Capital One-Discover merger: Here's what it means for consumers and the Credit Card Competition Act
It's a giant banking merger that would create the nation's sixth-largest bank and have potentially significant implications for your credit cards. Capital One this week said it would purchase Discover Financial Services in an all-stock deal that would be worth some $35 billion. It would create the new largest credit card issuer in the world.
Related: The best credit cards for everyday spending
Capital One wants access to Discover's credit card portfolio and, perhaps more importantly, to own Discover’s payment network. Discover has the fourth-largest payment network in the U.S. after Visa, Mastercard and American Express. Payment networks are how funds go from a merchant to a credit card issuer. Those networks enable digital monetary transactions and also come with fees ranging from as low as 1.5% to as high as 3.5% of the transaction. That's big business and a potential source of major profits for Capital One.
It could give Capital One the ability to lower fees and enable it to keep more of the profits from credit card transactions. It's also raising some concerns on Capitol Hill, where the deal would need to get signoff from federal regulators.
"I'm surprised we haven't seen someone try to buy Discover sooner," said Henry Harteveldt, a travel industry analyst and president of Atmosphere Research. "We've seen consolidation in a number of industries, and I'm not surprised Capital One would be interested in buying Discover to expand their protect portfolio and their reach and of course, grow revenues and profits."
So, what might this deal mean for your wallet? Here's what we know so far:
What will happen to my Discover or Capital One credit cards?
Not much should change for consumers in the short term. However, if the deal is approved, they may find that more merchants could take their Discover cards, especially internationally.
Capital One will push some of its credit cards to the Discover payment network. Capital One will want to dramatically expand its use of those networks to get a bigger revenue cut.
Capital One said it will continue to use the current Discover branding on Discover credit cards.
I suspect you'll see new credit cards introduced by both companies to maximize the benefits of a combination. While it's pure speculation at this point, we could eventually see more lucrative offers for some credit cards offered by the combined company to encourage more consumers to use its networks.
Indeed, some analysts believe the deal could be good for consumers. David Roberston, the publisher and owner of the industry publication the Nilson Report, told The Wall Street Journal that the deal could actually enhance rewards programs.
Related: Review of Discover it Miles credit card
But not everyone is convinced. "I am a little more circumspect," said Harteveldt in an interview with The Points Guy. "The possibility exists that consumers might be able to get more benefits, but there's also an argument to be made that you'll be reducing competition and reducing the need for these incentives."
Will the Discover and Capital One deal be approved?
Capital One said the deal could close as soon as the end of 2024, though the government may not love another merger of big consumer-touching banking companies.
The merger is already facing bipartisan opposition on Capitol Hill. Sen. Josh Hawley, R-Mo., is demanding the Biden administration block the deal. Sen. Elizabeth Warren, D-Mass., also opposes the deal, saying on X (formerly known as Twitter) that the merger "threatens our financial stability, reduces competition, and would increase fees and credit costs for American families."
However, similar deals have been approved in the past, so the federal government may let this one go through. There are arguments that the deal would actually be good for consumers because it would increase payment processing competition, with much of the market currently controlled by Visa and Mastercard.
What would the merger mean for the Credit Card Competition Act?
In fact, that's the heart of the argument some politicians are using to campaign for the Credit Card Competition Act, which they claim would force more competition into the credit card industry to lower the fees merchants pay when shoppers swipe their credit cards.
That law would amend the Electronic Fund Transfer Act to require credit card-issuing banks to offer at least two networks for merchants processing electronic credit card transactions.
Interchange fees — also known as swipe fees — are the most important revenue driver for credit card companies. Card companies set fees for merchants in exchange for consumers being able to use credit cards at those merchants. Businesses like corner stores and hotels are charged each time a consumer makes a purchase with a card.
Related: Protect Your Points campaign
Some will argue that a beefed-up Discover network would offer more competition for Visa and Mastercard, eliminating the need for tighter regulation.
We'll continue to weigh the ramifications of this megamerger and analyze what it means for "what's in your wallet."
Related reading:
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| 4X | Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 4X | Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year. |
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Why We Chose It
There’s a lot to love about the Amex Gold. It’s a fan favorite thanks to its fantastic bonus-earning rates at restaurants worldwide and at U.S. supermarkets. If you’re hitting the skies soon, you’ll also earn bonus Membership Rewards points on travel. Paired with up to $120 in Uber Cash annually (for U.S. Uber rides or Uber Eats orders, card must be added to Uber app and you can redeem with any Amex card), up to $120 in annual dining statement credits to be used with eligible partners, an up to $84 Dunkin’ credit each year at U.S. Dunkin Donuts and an up to $100 Resy credit annually, there’s no reason that foodies shouldn’t add the Amex Gold to their wallet. These benefits alone are worth more than $400, which offsets the $325 annual fee on the Amex Gold card. Enrollment is required for select benefits. (Partner offer)Pros
- 4 points per dollar spent on dining at restaurants worldwide and U.S. supermarkets (on the first $50,000 in purchases per calendar year; then 1 point per dollar spent thereafter and $25,000 in purchases per calendar year; then 1 point per dollar spent thereafter, respectively)
- 3 points per dollar spent on flights booked directly with the airline or with amextravel.com
- Packed with credits foodies will enjoy
- Solid welcome bonus
Cons
- Not as useful for those living outside the U.S.
- Some may have trouble using Uber and other dining credits
- You may be eligible for as high as 100,000 Membership Rewards® Points after you spend $6,000 in eligible purchases on your new Card in your first 6 months of Card Membership. Welcome offers vary and you may not be eligible for an offer. Apply to know if you’re approved and find out your exact welcome offer amount – all with no credit score impact. If you’re approved and choose to accept the Card, your score may be impacted.
- Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com.
- Earn 2X Membership Rewards® points per dollar spent on prepaid hotels and other eligible purchases booked on AmexTravel.com.
- Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases.
- $120 Uber Cash on Gold: Add your Gold Card to your Uber account and get $10 in Uber Cash each month to use on orders and rides in the U.S. when you select an American Express Card for your transaction. That’s up to $120 Uber Cash annually. Plus, after using your Uber Cash, use your Card to earn 4X Membership Rewards® points for Uber Eats purchases made with restaurants or U.S. supermarkets. Point caps and terms apply.
- $84 Dunkin' Credit: With the $84 Dunkin' Credit, you can earn up to $7 in monthly statement credits after you enroll and pay with the American Express® Gold Card at U.S. Dunkin' locations. Enrollment is required to receive this benefit.
- $100 Resy Credit: Get up to $100 in statement credits each calendar year after you pay with the American Express® Gold Card to dine at U.S. Resy restaurants or make other eligible Resy purchases. That's up to $50 in statement credits semi-annually. Enrollment required.
- $120 Dining Credit: Satisfy your cravings, sweet or savory, with the $120 Dining Credit. Earn up to $10 in statement credits monthly when you pay with the American Express® Gold Card at Grubhub, The Cheesecake Factory, Goldbelly, Wine.com, and Five Guys. Enrollment required.
- Explore over 1,000 upscale hotels worldwide with The Hotel Collection and receive a $100 credit towards eligible charges* with every booking of two nights or more through AmexTravel.com. *Eligible charges vary by property.
- No Foreign Transaction Fees.
- Annual Fee is $325.
- Terms Apply.