NEW YORK - MasterCard International said Monday that it had reached a settlement that will let the issuer of the Discover card offer a product called Prime Option MasterCard.
Dean Witter, Discover & Co. said it will introduce the card early next year. NationsBank Corp. of Charlotte, N.C., will issue the card and own the receivables.
A Foot in the Door
With this latest card cobranding venture, a much-feared nonbank gets a foot in the bank credit card door. And it amounts to a slap at MasterCard's rival, Visa U.S.A., which continues to resist Dean Witter's attempts at further infiltration.
Visa remains embroiled in litigation seeking to prevent a company owned by Dean Witter from becoming a full member of that association, with all card-issuing privileges.
Visa has argued that it should not be forced to admit a strong, direct competitor. But Dean Witter contends it will continue to operate Discover separately. The program has 39 million credit-card holders, more than any single bank.
By settling a similar antitrust lawsuit it had filed against MasterCard and relying on NationsBank as the nominal issuer, Dean Witter ensures that its Prime Option card will come to market regardless of the outcome of the Visa case at the federal appeals court in Denver.
April Decision
Dean Witter and its former owner, Sears, Roebuck and Co., won a round in April at a lower court in Salt Lake City. If the decision stands, Dean Witter's MountainWest Financial subsidiary in Utah would have to be admitted as a Visa member.
MountainWest or another Dean Witter unit, Hurley State Bank in South Dakota, could then take responsibility for issuing bank cards, and the Nations- Bank role might end.
At a press conference Monday in New York, Dean Witter chairman Philip J. Purcell said he has not decided definitely to terminate NationsBank if the appeal goes Dean Witter's way.
Dean Witter "has a number of options and no decision has been made," Mr. Purcell said. Richard Woods, a MasterCard senior vice president, said it is at least possible that "the cobranded relationship could go on forever and ever."
Low-End Contender
Mr. Purcell said Prime Option will be pegged at the increasingly competitive, low-price end of the card market. There will be no annual fee, and a 25-day interest-free grace period will be offered.
New purchases will be eligible for a 9.9% annual interest rate the first two months; after that, remaining balances will be charged prime plus 9.9%.
"We do not feel that the same people who would want a lowfee card would want a Discover card," said Mr. Purcell, emphasizing that Prime Option is separate from, and will not have an impact on, Discover.
|An Intense Competitor'
"The Discover Card will still remain an intense competitor of the MasterCard system," added Alex W. Hart, president of MasterCard.
"This is a win for MasterCard no matter how you look at it," he said. "We and our members are released from any potential damages regardless of the outcome of the Visa appeal, and if Visa wins, our decision regarding MountainWest's application for membership remains in place."
Visa, meanwhile, is "moving forward [with its case], and we believe we're going to prevail on the merits," said spokesman David Brancoli in San Francisco. No hearing date has been set, but Visa is expecting to make its arguments in the first half of next year.
|Astounding' Move
Robert B. McKinley, president of RAM Research Corp. in Frederick, Md., said the Prime Option agreement "shows MasterCard will go to any lengths to keep growing. I'm sure Visa is pulling their hair out on this one. To let [Dean Witter] in while they're still in court with Visa is astounding."
Mr. McKinley also said that since MasterCard has "long positioned itself against Discover," competition between the two brands could be reduced.
The card's 9.9% introductory rate would "look good on television," Mr. McKinley added, but "you can't compare this 9.9% with what Citibank is doing at 6.9% and what Wachovia is doing at 9.9%. In essence, It's a run-of-the-mill card,"
