How the Capital One/Discover Merger Could Affect You (2024)

Vault’s Viewpoint

  • Capital One is in the process of acquiring Discover, which could make Capital One the largest credit card operator in the market.
  • If Capital One completes the acquisition, your Discover card could become a co-branded Capital One credit card.
  • Capital One may also offer more rewards and benefits after the acquisition, especially if they are able to negotiate better interchange fees with credit card payment processors.

What Is the Capital One/Discover Merger?

On February 19, 2024, Capital One Financial Corporation announced that it planned to acquire Discover Financial Services. The Capital One/Discover merger will allow Capital One to take advantage of Discover’s global payments network and position Capital One to take over as the largest credit card operator in the industry. The merger is expected to be finalized in late 2024 or early 2025.

“If the merger happens, it’s definitely a game-changer in the consumer credit industry, which should trickle down to some positive changes for consumers who carry either card,” says David Chami, a Managing Partner at Consumer Attorneys.

Why Is Capital One Acquiring Discover?

The Capital One/Discover merger puts Capital One in the position of becoming the largest credit card operator in the industry. It also gives Capital One access to a global payments network and the opportunity to negotiate interchange fees with payment processors—just like Visa, Mastercard and American Express.

“Capital One has a distinct advantage,” DeSanctis explains. “They’re going to get as much benefit, if not more, out of the network side of it as they are out of the merger.”

Discover, meanwhile, is a relatively small credit card network that has done its best to keep up with the giants. The merger with Capital One allows Discover shareholders to become partial owners of a major financial corporation, which could be a boost for everyone involved.

Here’s a quick overview of the five top credit card companies by loans (data collected by American Banker):

  1. JP Morgan Chase: $186 billion in total credit card loans
  2. Citibank: $173 billion in total credit card loans
  3. Capital One: $142 billion in total credit card loans
  4. Bank of America: $102 billion in total credit card loans
  5. Discover: $102 billion in total credit card loans

There’s one more factor that makes this merger a game-changer. In addition to gaining access to Discover’s portfolio and network, Capital One may retain the capacity to issue credit cards through the Mastercard and Visa networks. “They’ll have extreme flexibility,” says DeSanctis—which is another reason why consumers are likely to benefit.

How Could the Capital One/Discover Merger Affect You?

It’s easy to see what might happen if Capital One and Discover combine forces.

“Right now, Capital One is an issuer only, so it has to outsource its payment processing to Visa or Mastercard,” says Chami. “By acquiring Discover’s processing services, Capital One would bring everything in-house. It would not only be the largest issuer but also, potentially, the largest processor of payments.”

This would give Capital One the opportunity to negotiate with credit card payment processors as a credit card network and, assuming the negotiations are successful, improve the interchange fees that are charged when merchants and retailers process Capital One credit cards. Since interchange fees—often called “swipe fees”—are one of the major ways that credit card companies make money, this merger has the potential to be extremely valuable for Capital One—and it might be valuable for you as well.

“This has the potential to benefit consumers because it gives Capital One tremendous leverage to negotiate those swipe fees,” Chami told us.

With Capital One in a better negotiating position, cardholders are likely to see greater incentives to apply for Capital One credit cards—including higher rewards, bigger welcome bonuses and lower interest rates for cardholders with good or excellent credit.

Will Your Discover Credit Card Become a Capital One Credit Card?

If you are one of the 345 million Discover cardholders across the globe, you might be wondering what might happen to your Discover credit card after Capital One and Discover merge.

While it’s still unclear how Capital One will handle the lines of credit it plans to acquire from Discover—which may include credit cards, Discover student loans and Discover personal loans—it’s likely that, at minimum, your Discover card will become a co-branded credit card.

“The two brands will not continue to exist independently,” says Ernan Haruvy, Professor of Marketing at McGill University. “Co-branding is inevitable.”

If you have the popular Discover it® Cash Back credit card, you might end up being issued a co-branded Capital One card with the same rewards structure, including the opportunity to match all of the cash back you earn during your first year as a cardholder.

“There is a very good chance—almost a certainty—that the Discover it Cash Back Card would have Capital One added to it, or it might be phased out altogether and replaced by a completely different co-branded card,” Haruvy explains.

Capital One may also decide to change the rewards structure associated with your co-branded Discover credit card. Credit card issuers are legally allowed to change many of the terms associated with your credit card, including interest rates, fees and rewards. Since many of these changes—especially interest rate changes—require the credit card issuers to notify you 45 days in advance, you should have plenty of time to decide whether you want to keep your card, cancel your card or request to be switched to a different Capital One credit card.

While canceling your Discover credit card after the Capital One merger is always an option, keep in mind that closing a line of credit in good standing has the potential to lower your credit score. That’s why we recommend either keeping your existing card or requesting an upgrade.

Here are some of the best Capital One credit cards for you to consider:

Card NameRewards StructureWelcome BonusAnnual Fee
Capital One Venture Rewards Credit CardUnlimited 2X miles on all purchases, plus 5X miles on hotels and car rentals booked through Capital One TravelEarn 75,000 bonus miles after spending $4,000 on purchases within the first three months$95
Capital One Venture X Rewards Credit CardUnlimited 2X miles on all purchases, plus 5X miles on flights booked through Capital One Travel and 10X miles on hotels and rental cars booked through Capital One TravelEarn 75,000 bonus miles after spending $4,000 on purchases within the first three months$395
Capital One Savor Cash Rewards Credit CardIncludes unlimited 4% cash back on dining, entertainment and popular streaming services, 3% back at grocery stores and 1% on everything elseEarn a $300 cash bonus after spending $3,000 on purchases within the first three months$95
Capital One Quicksilver Cash Rewards Credit CardUnlimited 1.5% cash back on all purchases, plus 5% cash back on hotels and rental cars booked through Capital One TravelEarn a one-time $200 cash bonus after spending $500 on purchases within the first three months$0

Frequently Asked Questions

When Will Capital One and Discover Merge?

As of this writing in April of 2024, the date of the Capital One/Discover merger has not been finalized. According to the press release Capital One sent out in February 2024, the merger is scheduled to be completed in late 2024 or early 2025. But these kinds of processes take time, and it would not be surprising if the merger ended up being delayed until mid-2025. It’s also possible that the merger process could terminate before it completes, although in that case one of the companies involved might be required to pay a hefty termination fee.

What Is the Termination Fee for the Capital One/Discover Merger?

According to the regulatory filing documents required as part of the merger process, either Capital One or Discover may be required to pay a termination fee of $1.38 billion if the merger fails to complete under certain circumstances.

Here is the relevant language from the SEC filing: “The Merger Agreement provides certain termination rights for both Capital One and Discover and further provides that a termination fee of $1,380,000,000 will be payable by either Capital One or Discover, as applicable, in the event of a termination of the Merger Agreement under certain circumstances involving alternative acquisition proposals or changes in the recommendation of the other party’s board of directors.”

Who Owns Capital One?

Richard D. Fairbank is the founder, Chairman, Chief Executive Officer and President of Capital One Financial Corporation.But these kinds of corporations are technically owned by shareholders, and part of the Capital One/Discover merger will involve bringing Discover shareholders into company ownership.

According to the February 2024 press release from Capital One, once the merger is complete “Capital One shareholders will own approximately 60% and Discover shareholders will own approximately 40% of the combined company.”

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How the Capital One/Discover Merger Could Affect You (2024)

FAQs

How the Capital One/Discover Merger Could Affect You? ›

If Capital One completes the acquisition, your Discover card could become a co-branded Capital One credit card. Capital One may also offer more rewards and benefits after the acquisition, especially if they are able to negotiate better interchange fees with credit card payment processors.

What are the effects of Capital One Discover merger? ›

The widespread impact of a bank merger

“The merger of Capital One and Discover threatens our financial stability, reduces competition, and would increase fees and credit costs for American families,” Senator Elizabeth Warren said in a tweet.

How does Capital One buying Discover affect me? ›

If your Capital One credit card is transferred to Discover's payment network, you may encounter difficulty when trying to use it outside of the U.S. That's because while Mastercard and Visa — again, the networks that currently service Capital One cards — enjoy widespread acceptance nearly anywhere across the globe, ...

Why does Capital One want to buy Discover? ›

Capital One says it wants to use Discover's payment network to work more closely with merchants (retailers, restaurants, and other stores) to offer better benefits and experiences. This could mean better customer loyalty programs, special offers from your favorite brands, and more.

What is the Capital One impact? ›

The Capital One Impact Initiative is our $200 million, multi-year commitment to support growth in underserved communities and advance socioeconomic mobility by closing gaps in equity and opportunity. Driving Affordable Housing Creation and Preservation in D.C.

What will happen when Discover and Capital One merge? ›

The Capital One/Discover merger will allow Capital One to take advantage of Discover's global payments network and position Capital One to take over as the largest credit card operator in the industry. The merger is expected to be finalized in late 2024 or early 2025.

How does a merger affect a company? ›

Mergers can affect the share price of both companies. The smaller company's shares are likely to rise in value and shares in the larger company may dip. However, it is common for the shares in the newly formed company to be higher in value than those of the two original businesses.

What will change when Capital One buys Discover? ›

Network impact

Capital One expects that the merger will enable it to compete better with the larger networks. According to Capital One's press release on the merger, the company's debit card transactions will be moved to the Discover network, along with “selected” credit card transactions.

Is Capital One getting rid of Discover? ›

And Capital One is not trying to eliminate the Discover brand (Capital One has already announced that the Discover brand is not going away). Instead, one of the biggest opportunities of buying Discover is that it will enable Capital One to own a payment network.

What happens to Discover stock after merger? ›

Under the terms of the agreement, Discover shareholders will receive 1.0192 Capital One shares for each Discover share, representing a premium of 26.6% based on Discover's closing price of $110.49 on February 16, 2024 . Transaction is 100% stock consideration. MCLEAN, Va.

Is Capital One buying Discover a good thing? ›

Capital One buying Discover is ultimately going to be a good thing for average credit card customers because it will create new competition for Visa and Mastercard. And the best thing about Capital One buying Discover is that it might save credit card rewards from being killed by Congress.

What will happen to Discover? ›

Capital One Financial Corp. announced Monday that it had reached an agreement to acquire Discover Financial Services for $35.3 billion, instantly creating a financial behemoth should the deal be approved by regulators.

Is Capital One safe to keep money? ›

Your money is safe at Capital One

The FDIC insures balances up to $250,000 held in various types of consumer and business deposit accounts. Capital One customers don't need to purchase or apply for FDIC insurance—coverage up to the FDIC's limit is automatic whenever a deposit account is opened.

Why Capital One is better? ›

Capital One is best for someone who's looking for high-yield deposit accounts without fees or account minimums. It can also be a good option for someone who prefers online-only banking since it doesn't have nationwide branch access.

What are the strengths of Capital One Bank? ›

Capital One Financial has the Financial Strength Rank of 4.

The debt burden that the company has as measured by its Interest Coverage (current year). The higher, the better.

What will happen to Discover card holders? ›

Last month, Capital One announced its plans to acquire Discover. If approved, the deal won't close until later this year or early 2025. Nothing will change now, but many accounts could be impacted once the deal is finalized. Your rewards, interest rates and card terms could potentially look different.

What will happen to Discover stock after merger? ›

Under the terms of the agreement, Discover shareholders will receive 1.0192 Capital One shares for each Discover share, representing a premium of 26.6% based on Discover's closing price of $110.49 on February 16, 2024 . Transaction is 100% stock consideration. MCLEAN, Va.

What is going on with Capital One and Discover? ›

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.

What happens to my shares in a merger? ›

In such a case, if the acquiring company distributes cash for those shares, you will receive the said amount, and the acquired company's shares will disappear. If the acquiring company distributes shares of their company, the shares as per the deal will be credited to your account.

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