Capital One’s Discover Acquisition Would Reshape US Credit Card Industry

US commercial bank Capital One surprised the financial industry with its plans to acquire US credit card issuer Discover Financial Services in a $35.3 billion all-stock transaction. The deal, which will be intensely scrutinized by the antitrust authorities and had already seen pushback from some progressive politicians, is set to create a US credit card giant.

It adds scale to Discover, which is currently fourth in size among the US credit card networks after Visa, Mastercard and Amex, and it’s a clear bet that a post-pandemic expansion of the credit card loan level will keep rising in the coming years.

“Through this combination, we’re creating a company that is exceptionally well-positioned to create significant value for consumers, small businesses, merchants and shareholders as technology continues to transform the payments and banking marketplace,” said Richard Fairbank, founder and chief executive of Capital One, during the deal’s announcement.

If the parties conclude the deal and regulators approve it, Capital One shareholders will own 60% of the combined company, while Discover shareholders will own the rest. It will create the sixth-largest US bank group.

According to some, the planned purchase will also create the largest credit card company by outstanding volume. By purchase volume, the combined company would be the third-largest credit card issuer after JPMorgan Chase and American Express.

 Some politicians have cried foul, noting that Capital One will have too much clout, leaving customers with fewer options. Democratic progressives in Congress have long fought bank consolidation, saying that larger banks were increasing systemic risks and providing worse conditions for their clients.

Senator Elizabeth Warren demanded that the Biden administration block it. Maxine Waters of the House Financial Services Committee said the deal will significantly affect consumers and small businesses.

However, Capital One and its supporters say that the tie-up with Discover will strengthen a competitor of powerful networks such as Visa and Mastercard—in what could instead be a win for consumers.

Capital One expects the deal to be approved by regulators in late 2024 or early 2025.