popularity with its higher credit limits, as well as a cash back program that was incredibly generous for the time. Additionally, the U.S. Customs Service accepted Discover exclusively for payment of duties.

Unfortunately for Discover, its association with Sears did not help it. Rivals did not want to accept Discover, because they didn't want to help the competitor. Additionally, Sears did not accept Visa and MasterCard at the time, which meant that, as credit cards became more widespread in use, Sears was seen as limited.

Discover was sold off to Dean Witter, which later merged with Morgan Stanley. In 2007, Discover Financial Services became its own company. However, Discover continues to struggle as the fourth largest card issuer in the U.S. And, like American Express, is challenged by the fact that it is accepted at fewer locations than Visa. Discover finally allowed GE and Sam's Club to issue versions of its card, starting in 2004, and HSBC now issues credit cards using the Discover Network. In 2008, Discover purchased Diners Club (the first credit card).

History of Visa

Visa actually started as BankAmericard in 1958. It was part of Bank of America until 1970, when it became an independent company. Then, in 1976, the company changed its name to Visa. The company evolved into a technology and transaction processing company and allowed other banks and financial services company to issue credit cards with its brand logo. This meant that Visa had a great deal of flexibility, and was able to expand quickly. Now, Visa is not only the largest card issuer in the United States, but is also the largest, most widely accepted credit card brand in the world.

Discover v. Visa: the lawsuit

Discover filed a suit against Visa and MasterCard in 2004 for locking it out of a position of growth as credit cards took off. Discover is seeking damages of $6 billion, and a court has held up a ruling in Discover's favor. However, if damages are ultimately awarded, if a settlement isn't reached, under anti-trust legislation, they will be tripled to $18 billion. The suit alleges that Visa and MasterCard forced banks that issued their cards to avoid issuing Discover cards as well, and that this practice unfairly locked Discover out. Visa actually agreed to pay American Express $2.25 billion in a similar suit.

Choosing a credit card: Discover v. Visa

One of the drawbacks to Discover is that the credit card is not accepted nearly as widely as Visa. Many businesses do not accept Discover, and this can make the card inconvenient to use. Additionally, most Visa issuers offer a wider variety of rewards and programs. Discover has a cash back program, however, that is more generous than Visa's cash back program. And Discover's relationship with Wal-Mart and Sam's Club is also a benefit.

In terms of interest rate and fees, both companies are fairly evenly matched. It is possible to get a Visa card with no annual fee, so Discover does not have that as an advantage anymore. However, Discover still often provides a larger credit line than cards issued through Visa.

If you are looking for something with flexibility, as well as a credit card that is accepted almost anywhere in the world, Visa is a good choice. It is possible to find a Visa card with good terms and that is accepted in most places. If, however, your focus is on cash back and credit limit, Discover might work better for you. But you might want a Visa for back up, just in case your Discover Card is not accepted.

Related Article: Discover vs. MasterCard >>

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