Capital One announced late Monday that it plans to acquire Discover Financial Services in a $35.3 billion deal that would bring two of the largest credit card issuers in the United States together.
The all-stock deal, which is subject to both regulatory and shareholder approval, is expected to close in late 2024 or early 2025, Capital One said in a news release.
While many details are unclear, it's unlikely such a merger would result in substantial changes for Capital One's popular travel cards like the *venture x* or *capital one venture card* – at least not immediately. And Capital One has said it plans to maintain Discover's brand and portfolio of cards – not simply fold them under the Capital One name, according to reporting from the Wall Street Journal.
But acquiring Discover would give Capital One something that it and even competitors like Chase, Bank of America, and others lack: An in-house credit card payment network.
Payment networks are the backbone of using your credit card as they enable transactions and ultimately govern the fees merchants pay when consumers swipe their cards. Unlike banks like Capital One, Chase, and Citi, which issue credit cards on networks run by Visa or Mastercard, Discover operates its own network to process credit card transactions. Though it's much smaller in scale, Discover is similar to American Express in that it offers credit card products while also operating its own payment network.
While Discover is currently the smallest of the four U.S.-based global payments networks – American Express, Mastercard, Visa, and Discover – Capital One says the acquisition “adds scale and investment, enabling the Discover network to be more competitive with the largest payments networks and payments companies.”
Capital One currently issues credit cards through both Visa and Mastercard. Acquiring Discover would allow the bank to bring this in-house and utilize its own payment network for its credit card products. More importantly, it would also provide Capital One with a new source of revenue from the merchant fees it would collect.
“Our acquisition of Discover is a singular opportunity to bring together two very successful companies with complementary capabilities and franchises, and to build a payments network that can compete with the largest payments networks and payments companies,” Richard Fairbank, founder, Chairman, and CEO of Capital One, said in a statement.
Additionally, as noted by Dave Grossman at Miles Talk, acquiring Discover's payment network could have major implications for the controversial Credit Card Competition Act of 2023, a bill that has been introduced in the U.S. Senate to address network access and competition in electronic credit card transactions. In the proposed legislation, credit cards issued on their own network would be excluded. Banks using Visa or Mastercard for their payment processing would have to allow for an alternate network such as Discover or American Express should the act pass.
Ultimately, the pending acquisition creates more competition in the payment network space to chip away at the Visa and Mastercard duopoly which is what the Credit Card Competition Act is attempting to tackle in the first place.
Capital One plans to switch at least some of its credit cards to the Discover payments network while continuing to use Visa and Mastercard on others, the Wall Street Journal reported. However, it's unclear which Capital One credit cards would plan to use Discover's payment network and what a timeline for such a change might look like.
All that to say, if you currently hold a Capital One or Discover credit card, it's going to be business as usual for the foreseeable future, and depending on which cards you hold, nothing may change at all.
Bottom Line
Capital One announced Monday it is planning to acquire Discover, a move that would bring two of the largest U.S. credit card issuers together and would create the biggest credit card company in the United States by loan volume.
The deal is expected to close later this year or early next, with possible implications for travelers who hold cards from either bank – although nothing is changing in the immediate future.
