Finally, a bit of positive news to share during these crazy times.
Tuesday was a good day for Discover Financial
The deal puts an end to a four-year legal battle in which Discover claimed that Visa and MasterCard bullied banks into issuing only their cards, leaving smaller card companies like Discover and American Express
Not surprisingly, Discover shares surged on the news, jumping more than 10%. And they should have -- $1.8 billion represents more than one-quarter of Discover's market cap and adds even more ammo to the company's $8.8 billion in cash and short-term investments. To put it further in perspective, $1.8 billion represents more than three times the net income Discover earned in 2007.
What I find interesting about this lawsuit is that it highlights how commoditized the credit-card industry truly is. Think about it: If Reebok wouldn't allow sporting-goods stores to carry Nike shoes, customers would just find somewhere else to get them. That Visa and MasterCard were able to prevent member banks from issuing other cards without consumers going nuts can be taken as a sign that consumers don't really care what logo sits at the bottom right-hand corner of their card. As long as banks provide a piece of plastic they can use to purchase whatever they want, consumers remain happy.
No doubt about it, Visa, MasterCard, and Discover are all great businesses, but the fact that it took a four-year legal battle and a multibillion-dollar settlement to get things in order shows how brand-desensitized customers are to plastic cards.
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Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Discover Financial Services and American Express are Motley Fool Inside Value picks. The Fool owns shares of American Express. The Fool has a disclosure policy.