The Discover card was launched in 1986 by Sears and Roebuck which was, at that time, the biggest retailer in the United Sates. The idea was to expand Sears’ business to include financial services, and at around the same time they also acquired a brokerage firm (Dean Witter Reynolds) and the real estate company, Coldwell Banker. Together these companies were grouped under the name of the Sears Financial Network.
What Makes Discover Cards Special?
The most distinctive feature of the new Discover credit cards was the fact that they carried no annual fees, which was an unusual feature at that time, but today it is more common. Another attractive benefit of the new cards was that they tended to have higher credit limits than Visa and Mastercard. Sears eventually took their benefits further by introducing “cash-back bonuses” on purchases. Discover also made an exclusive deal with the United States Customs Service, and became the only credit card with which people could pay their customs duty fees.
Despite all of these attractive features, Discover had a difficult time gaining a foothold in the credit market due to exclusionary practices and lack of acceptance by many merchants. Some might argue that Sears brought this upon themselves when they stopped accepting competitor’s credit cards themselves, once their Discover card was introduced. Rather than increasing their credit card member base, this strategy ended up backfiring on them by discouraging customers who would have used other cards. Also, Sears’ competitors began to retaliate by refusing to accept the Discover card from.
Discover Card in the Modern Era
In the early 90s, Sears sold off its financial services branch and Dean Witter Reynolds became responsible for the Discover card, and was in turn acquired by Morgan Stanley in 1997. At that time, Visa and MasterCard would not allow banks to issue a Discover Card if they were also issuing Visas and MasterCards. In 2004, the Supreme Court ruled in Discover’s favor and against these exclusionary policies by Visa and Mastercard, and Discover filed suit seeking damages against the two companies.
In 2008, Discover Financial Services took over the Diners Club network, purchasing it from Citigroup for 165 million dollars.