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23.02.2024 - 21:05 / thepointsguy.com / Henry Harteveldt / Credit Card
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.
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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:
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.
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But not everyone is convinced. "I am a little more circumspect," said Harteveldt
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