New ‘Prime Option’ Card Backed by Rival Companies : Credit: Discover and Mastercard unveil a joint product--and announce they are settling a logo dispute out of court.

Discover Card’s parent company on Monday settled an antitrust suit with rival Mastercard International and announced a surprising alliance--a new credit card that Discover will issue with Mastercard and the regional bank Nationsbank.

The move blurs the lines among competing credit cards. It is believed to represent the first time a credit card brand has obtained a financial interest in a competitor’s card.

“Banks are going to do whatever . . . they consider is a profitable venture, whether or not it muddies the line between brands or between competitors,” said James Daly, editor of Credit Card News in Chicago.

The new card, displayed for the first time at a news conference, is called Prime Option. It is similar to a credit card that Dean Witter, Discover & Co. wanted to issue under a Visa brand.

Dean Witter Discover sued Visa in 1991, after Visa refused to let Dean Witter issue the Prime Option Card bearing a Visa logo; a federal jury in Utah last year ruled in Dean Witter’s favor. Visa appealed, and the case is pending before a federal appellate court in Denver.

Since 1989, Mastercard has also blocked Dean Witter from issuing cards with the MasterCard logo. The two companies went to court over antitrust issues, but they said Monday they had agreed to settle the case.

The Visa-Dean Witter case is being closely watched in the industry. Some observers have compared it to allowing Burger King to sell Big Macs.

The Prime Option card technically isn’t being issued by Dean Witter but by Nationsbank, a large, regional bank based in Charlotte, N.C. With the new card, Dean Witter is a partner in a co-branded credit card--a critical distinction, since Mastercard’s rules prevent Dean Witter from issuing a credit card with a MasterCard logo.

Neither Dean Witter nor Discover is named on the new card. Prime Option, the name on the card, is a brand of Dean Witter Discover.

Prime Option will be available in early 1994, for no annual fee and at a 9.9% interest rate for purchases not paid off in the first 60 days. The interest on older balances increases to a variable rate, currently 15.9%.

While analysts recognized the legal distinctions with the new Prime Option card, they said the arrangement raises questions about future competition among credit card brands.

“Here are two die-hard competitors in effect holding hands,” said Robert McKinley, a credit card analyst and president of Ram Research Inc. of Frederick, Md.

In 1992, Mastercard held a 27% share and Discover a 7% share of the credit card market, led by Visa, which had a 46% share. Mastercard and Discover are competing for a similar clientele, analysts say: the value-oriented consumer.

Phillip J. Purcell, chairman and chief executive of Dean Witter, denied that the card will compete adversely with Discover Card.

“This is not a Discover Card program. This is a separate program. We have had multiple card strategies for years,” he said.

Alex W. Hart, Mastercard president and chief executive, said Mastercard agreed to the co-branded program because it met the association’s rules and because settling its lawsuit with Dean Witter eliminated what could have been a costly judgment.

“We feel very comfortable that this settlement is in the best interest of our members,” he said.