Chicago, October 28: The credit card behemoths, MasterCard and Visa, agreed to a $2.75 billion settlement with Discover, relating to a lawsuit it brought over allegations of anti-competitive practices.
This is how MasterCard and Visa will bear the brunt. Visa will pay $1.8 billion of which $1.74 billion will come from an existing escrow account. MasterCard on the other hand will pay $862.5 million for the settlement. For that purpose, it will take a $515.5 million after-tax charge.
As a part of the agreement, Morgan Stanley, Discover's former parent company, will pay MasterCard $35 million and Visa $65 million.
"Resolving this longstanding case on reasonable terms is in the best interest of Visa and our clients, cardholders and shareholders," said Visa Chief Executive Joseph W. Saunders.
MasterCard General Counsel Noah J. Hanft claimed that the company was averse to any legal proceedings. He said, "We believe Discover's lack of success resulted from decisions that created a business model that is not attractive to bank issuers. We chose to settle to avoid the uncertainty and distraction of a lengthy jury trial."
In 2001, U.S. District Judge Barbara Jones in Manhattan ordered Visa and MasterCard to stop forcing banks to select between their cards and ones from Discover and American Express Co. This particular settlement will enable Discover to further strengthen its capital base, develop its business by broadening global acceptance, expand network volume and grow its deposit franchise.
Discover Financial Services, headquartered in the Chicago suburb of Riverwoods, Illinois is an American financial services company and issues the Discover Card. The Discover card was originally introduced by Sears in 1985, and was a unit of Dean Witter, which merged with Morgan Stanley in 1997. In 2007, the unit was spun off as an independent, publicly traded company. Today, Discover is third largest credit card brand in the United States, when measured by cards in force, with nearly 50 million cardholders.
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