What’s in your wallet? Capital One is making a $35 billion bet that the answer will soon be: more of its credit cards. The bank announced Monday evening it is acquiring Discover Financial Services (DFS) in a $35.3 billion all-stock deal. If approved by regulators and shareholders, Capital One’s (COF) acquisition will create the biggest US credit card company by loan volume.
So what does that mean for you? For now, not a lot. Given that the deal isn’t expected to be finalized until late 2024 or early 2025, Discover and Capital One customers shouldn’t anticipate any immediate changes.
And antitrust regulators could push that deadline even further out: The Biden administration has established a strong anti-merger stance by attempting to block consolidation of corporate giants, from tech companies to airlines. But, down the road, there could be significant transformations.
More businesses could start accepting Discover
For starters, all Capital One debit cards will be switched from Mastercard to the Discover network “within the first few years” from when the deal is finalized, Richard Fairbank, founder and CEO of Capital One, said in a Tuesday morning investor call.
Discover cards are already accepted at 99% of all US merchants that allow customers to make credit card purchases, according to the company. But Fairbank said people mistakenly believe that share is a lot lower.
On the international side, he acknowledged that Discover’s acceptance rates are much lower compared to Visa and Mastercard. That’s one of the reasons he said Capital One will continue to do business with them, even as it builds up the Discover network.
The end goal, though, is to get more merchants to take Discover, he said. To do so, Capital One would likely have to lower the processing fees Discover currently charges to make it more competitive with Visa and Mastercard’s lower fees. That’s good for consumers because it means they can use their Discover cards in more places and also likely earn more rewards from those purchases.
With a market valuation of almost $28 billion, Discover is considerably smaller than the other three major credit card networks in the US — Visa (V), Mastercard (MA) and American Express (AXP). Credit card networks are the liaison between card issuers and merchants, for whom they set fees.