Capital One merges with Discover: Could it become the largest U.S. credit card company?
The Federal Reserve and the Office of the Comptroller of the Currency approved the merger between Capital One and Discover, aiming to boost Capital One’s competitiveness and expand its role in payment processing.
Capital One received the green light from the Board of Governors of the Federal Reserve and the Office of the Comptroller of the Currency (OCC) to complete its acquisition of Discover Financial Services. The deal, structured as an all-stock merger, was initially announced more than a year ago and seeks to solidify Capital One's position in the competitive U.S. credit card market.
Approval is subject to Capital One submitting a plan to the OCC to address any pending regulatory actions against Discover Bank, as well as remediation measures for potential customer harm. This transaction could position Capital One ahead of competitors such as JPMorgan Chase, Bank of America, and Citigroup in terms of payment processing reach.
Market and consumer impact
The acquisition will allow Capital One to access a new revenue stream through merchant fees charged for transaction processing, something that major issuing banks do not directly do. For Discover cardholders, this could translate into greater merchant acceptance, expanding its usability nationwide.
However, there are concerns about potential interest rate increases for cardholders. Capital One has a history of working with subprime customers, meaning those with lower credit scores, which typically leads to less favorable financial terms, including higher interest rates.
Capital One and Discover are teaming up to become one of the best credit card companies in the country. Photo: Axios
Preliminary sanctions and regulatory conditions
As part of the approval process, the Federal Reserve signed a consent order with Discover, which includes a $100 million fine. This penalty is related to the excessive interchange fee charges to customers between 2007 and 2023, a practice for which Discover was sanctioned following a regulatory investigation.
Capital One must ensure that corrective measures are taken before fully completing the integration with Discover. Regulators will closely monitor compliance with the imposed conditions to ensure the merger does not negatively impact consumers.