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Wednesday, February 19, 2025

“What’s in Your Wallet?” The Answer May Change Following the Merger of Capital One and Discover

Capital One And Discover Merger Appears Likely
Andrew Allen

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Andrew Allen, Staff Writer

For nearly 20 years, Andrew has worked for financial institutions ranging from regional investment organizations to some of the largest banks in the world. At Wells Fargo, Andrew was a Consultant within the Insight and Innovation division. A graduate of the University of Georgia’s Terry College of Business, Andrew’s goal has been promoting personal financial wellness and solid money decisions. As a Staff Writer for CardRates, Andrew seeks to inform readers of solutions to help them on their path to financial freedom.

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Editor: Lillian Guevara-Castro

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Lillian Guevara-Castro, Senior Editor

Lillian Guevara-Castro brings more than 30 years of editing and journalism experience to the CardRates team. She has worked at The Atlanta Journal and Constitution, Gwinnett Daily News, Gainesville Sun, and The New York Times, where she covered demographics, consumer issues, and the business and financial sectors. Lillian has a degree in journalism and communications from Georgia State University and brings her fact-checking expertise to ensure Digital Brands content is accurate and engaging.

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Adam West

Reviewer: Adam West

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Adam West, Managing Editor

Adam has interviewed over 1,000 finance experts since joining the CardRates team in 2016. He spearheads industry news coverage related to helping consumers achieve greater financial literacy and improved credit. He has more than 12 years of storytelling, editing, and design experience in print and online journalism and is most knowledgeable in the areas of credit scores, financial products and services, and the banking industry.

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  • Capital One and Discover plan to merge, pending shareholder and regulatory approval.
  • Capital One may seize the opportunity to shift transactions to Discover’s existing payment infrastructure, heightening competition among card networks.
  • The anticipated merger positions Capital One to expand its debit card portfolio.

Capital One and Discover, two behemoths in the credit card industry, may soon be joining forces to take advantage of synergies and efficiencies the combined company could create. February 18 looms large for the potential merger’s viability. On that date, both Capital One and Discover shareholders will vote whether to move forward with the proposed merger.

The deal, first announced in February 2024, seems destined for regulatory approval. The companies cleared one regulatory hurdle in December and could benefit from President Trump’s pro-business stance.

But that’s not to say the move won’t face scrutiny. Any merger of two companies in the financial services space, both of which have millions of customers, is going to attract some detractors, and this one is no exception. New York Attorney General Letitia James is investigating the deal to see if it violates the state’s antitrust laws, or could portend an adverse impact on consumers.

Also, the Consumer Financial Protection Bureau (CFPB) announced on January 14 that it is suing Capital One on a separate matter. Ongoing lawsuits can be a thorn in the side of proposed mergers, but the CFPB’s power may soon diminish under the watch of a new administration.

Under the terms of the proposed merger, Capital One would acquire Discover, and, should the deal receive the necessary approvals, the combined entity would be the largest credit card issuer in the U.S. 

Neither Capital One nor Discover are in financial distress leading up to the shareholder vote. Capital One topped earnings estimates for 2024’s fourth quarter, and Discover also posted strong results to close out 2024. The companies’ respective financial positions indicate the merged entity will have a clear path to hit the ground running

A Discover-infused Capital One stands to transform into a payments powerhouse over time. But anytime you bring together two companies with different cultures, histories, and strategies, there are bound to be some growing pains. 

Industry Impacts of Historic Merger

A few well-established institutions process the majority of credit card transactions. American Express, Discover, Mastercard and Visa are the four major credit card networks in the U.S. The networks provide the rails that make card payments possible.

Mastercard and Visa are far and away the largest of the four major credit card networks. Together, they account for $4.4 trillion of card purchase volume in the U.S. And nearly 70% of all credit cards in circulation come from Mastercard and Visa accounts.

network logos

Discover is the smallest of the major card networks. Discover cards make up just $300 billion in  card purchase volume in the U.S., and only 2% of circulating credit cards come from Discover. 

But what could prove to be important to Capital One’s bottom line over time is that Discover, regardless of its size, is a major card network and issuer. For context, Discover’s 2% share of cards in circulation represents more than 71 million credit cards. By acquiring the company, Capital One will be armed with a formidable player in the credit card arena and the means to process card transactions and earn revenue from them. 

That may not sit well with Mastercard and Visa, which have long enjoyed a significant advantage in size, and ostensibly, influence, among major card networks.

“Visa and Mastercard dominate the payment industry, and that allows them to charge high processing fees,” Jack Prenter, personal finance expert and CEO of Dollarwise told us. “If there is a strong competitor, it will be impossible for them to continue charging those higher fees.”

What’s In Customer Wallets May Soon Change

Advertisements for financial companies can be plagued by monotony. But Capital One’s approach to advertising, which uses humor and endorsements from celebrities, including former professional baseball player Derek Jeter and award-winning actor John Travolta, make an impression on viewers. The company’s slogan — “What’s in your wallet?” — is so well known that even non-cardholders recognize it.

John Travolta
John Travolta appears in a holiday-themed commercial for Capital One.

The company’s reach figures to expand with its acquisition of Discover, whose card network allows it to skirt interchange regulations that other debit card issuers must comply with. Discover recognizes savings from processing its customers’ transactions that help allow the company to offer debit card rewards, a rarity among larger debit card issuers.

Capital One CEO and Co-Founder Richard Fairbank has indicated that the company plans to move its debit card processing to Discover’s payment network, avoiding the reach of both Mastercard and Visa. That maneuver would extract revenue from Mastercard and Visa and place it in Capital One’s coffers, positioning the company to consider enhancing debit rewards programs if it so chooses.

The ramifications of this merger extend much further than a credit card issuer growing its customer base. With core banking relationships at risk, issuers of all sizes should watch closely as the merger nears consummation. And the card networks aren’t likely to sit idly by while an emboldened competitor swipes transactions — and revenue — out from under them.

Approval of the Capital One and Discover merger will send ripples of change throughout the financial industry. And the next domino could fall as soon as February 18.