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: