• by Judy Warner , March 14, 2007

Discover cardholders are typically less likely to carry a balance than holders of the more frequently used Visa or MasterCard. That could explain why Discover, a unit of Morgan Stanley, yesterday introduced Motiva, a credit card that rewards good credit management.

"The Discover Motiva Card is a breakthrough new product that actually pays card members interest back for their good credit management," says Discover CMO Margo Georgiadis. "Consumers want a card company that's working for them and is committed to helping them make financial progress."

The card that "pays you back" will continue to do just that when Discover begins mass marketing its new Motiva product via direct mail, Internet, print and radio ads.

A Discover spokesperson would not disclose budget for the launch. For all of 2006, per TNS Media Intelligence, Discover spent some $140 million. The last product introduced by Discover was its Business Card.

"Motiva," a play on the word motivate, is intended to encourage consumers to pay on time and receive a "Cashback Bonus" reward. Motiva cardholders who make six consecutive on-time payments will see their finance charges in the seventh month credited to them.

Pay-On-Time Bonus rewards are in addition to the unlimited Cashback Bonus earned on all purchases, giving card holders two ways to accrue cash rewards. To ensure card members earn their Pay-On-Time Bonus, the card comes with tools such as automatic payment reminders and free payments by phone (including due date payments). Customers can also specify their payment date.

Auriemma Consulting Group--which tracks, among other things, consumer preferences and behavior in the credit card industry--notes that with a 3.9% balance transfer rate, what Discover is hoping for is "more long-term behavior by customers who bring over their balance, pay a fee, and then make payments to receive their pay-on-time bonus," says Megan Bramlette, an associate at Auriemma in Westbury, N.Y.

Some 40% of all credit card holders carry balances, which average $2,141 for Discover, $2,178 for MasterCard and $2,448 for Visa.

Moreover, among the major credit cards, 41% of those who report frequent use of their Visa or MasterCard carry a balance; by comparison Discover's rate is lower. Some 29% of those who say they use Discover most frequently carry a balance, according to data compiled by Auriemma in the fourth quarter of 2006.

"I think it's a compelling value proposition," Bramlette says of Motiva¹s selling points. "Consumers we survey tell us they generally use cards for one or the other. [This product] is really encouraging dual usage of the card: to carry a balance and make purchases, and do it all with the same product."

Morgan Stanley intends to spin off Discover following both Visa and MasterCard as standalone publicly traded entities, pending regulatory approval, in the third quarter. With 2006 annual net revenues of $4.3 billion, Discover is the fourth-leading card issuer in the U.S. with more than 50 million card members and $50 billion of managed receivables.