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Analysts say Capital One Financial’s $35.3 billion deal with Discover Financial could create new competition for payments giants Visa and Mastercard and smooth the path to regulatory approval. He said there is.
The all-stock deal announced Monday will give Capital One access to Discover’s network of payment processing and settlement services, reducing its reliance on Visa and Mastercard, which have come under fire for fees. It becomes like this.
Legal experts expect the deal, the largest in the global credit card industry according to Dealogic, to face intense antitrust and other regulatory scrutiny, but Visa and MasterCard’s market There is a possibility of stealing market share.
Capital One acquires Discover Financial
Capital One CEO Richard Fairbank said Tuesday that the deal was “well positioned for approval” and that the financial institution had kept regulators informed. , did not elaborate on the details of the talks.
Lenders submit formal documentation With regulator in the next few months, he said.
“The path to approval is a key question mark,” said Saul Martinez, an analyst at HSBC Global Research. “Regulators believe this could lead to increased competition between networks.”
Some lawmakers have accused Visa and Mastercard of having a “monopoly,” but both companies deny the allegations.
Still, some influential community groups opposed the deal.
“Given the requirement that a merger benefit not only insiders but also the general public,” said Jesse Van Tol, CEO of the Washington-based advocacy group National Community Reinvestment Coalition, “It’s very difficult to imagine how federal regulators would allow Capital One to acquire Discover.”
A Capital One Bank sign is seen in New York City on November 12, 2021. (Reuters/Andrew Kelly/File Photo/Reuters Photo)
number one player
A merger between Capital One and Discover would create the largest credit card issuer in the U.S. with about $250 billion in card balances and a 22% market share, according to analysts at TD Cowen.
“This is a rare and extremely valuable asset,” Ian Rapee, a portfolio manager at Gabelli Funds, which owns Capital One stock, told Reuters.
Visa shares fell 1.2%, and Mastercard, which analysts say has significant exposure to Capital One, fell nearly 3%.
“In our view, this acquisition is a negative headline for Mastercard and Visa,” said JPMorgan analyst Tien-Tsing Huang.
Capital One said it could generate $1.2 billion in 2027 by migrating its card portfolio from two of the world’s largest payment processors to Discover’s network.
But the transition will likely be slow, Huang said, as both Visa and Mastercard recently renewed their partnerships with the company.
A Mastercard spokesperson said: “We have already discussed this news with Capital One. Our conclusion is that this is a long-term partnership.”
Visa did not respond to requests for comment.
“It’s not unusual for companies to be both competitors and customers of each other, and we don’t see this as a problem,” said Capital One’s Fairbank.
Discover stock rose 11.3% to $122.95, inching closer to its offering price of $139.86 after opening at a nearly two-year high. This increase increased Discover’s market value by more than $3 billion. Capital One shares fell nearly 2%.
Susannah Streeter, head of finance and markets at Hargreaves Lansdown, said: “Regulators chose this transaction carefully given that Capital One and Discover are two of the largest credit card companies in the United States. There is a high possibility that it will.” told Reuters.
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“However, given the expected significant reductions in operating costs…Capital One believes it is worth overcoming the complex regulatory hurdles to deliver significant benefits.”
