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|Area served||United States (primary)|
|Area served||United States (primary)|
The Discover Card is a major credit card, issued primarily in the United States. It was announced by Sears in 1985 and was introduced nationwide the following year. Discover was part of Dean Witter, and then Morgan Stanley, until 2007, when Discover Financial Services became an independent company. Novus, a major processing center, was once partners with the company. The Novus logo was retired, replaced by the Discover Network logo.
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.
At the time the Discover Card was introduced, Sears was the largest retailer in the United States. It had purchased the Dean Witter Reynolds 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 and the credit manager for Sears, conceived 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, then the company's headquarters.
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[who?] 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. Due to it not charging a percentage fee to retailers, unlike Visa, MasterCard, and American Express, Discover Card was also the only credit card accepted at Sam's Club; until recently they have started to accept MasterCard (see below). 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 with strong competition both from Wal-Mart and from so-called category killers 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 (or American Express) 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 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; since November 2006, it has also accepted MasterCard for purchases.
HSBC has 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, three months prior to the HSBC acquisition.
Morgan Stanley had long desired to sell the Discover Card business, and in April 2005, announced that it would divest Discover Financial Services as an independent company within six months. 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 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.
In September 2012, Discover was ordered to pay over $200 million in fines and customer reimbursements to settle accusations by U.S. federal regulators that it had engaged in deceptive telemarketing tactics.