Capital One, Discover Merger Faces Scrutiny

Capital One is hoping to acquire Discover, but regulators must first sign off on the deal. 

Valued at more than $35 billion, the alliance would give Capital One access to a credit card network of more than 300 million cardholders, adding to its existing customer base of 100 million. It brings together two of the largest players in the credit card market.

Visa shares closed down 1.2% on Tuesday, while shares of Mastercard, which has a bigger exposure to Capital One, ended down 3.5%, according to Reuters. 

“One question that is likely to be on regulators’ minds is what Capital One chooses to do with the Discover brand,” according toThe New York Times. 



Richard D. Fairbank, the chief executive of Capital One, told analysts that the deal would help the combined enterprise “compete more effectively against some of the largest banks and payments companies in the United States.”

The deal would also give Capital One a new source of revenue from the merchant fees it collects, according to CNN Business

Currently, Capital One issues credit cards with Mastercard and Visa. The deal would likely result in more of its cards getting switched to the Discover network, The Wall Street Journal reported.

The deal could have long-term implications for credit card holders, regardless of whether they bank with Capital One or shop with Discover. It could have an adverse effect, leaving the industry with fewer competitors overall and easing pressure on companies to attract customers with favorable terms, some experts and consumer advocates said.

“If approved by shareholders and regulators, the merger would leave Capital One in a stronger market position, potentially allowing the company to offer more attractive bonuses and perks, some experts said,” according to ABC News. “The potential challenge to industry juggernauts Visa and Mastercard, meanwhile, could elicit innovations and fresh offerings for consumers industrywide, they said."

One expert believe the deal is unlikely to change much for existing Discover users -- and regulatory action to stop the transaction would do little to change market concentration, says David Robertson, the publisher of the Nilson Report.

“If regulators wanted to do something, they should have acted years and years ago to create more competition,” Robertson said.

The payments industry is largely dominated by Visa and Mastercard. 

“The deal marries two of the largest credit card companies that aren’t banks first, like JPMorgan Chase and Citigroup, with the notable exception of American Express,” according to The Associated Press. “It also brings together two companies whose customers are largely similar: often Americans who are looking for cash back or modest travel rewards, compared to the premium credit cards dominated by AmEx, Citi and Chase.”

Capital One’s business model appeals to customers who keep a balance on their cards, and who often have lower credit scores than American Express or even Discover customers. 

Sen. Elizabeth Warren (D-Mass.), a Senate Banking Committee member, urged regulators to block the proposed merger, according to The Hill. 

“The merger of [Capital One] and [Discover] threatens our financial stability, reduces competition, and would increase fees and credit costs for American families,” Warren wrote on X.

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