On February 19, Capital One announced it would acquire Discover in an all-stock transaction worth $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 may impact consumers in the future, according to a Capital One press release it won’t close until later this year or early 2025. For now, the companies are awaiting approval from regulators and shareholders, with the deal already attracting scrutiny from policymakers with both major political parties.
How will the merger affect existing customers?
Not much will change for now if you’re a Discover or Capital One customer, but you should be aware of potential changes to your debit and credit cards or bank accounts.
Changing payment processing networks
By acquiring Discover, Capital One will own one of the biggest payment-processing networks in the country, competing against three larger networks: Visa, MasterCard, and American Express.
You can think of a payment processing network as a middleman between the merchant and card issuer. Whenever you make a purchase, the card issuer provides you with the card and the upfront money to fund the transaction while the payment network is the infrastructure supporting it.
Some companies act as card issuers and payment processing networks—American Express and Discover do both.
Currently, Capital One relies on the Visa and MasterCard networks for payment processing, but it plans to move all of its debit cards and some of its credit cards to Discover’s network starting in Q2 of 2025, according to an investor presentation on February 20.
“Over time, we will move a growing portion of the credit card business to the Discover network. In total, across debit and credit, we expect to add over 25 million Capital One cardholders and over $175 billion in Capital One purchase volume by 2027,” said Richard Fairbank, CEO of Capital One, on an investor presentation call. “This injection and volume in the network will help Discover be competitive with the leading network.”
While this change won’t go into effect immediately, it may impact Capital One debit and credit cardholders down the line, specifically if they travel abroad.
“In most cases in the U.S., Discover is more or less accepted everywhere that Visa, MasterCard, and American Express are,” says Matt Schulz, chief credit analyst at LendingTree. “Where you may run into more issues is with international travel because Discover may not be as widely accepted.”
Higher fees and interest rates
The merger could make the payment processing space more competitive: Visa and MasterCard currently dominate the space. This could benefit consumers because issuers would have to compete to provide better rewards on credit cards.
“One thing that will be interesting to watch is how the credit card rewards programs are blended together,” says Schulz. “Capital One will have to decide how they handle Discover miles and if they keep those two rewards programs separate or if they bring them together, and that decision will impact consumers.”
However, there’s also a possibility the merger reduces competition among issuers, leading to higher prices for consumers.
“Anytime there’s more consolidation and less competition, there’s always the possibility for rates and fees to increase, but I don’t see it being a huge issue,” says Schulz.
But new research from the Consumer Financial Protection Bureau (CFPB) found that larger credit card issuers charged higher interest rates and annual fees than smaller banks and credit unions. Why? Lack of competition among the largest credit card companies.
“As we noted in 2023, the top 30 credit card companies represent about 95 percent of credit card debt, and the top 10 dominate the marketplace,” states the CFPB report.
If the merger goes through, Capital One would be the largest card issuer in the country based on outstanding credit card loans, beating out JPMorgan Chase.
More physical locations
The merger would help expand the issuers’ physical presence. For Discover customers, it means gaining access to physical bank locations. Currently, Discover has one brick-and-mortar location while Capital One has 259 branches and 55 Capital One Cafes.
Customers of both issuers would also benefit from increased ATM access—Capital One and Discover both 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.
The takeaway
Capital One and Discover customers won’t experience any changes for a while and approval of the deal hinges on whether it passes potential antitrust scrutiny from politicians and regulators. In the meantime, customers should focus on what they can control—by shopping around and comparing financial products, customers can score better deals on credit cards and checking and savings accounts.
