With Its Purchase of Discover, Capital One Aims to Leverage Capabilities to Create Something Special

The purchase of Discover gives Capital One an opportunity to “build something really special”, Richard Fairbank, Capital One’s Chairman and CEO, told analysts during the company’s first quarter earnings call this Tuesday, according to an American Banker report.

Capital One’s acquisition of Discover recently received regulatory approvals and is expected to close on May 18. Fairbank said on the call that Capital One is “fully mobilized” to have the transaction completed on that date.

Some mergers and acquisitions can look like a business attempting to fit a square peg into a round hole. But Capital One’s acquisition of Discover is not a case of merging entities seeking “to take two companies, squash them together and rip out the costs,” Fairbank said.

Though the two businesses operate in the same industry, their respective strengths complement each other and stand to allow for synergistic qualities to emerge. The merger expects to produce $2.7 billion in expense reductions by 2027. Those reductions come in the form of $1.5 billion of expense savings and $1.2 billion in network synergies.

The acquisition is expected to create $2.7 billion in savings by 2027.

“I think that Discover brings us a growth platform, both on the network side and with respect to their card franchise, that allows us to preserve the best of what they do, leverage a lot of Capital One’s capabilities that we bring and build something really special,” Fairbank said.

Discover’s payment network is the crown jewel of the acquisition. Capital One plans to operate the network, which will allow it to bypass having to use networks owned by Visa or Mastercard. 

The combined company may experience growing pains as its effort to integrate systems intensifies. Addressing that issue on the call, Fairbank said Capital One has built a road map to migrate Discover’s credit cards onto Capital One’s technology platforms. But efforts to bring Discover’s network into the Capital One fold may present challenges.

“The new thing for Capital One, from a technology point of view, of course, is going to be the network,” Fairbank said. “The Capital One way is to lean into technology. And I’m sure that we will together go on a great journey with their network to help over time take a strong network that they built and modernize it.”

Mergers of this magnitude don’t come along every day. With $660 billion in assets, Capital One will be the largest credit card issuer in the U.S. after the deal closes. Competitors in the credit card space and industry insiders will be keeping an eye on Capital One’s ability to move on from merger-related tasks and implement new strategies to grow market share.

The consolidated company — armed with expense savings and expanded capabilities — figures to shift dynamics in the credit card arena, but exactly when and how it intends to do that should become clearer over time. 

Fairbank noted on the earnings call that one of Capital One’s long-term goals is to grow acceptance of Discover’s network. That won’t happen overnight, but Fairbank said Capital One isn’t “starting at zero” when it comes to building network acceptance. 

“The playbook is there,” Fairbank said. “We would lean into this playbook and probably lean into it more than they were able to, because of the opportunity and the prize that we see on the other end of this.”