Capital One-Discover Merger: What It Could Mean for You
Capital One announced a $35.5 billion deal to acquire Discover Financial Services, which is expected to close in late 2024 to early 2025. Subject to regulatory approval, the merger of these two major U.S. financial institutions could create an even stronger financial brand, especially in the credit card industry and online banking space.
While we will not know the specific impact on existing and prospective customers until the deal closes, it’s exciting to speculate on the potential shakeup to the financial offerings that consumers could see in the near future.
Branding
As brands, both Capital One and Discover are such solid brands that they probably could operate as separate entities–maybe with some consolidation of similar offerings.
But, more likely than not, it’ll end up being a single powerhouse brand–either as Capital One or a new brand. The idea would be to form an entity similar to American Express, which also issues its own credit cards, operates its own card payment network, and is an FDIC-insured bank.
Credit Cards
According to Nilson Report (Issue 1236), Capital One and Discover were the 4th- and 6th-largest U.S. credit card issuers based on purchase volume. Together, they could become the 3rd-largest U.S. credit card issuer–behind JPMorgan Chase as #1 and American Express as #2.
When it comes to their combined credit card portfolios, there is a bit of overlap–specifically, their dining cash back cards, low-tier travel credit cards, and secured credit cards. There could be some consolidation or changes to those offerings in the future.
Payment network
The deal means Capital One would gain the Discover card payment processing network. Currently, Capital One issues cards that are accepted on the Visa and MasterCard networks.
Switching cards to the Discover network means less card-processing fees for Capital One cards. For the sake of wishful thinking, does it mean Capital One/Discover will explore credit card offerings with more rewards and perks?
Banking
On the banking side of the merger, Capital One and Discover will simply become bigger. According to FDIC 2023 data, the combined entity will hold more than $469 billion in total deposits–making it the 6th largest U.S. bank by total deposits.
Both brands have been in the online banking space for a very long time. They’re known for consistently-high deposit rates with little to no fees. Their banking products are similar enough that existing customers might not see a significant change due to this merger.
FDIC insurance
It would not be surprising if some Capital One banking customers also have accounts with Discover Bank.
One concern is that such a bank merger means such customers could lose some FDIC insurance coverage. (The FDIC guarantees up to $250,000 in deposits per person, per account-ownership type.)
For instance, a customer split up $500,000 evenly between Capital One and Discover bank accounts to ensure that the entire amount falls under FDIC insurance coverage. After the merger, the single entity would only cover $250,000 of those funds, while the remaining $250,000 would be at risk if the bank fails.
Other Loans
In the loan department, other than credit cards, Capital One only offers auto loans. Meanwhile, Discover provides personal loans, student loans, and home loans.
Borrowers would have to watch for any notices of the change in who owns and services the loans. It is common for borrowers to miss payments when such changes occur.
Anti-Trust Concerns
The proposed acquisition of Discover by Capital One will surely raise concerns about violating antitrust laws. Each company is already a significant player competing in similar industries.
So, we cannot say that the merger will be approved with 100% certainty.
Stay tuned for more updates on what may change as the deal closes.
