February 19 Capital one announced that he will acquire Discover in an all-stock transaction valued at $35.3 billion. Both companies are among the largest credit card issuers in the country, while Capital One is the ninth largest bank in the United States.
While the deal could affect consumers in the future, according to Capital One’s press release, it won’t close until later this year or early 2025. For now, the companies are awaiting regulatory and shareholder approval, and the deal has already drawn attention from policymakers with both main political parties.
How will the merger affect existing customers?
For now, not much will change if you’re a Discover or Capital One customer, but you should be aware of possible changes to your charge and credit cards or bank accounts.
Change of payment processing network
By acquiring Discover, Capital One will own one of the largest payment processing networks in the country, competing with the Big Three: Visa, MasterCard and American Express.
You can think of a payment processing network as an intermediary between the merchant and the card issuer. Whenever you make a purchase, the card issuer gives you the card and money up front to fund the transaction, while the payment network is the infrastructure that supports it.
Some companies act as card issuers and payment processing networks—American Express and Discover do both.
Capital One currently relies on the Visa and MasterCard networks to process payments, but plans to move all of its debit cards and some of its credit cards to Discover’s network starting in the second quarter of 2025, according to investor presentation February 20.
“Over time, we will move more and more of our credit card business to the Discover network. In total, across debit and credit cards, we expect to add more than 25 million Capital One cardholders and more than $175 billion in Capital One purchase volume by 2027,” said Richard Fairbank, CEO of Capital One, on the presentation call investors. “This injection and volume in the network will help Discover compete with the leading network.”
While this change won’t take effect immediately, it could affect Capital One debit and credit cardholders in the future, especially if they travel internationally.
“In most cases in the US, Discover is more or less accepted everywhere like Visa, MasterCard and American Express,” says Matt Schulz, chief credit analyst at LendingTree. “Where you might run into more trouble is international travel because Discover might not be as widely adopted.”
Higher fees and interest
The merger could make the payment processing space more competitive: Visa and MasterCard currently dominate the space. This could benefit consumers as issuers would have to compete to provide better rewards on credit cards.
“One thing that will be interesting to watch is how credit card rewards programs come together,” says Schulz. “Capital One will have to decide how to handle Discover miles and whether to keep the two rewards programs separate or merge them, and that decision will affect consumers.”
However, there is also the possibility that the merger reduces competition among issuers, leading to higher prices for consumers.
“Whenever there’s more consolidation and less competition, there’s always the possibility of higher rates and fees, but I don’t see that being a big problem,” says Schulz.
But a new survey by the Consumer Financial Protection Bureau (CFPB) found that larger credit card issuers charge higher interest rates and annual fees than smaller banks and credit unions. Why? Lack of competition among the biggest card companies.
“As we observed in 2023, the top 30 card companies represent about 95 percent of credit card debt, with the top 10 dominating the market,” he said. CFPB report.
If the merger goes through, Capital One would be the nation’s largest card issuer based on credit card loans outstanding, surpassing JPMorgan Chase.
More physical locations
The merger would help expand the issuer’s physical presence. For Discover users, this means gaining access to physical bank locations. Currently, Discover has one physical location while Capital One has 259 branches and 55 Capital One coffee shops.
Customers of both issuers would also benefit from increased access to ATMs – Capital One and Discover rely on Allpoint and MoneyPass fee-free ATMs. Capital One boasts a network of more than 80,000 ATMs, while Discover has more than 60,000.
To take away
Capital One and Discover customers won’t see any changes for a while, and approval of the deal depends on whether it passes potential antitrust scrutiny from politicians and regulators. In the meantime, shoppers should focus on what they can control—by shopping and comparing financial products, shoppers can score better deals on credit cards and checks and savings accounts.
