America’s Largest Credit Card Company: Capital One’s Acquisition of Discover Financial Services
**America is on the cusp of witnessing the birth of the largest credit card company in the country**. Capital One’s acquisition of Discover Financial Services in a monumental $35.3 billion all-stock deal, pending regulatory and shareholder approval, is set to create the biggest credit card giant in the United States **based on loan volume**.
Though the deal is not expected to be finalized until late 2024 or early 2025, customers of Discover and Capital One need not anticipate any immediate changes **in terms of their services and benefits**. However, antitrust regulators might extend the deadline due to the anti-merger stance of the Biden administration.
Richard Fairbank, the founder and CEO of Capital One, has indicated that as part of the consolidation, all Capital One debit cards will transition from Mastercard to the Discover network **within the first few years following the deal’s completion**. This move is anticipated to lead to more businesses accepting Discover, a development that would greatly boost its presence and market share. Currently, while Discover is accepted at 99% of US merchants, its international acceptance rates are relatively lower compared to Visa and Mastercard. Capital One seeks to address this by likely lowering Discover’s processing fees, thereby making it a more competitive option.
With a market valuation of approximately $28 billion, Discover is currently smaller in size than major industry players such as Visa, Mastercard, and American Express. **This acquisition has the potential to position Capital One as a formidable contender against other banks that rely on third-party processors for transactions**.
It is worth noting that if Capital One does shift all its credit cards to Discover, Mastercard would suffer a substantial quarter loss in its US credit card volume, while Visa would experience approximately a 9% decline in its volume. This could potentially impact consumers by leading to higher fees for their outstanding balances. Notably, Capital One primarily caters to customers with credit scores in the 600s range, who are typically subject to higher interest rates. The Consumer Financial Protection Bureau reveals that “lack of competition likely contributes to higher rates at the largest credit card companies.”
Democratic Senator Elizabeth Warren has raised concerns over the acquisition, criticizing it as “dangerous” and potentially harmful to working individuals. She has urged regulators to block the deal. It is worth considering that increased competition resulting from the consolidation might also delay or even prevent legislation aimed at reducing the fees collected by Visa and Mastercard from merchants.
Should the acquisition be approved, it will undoubtedly reshape America’s credit card landscape, bringing forth a new era dominated by the unified force of Capital One and Discover. Customers and industry watchers alike eagerly await the final decision and its subsequent impact on the financial sector.
Analyst comment
Neutral news.
As an analyst, the market is likely to see increased competition and potential changes in the credit card industry. Capital One’s acquisition of Discover Financial Services has the potential to position Capital One as a strong competitor against other banks. However, there may be concerns surrounding the impact on fees and interest rates for consumers. The acquisition will depend on regulatory and shareholder approval, with potential delays due to antitrust concerns.
