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Capital One's potential acquisition of Discover, announced this week, would have a major effect on the competitive landscape for credit cards.
The deal could make Capital One the largest issuer of credit cards in the country, on top of giving it access to Discover's valuable payment network. Aside from being a card-issuing bank, Discover is also among the four primary payment networks in the U.S. (along with Visa, Mastercard and American Express), through which most credit and debit card transactions are processed.
While Capital One intends to keep the Discover credit card brand separate, it also plans to move its debit processing over to Discover’s payment network, as well as some of its credit card processing.
So what does this mean for holders of Capital One and Discover credit cards? Well, nothing yet.
It's not a done deal
The proposed deal must first pass federal regulatory scrutiny, although some experts are optimistic.
"I think it can be done, as both Discover and Capital One have non-card business lines that could be divested if necessary to create a merged entity that could be approved,” said Beth Robertson, managing director at Keynova Group, which analyzes the market for digital financial services firms, in an email.
If it does get a green light, Capital One doesn't expect the deal to close until late this year or in early 2025. Even then, it may still take time before cardholders notice changes. Consider an example from recent history involving companies with major credit card portfolios:
In November 2015, Marriott announced it was buying Starwood Hotels, "creating the world’s largest hotel company," and signaling the demise of the co-branded Starwood Preferred Guest (SPG) credit cards. New co-branded credit cards under the combined hotel behemoth were eventually launched — in 2019.
But ripple effects may eventually reach you
If the deal goes through, though, here are some potential changes that experts, studies and history all suggest:
New products, worse terms?
Capital One says the deal will allow it "to deliver industry-leading products and experiences that span the credit card marketplace across consumers, small businesses, and merchants."
But market consolidation isn't always good for consumers, especially when it comes to interest rates. Regardless of credit risk, large banks offer poorer credit card terms and interest rates compared with small banks and credit unions, according to a recent report by the Consumer Financial Protection Bureau. Opting for a larger bank's credit cards can mean paying $400 to $500 in additional annual interest for the average cardholder, based on the report's findings.
“I think it’s only fair to be worried that [the deal] will reduce competition and increase pricing pressure," says Adam Rust, director of financial services at the Consumer Federation of America, a consumer advocacy organization. He adds that if the acquisition happens, the issuer will likely have an opportunity to rewrite some terms and conditions, which could impact rewards, fees or interest rates.
Updated account numbers
If your Capital One credit card is among those that get transitioned to Discover — or even if the opposite happens — you can expect to receive an updated credit card and, more importantly, a new account number.
Currently, Capital One credit cards largely run on either the Visa or Mastercard payment networks, so a move to Discover would mean a new logo on the card and a new starting digit. (Credit card account numbers from Discover begin with the number "6." Cards that run on Visa or Mastercard generally start with a "4" or "5.")
If you get a new card number, you'll need to update existing credit card information wherever it's saved for automatic payment purposes.
More limited card acceptance or benefits
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, international acceptance of Discover is much more limited. If you're planning to take a Discover card overseas, you'll want to pack a backup.
Visa and Mastercard also offer various side perks for cards that run on their networks, and while they're not as significant as the benefits that come from the bank that actually issues the credit card, they are generally more robust than what Discover's network offers.
Transitional hiccups
Whenever a credit card changes issuers, it can bring disruptions that are bigger than simply having to adjust your autopay accounts.
In 2016, Costco cardholders transitioned from American Express to Citi and were met with headaches.
In 2019, some cardholders saw their credit scores temporarily drop amid the transition of Walmart-branded credit cards from Synchrony Bank to Capital One.
In 2021, holders of the AARP credit card encountered hours-long wait times with Barclays customer service as the issuer took over the portfolio from Chase.
Increased product-change options
It’s typically possible to upgrade or downgrade a credit card to a different product with the same credit card company, which can be appealing if you're looking for a card with, say, a lower annual fee or better rewards. If this acquisition proceeds, it could mean that cardholders of either company end up with more options to switch to, depending on the policies Capital One puts in place.
Lingering questions
Discover, in particular, has made a name for itself with a variety of unique features, including its "cash-back match" sign-up bonuses, its no-annual-fee approach to credit cards, and its 100% U.S.-based customer service. It's unclear whether any of these features would change under Capital One.
It's also not clear how, or whether, the two issuers would go about consolidating their rewards programs and perks. For instance, if the deal goes through, would Discover cardholders be able to transfer rewards to Capital One’s travel partners? Would cardholders be able to combine cash-back rewards from cards with both companies? Would Discover customers get access to Capital One airport lounges?
It will likely take a long while before these issues are settled.
A previous version of this article misstated Beth Robertson’s title. She is managing director at Keynova Group. The article has been corrected.
