Capital One’s $35 Billion Acquisition of Discover: What It Means for Customers
Capital One’s recent announcement of its plan to acquire Discover Financial Services in a $35 billion all-stock deal has sparked excitement among experts and customers alike. The acquisition is expected to be completed in late 2024 or early 2025, and it promises to bring a host of new benefits and perks for Capital One customers.
Access to Discover’s high-credit-quality customers and its network of payment processing services is a significant advantage for Capital One. Currently, the payment processing market is dominated by Visa and Mastercard, but with this acquisition, Capital One will have the opportunity to compete on a new level. Marbue Brown, founder of the Customer Obsession Advantage, a consulting firm specializing in customer loyalty, believes that this competition will lead to elevated perks for customers. In other words, Capital One will need to step up its game and offer more premium benefits to attract and retain customers.
So, what can customers expect from this merger? Let’s take a closer look.
The Price Tag: Capital One plans to acquire Discover in a $35.3 billion deal. Discover shareholders will receive Capital One shares valued at nearly $140 per share, which is a significant premium compared to the closing price of Discover shares on Friday.
The Motivation Behind the Acquisition: By acquiring Discover, Capital One aims to become the largest card issuer in the United States. With approximately $250 billion in card balances and a market share of 22%, the combined entity will have a strong foothold in the credit card industry. Additionally, this acquisition will enable Capital One to compete with the dominant players in the payment networks sector, namely Mastercard and Visa. Currently, these two companies hold 83% of the credit card processing market. However, a bipartisan bill is being proposed to introduce more competition by requiring large banks to offer at least two networks for merchants to choose from when processing transactions. Capital One’s acquisition of Discover will position them to build a payments network that can rival the industry giants.
Benefits for Customers: One of the most exciting aspects of this merger is the potential for enhanced customer benefits. Discover has consistently ranked among the top two credit card issuers in JD Power’s credit card satisfaction survey since 2007. Capital One will undoubtedly strive to maintain this high level of customer satisfaction. Experts predict that Capital One will extend Discover’s perks, such as travel portals and shopping discounts, to its large customer base. Customers with high credit scores can especially look forward to enjoying these premium benefits. Additionally, there is speculation about whether Capital One will adopt Discover’s offering of doubling cardholders’ cash back or miles at the end of their first year. This feature has been a staple for Discover and has contributed to the brand’s success.
Savings and Fees: While customers can anticipate a range of new perks, it is unlikely that the acquisition will lead to significant savings on credit card fees. Doug Kantor, general counsel at the National Association of Convenience Stores trade group, believes that Discover’s small percentage of the payment network will not change even after the acquisition. However, Capital One has announced that debit card purchases will be processed on the Discover network, while only selected credit card transactions will be shifted. This strategic move allows Capital One to tap into the lucrative credit card processing market, which generated $93 billion in transaction fees for Visa and Mastercard in 2022. If the bipartisan bill passes, Capital One could become the required second processing option, presenting a significant growth opportunity.
Regulatory Approval: The success of this acquisition depends on receiving approval from regulators. Given the magnitude of the deal and the scrutiny faced by the financial industry from the Biden administration and the Consumer Financial Protection Bureau (CFPB), a thorough review is expected. However, experts believe that all sides are confident in the approval process. Matt Schulz, chief credit analyst at loan comparison site LendingTree, suggests that while the deal may undergo scrutiny, it is likely to be approved.
In conclusion, Capital One’s acquisition of Discover Financial Services has the potential to revolutionize the credit card industry and bring a host of new benefits for customers. From better service and luxury airport lounges to extended perks and rewards programs, customers can expect an elevated experience. While savings on credit card fees may not be significant, the acquisition positions Capital One to compete with industry giants and potentially grab a share of the lucrative payment processing market. As the deal awaits regulatory approval, customers eagerly anticipate the exciting changes that lie ahead.
Disclaimer: This article is based on information from various sources and does not constitute financial advice. Please consult with a professional financial advisor for personalized guidance.