Capital One, one of the largest banks in the United States, has made a bold move to acquire Discover Financial Services in a deal worth $35.3 billion. If approved by regulators and shareholders, this acquisition will create the largest credit card company in the US based on loan volume. While the deal is not expected to be finalized until late 2024 or early 2025, it could have significant implications for both Capital One and Discover customers.
For Capital One customers, one major change on the horizon is the switch from Mastercard to the Discover network for all debit cards. Richard Fairbank, the founder and CEO of Capital One, stated in an investor call that this transition will occur within the first few years after the deal is finalized. Discover cards are already accepted at 99% of US merchants that allow credit card purchases, but Fairbank aims to increase this acceptance rate even further. By expanding the Discover network, Capital One hopes to make its cards more widely accepted, allowing customers to use them in more places and potentially earn more rewards.
However, there are concerns that this acquisition could lead to higher fees for consumers. Currently, Capital One’s credit cards primarily run on Visa and Mastercard networks. If all cards are flipped to Discover, Mastercard could lose a quarter of its US credit card volume, while Visa would experience a smaller loss of around 9%. This could result in higher fees for consumers, especially considering that Capital One already has credit cards with maximum interest rates above 30%. The Consumer Financial Protection Bureau has highlighted the lack of competition among major credit card companies as a contributing factor to these high rates.
Democratic Senator Elizabeth Warren has voiced her opposition to the deal, labeling it as “dangerous” and claiming it will harm working people. She has called on regulators to block the acquisition. However, some analysts believe that increased competition could actually benefit Visa and Mastercard by potentially delaying or eliminating legislation aimed at reducing the fees they collect from merchants.
While the acquisition of Discover Financial Services by Capital One is still pending approval, it has the potential to reshape the credit card industry in the US. With Capital One’s goal of expanding the Discover network and increasing acceptance rates, customers may soon find their Discover cards becoming more widely accepted. However, the impact on fees and interest rates remains uncertain, and regulators will play a crucial role in determining the outcome of this deal. As the financial landscape continues to evolve, it will be interesting to see how this acquisition unfolds and what it means for consumers and the credit card industry as a whole.