What Capital One’s Bid for Discover Means for Credit Card Holders

Two major credit card issuers may be joining forces, with Capital One announcing plans to buy Discover for a whopping $35.3 billion. 

“Our acquisition of Discover is a singular opportunity to bring together two very successful companies with complementary capabilities and franchises, and to build a payments network that can compete with the largest payments networks and payments companies,” said Richard Fairbank, founder, chairman and chief executive officer of Capital One in a press release. 

Here’s what the move could mean for Discover and Capital One credit card holders.

Don’t panic, nothing is changing right now

There’s a lot of talk about what could happen and what could happen. But nothing is final or immediate.

“Initially this potential merger won’t have any impact on consumers,” said John Ulzheimer, credit card expert. “If you have either a Capital One or a Discover card (or both), you will still be able to use them as you used them yesterday.”

It still needs to clear regulatory rules, and the shareholders of both companies would need to approve the merger. But credit card expert and CNET Money Expert Review Board member Aaron Hurd believes it will happen without issue.

“The deal represents an immediate 27% return for Discover shareholders,” said Hurd. “In my view, [it] puts a combined company in a good position to compete for major co-branded deals against larger banks.” 

Aside from stakeholders, federal regulators would also need to say “yes,” which could be a hurdle. “Federal regulators’ appetites for bank mergers is shrinking under the Biden administration, and smaller deals have been abandoned because of regulatory friction,” Hurd added. 

Expert predictions on the Capital One-Discover merger 

If the deal does go through, experts say it could be finalized by the end of 2024 or early 2025. Here’s what experts predict you can expect. 

Rewards and benefits could change

There’s still a lot to know about what the move could mean for Discover and Capital One cardholders, including changes to rewards, fees and perks. But Discover cardholders will potentially see the biggest benefit, according to Hurd.

Discover cardholders could have access to Capital One’s extended warranty or travel insurance.

“If Capital One harmonizes the benefits across its cards, I’d expect that it will add benefits to Discover cards, making those cards more valuable for Discover cardmembers,” Hurd said.

Credit card expert Jason Steele, also sees benefits from the potential merge. Both experts are hopeful that it will bring good news for Discover cardholders who may want to access Capital One’s travel partners.

“Capital One already has partnerships with airline and hotel brands that allow Venture cardmembers to transfer miles to those brands,” said Hurd. With this deal, there’s a chance that Discover cards might get access to the same benefits. But Hurd doesn’t expect any changes to be implemented for at least another year after the merger is final.

“I would love to see Capital One travel insurance and purchase protection benefits be extended to Discover cardholders,” added Steele.

Steele also noted that it’s possible Capital One cardholders could benefit from Discover’s cash checkout feature that lets you withdraw cash when checking out at supermarkets and drug stores. The purchase APR would still likely apply.

And since both offer banking products, including certificates of deposits and high-yield savings accounts, there could be even more changes. But for now, though, any changes to cardholder benefits are only speculation.

A stronger payment network could evolve

Capital One is a credit card issuer that offers cashback and travel credit cards. But Discover is both a credit card issuer and a payment processing network. As of now, Capital One can issue credit cards, but still needs to be backed by a processing network, such as Visa, to authorize transactions. Discover can do just that.

The planned acquisition gives Capital One the chance to move its Mastercard and Visa credit cards to Discover’s network. 

“I think that this has the potential to be good for both Capital One and Discover cardholders,” said Steele. “Capital One cardholders may see their products be part of the Discover payment network.” Bringing their processing network in-house could lower costs for Capital One which they can pass along to cardholders in the form of lower fees and more benefits.

As a payment network, Discover has always been behind Visa, Mastercard and American Express, Steele said. Currently, Discover has 44 million global merchants, much fewer than the other three networks.

Bringing Discover under Capital One could result in a payment network that’s more competitive with Mastercard and Visa. By moving more of Capital One’s products to an in-house Discover network, Capital One could potentially increase the Discover network’s power and help them get accepted by more merchants. 

However, it could also mean that current Capital One cardholders won’t have their card accepted at many places if it’s on the Discover network at its current size.

Even with Discover and Capital One combined, it won’t be the largest credit card issuer, by a long shot, he said. But the deal could help Capital One rival other major issuers including Chase, Citi and American Express.