With American Express Co. and Discover Financial Services eager to enter the bank-issued card market, observers are speculating about how the two companies will affect the industry - and which one will benefit the most.
Some are predicting that Discover, the Riverwoods, Ill., unit of Morgan Stanley, stands to gain more bank clients, because of its promise to charge lower fees to both merchants and banks. However, in the few days since a Supreme Court decision opened the door for Amex and Discover to partner with banks, the most tangible development has come from MBNA Corp., which said it will begin mailing Amex cards to customers within weeks.
Close on its rival's heels, Discover's chief executive said banks have already contracted with his company to issue cards and will begin doing so soon.
The emerging question is whether issuers and their customers will prefer the prestige of Amex or the lower costs offered by Discover.
Richard K. Struthers, a vice chairman at MBNA, said the Wilmington, Del., company began asking customers in January about whether they would be interested in a bank-issued Amex card. When customers called in, the customer service representatives would ask if they had would like to receive an MBNA Amex card.
"Thousands and thousands" said they would, he said.
MBNA has already designed Amex cards for some of its affinity groups, including the Penn State Alumni Association.
Genie Driskill, the chief operating officer and senior vice president of research at Synergistics Research Corp., said recent surveys by the Atlanta market research firm indicate that consumers associate the Amex brand with prestige, which could explain some of the brand's appeal for customers.
On Monday the Supreme Court decided not to review an appeal of an antitrust suit against Visa U.S.A. and MasterCard International. The decision effectively ended the associations' hopes of extending their duality policies, which barred banks that offered either brand from offering any other card brand.
But some lawyers who have been closely watching the Visa and MasterCard litigation say Discover's lower fees could hold more long-term appeal to merchants, who are weary of ever-increasing credit card fees.
David Balto, a former Federal Trade Commission lawyer who is now in private practice with Robins, Kaplan, Miller & Ciresi LLP, said merchants have become more vocal in recent years about fees.
"Merchants have become a savvy group," he said. "They won't accept whatever card at whatever price that a card issuer gives them."
Mr. Balto said he envisioned a merchant that has accepted Visa and MasterCard in the past balking at paying a higher interchange rate on bank cards if the issuing bank switched to Amex. "The key is, how do merchants respond? Only Discover is taking merchant interest into account."
Over time "we will see an increasing movement toward Discover" as some merchants drop other card brands, he said.
David W. Nelms, Discover's chairman and chief executive, has frequently argued the same point in interviews.
Lloyd Constantine, a principal of the New York law firm Constantine & Partners and the lead plaintiff's attorney in the merchant suit against Visa and MasterCard, said both Amex and Discover would benefit from the Supreme Court's recent decision, though they would probably attract different groups of customers.
"It is not a one-or-the-other strategy," he said. "American Express is likely to be successful, but it is likely to be limited to high-spending travel and entertainment and charge card-type markets." Discover's offer "is more comprehensive, and it is aimed at all sorts of consumers, high- and low-spending, credit cards and debit cards."
Mr. Constantine is currently representing Discover in a federal suit filed Monday against Visa and MasterCard over damages Discover said it suffered as a result of being shut out of bank cards.
The National Retail Federation said the new competition in bank cards could lead to lower interchange fees for merchants. The Washington group, which was a lead plaintiff in the Justice Department suit against Visa and MasterCard, has applauded the recent Supreme Court decision.
"Up until now banks have operated in a monopolistic environment," said Mallory Duncan, a senior vice president and the general council at the trade group. "I can't predict how it will happen yet, but prices across the board should go down."
Discover's lower fee could prove popular with merchants, which could in turn drive up consumer usage of the card and prompt other associations to reduce their own rates, Mr. Duncan said.
"From the retailer's perspective, it is a real advantage to pay less for transactions, and the cash-back element of Discover means customers have more money" for shopping, he said.
Mr. Struthers said that the Supreme Court decision Monday would definitely increase competition among the card brands, especially "in the upper-spending ranges."
But he said he did not think the competition would result in either a decline or increase in interchange rates, at least from Amex. "MasterCard and Visa will have to decide what they want to do with interchange."
The new Amex card is meant for customers who typically charge at least $6,000 a year, either on their MBNA card or one issued by a competitor, Mr. Struthers said.
Amex's high-spending pitch is a good fit for MBNA, he said. "Our basis has always been to focus on higher-quality, higher-spending customers."
The fact that 65% of U.S. physicians carry an MBNA credit card is evidence of that company's appeal to the affluent, Mr. Struthers said. "There is now an opportunity they can carry a Visa and an American Express card with us."
