Experts say customers can expect a flurry of new benefits if Capital One’s $35 billion acquisition of Discover Financial Services goes through.
The acquisition will give Capital One access to Discover’s high-credit customers and network of payment processing services, an area dominated by Visa and Mastercard.
As the number of premium customers increases, Capital One “needs to compete on premium benefits, which will benefit customers,” said Marbue Brown, founder of Customer Obsession Advantage. be A consulting firm that advises businesses on creating loyal customers. “The benefits on offer are taken to a new level.”
Here’s what you need to know about this combination and what consumers can get out of it.
How much does Capital One pay for Discover?
Capital One plans to acquire Discover in a $35.3 billion deal.
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Under the terms of the all-stock transaction, Discover shareholders will receive approximately $140 worth of Capital One stock. That’s a significant premium compared to Discover stock’s Friday closing price of $110.49.
Why is Capital One acquiring Discover?
The partnership will create the largest card issuer in the U.S. with approximately $250 billion in card balances and a 22% market share, TD Cowen said.
This will allow Capital One to compete in the world of lucrative payment networks. Mastercard and Visa together control 83% of the credit card processing market. These are the subject of a bipartisan bill that would require the largest banks that issue credit cards to offer two networks (at least one other than Visa or Mastercard) for merchants to choose from when processing transactions. It seeks to introduce further competition by mandating.
The acquisition will allow Capital One to “build a payments network that can compete with the largest payment networks and payment companies,” said Richard Fairbank, Capital One’s founder, chairman and chief executive officer. Stated.
How will consumers benefit from the merger?
better service, luxury airport lounge And there are other lucrative perks, Brown said.
Discover is in the top two. JD Power Credit Card Satisfaction Survey Capital One wants to stay there since the investigation began in 2007, Brown said.
Greg McBride, chief financial analyst at consumer financial services firm Bankrate, said Discover’s travel portal and benefits such as shopping discounts will be extended to Capital One’s large customer base, especially those with higher credit scores. He said that there is a high possibility that
“And would Capital One consider adopting Discover’s service, which doubles cardholders’ cash back or miles at the end of the first year?” Chief Credit Analyst at loan comparison site LendingTree List member Matt Schultz says: “This has been a staple for Discover for a long time and has definitely helped build their brand to where it is today.”
What about savings?
Doug Kanter, general counsel for the National Association of Convenience Stores, an industry group that supports bipartisan legislation aimed at increasing competition in the payment processing industry, said Capital One’s move into payment processing is a big step forward for merchants and customers. It probably won’t help you save on credit card fees, he said.
“Discover is a very small percentage of the network, and it will be the same after the acquisition,” Kanter said. “It’s a crack in the armor.”
That could be “significant” if Capital One moves all of its credit cards to the Discover network, Kanter said.
But that hasn’t happened. Capital One said in a release that debit card purchases will be processed on the Discover network, but only “select” credit card transactions will take place.
“There’s a reason for that,” Kanter said. “The gravy train is too delicious.”
Visa and Mastercard will earn $93 billion in transaction fees from merchants in 2022, and Capital One is likely in a position to capture some of that, Kanter said. If the bipartisan bill passes, Capital One could serve as the second processing option required by the bill.
Schultz said the bill’s passage “will be a real growth opportunity for Capital One/Discover.” “For consumers, it won’t change much other than adding a company logo to their credit cards, but for Discover and AmEx it means their networks will get much more exposure than they currently have. There is likely to be.”
Debit cards have a cap on fees, so they aren’t as advantageous. Credit card rates are set by processors such as Visa and Mastercard.
However, everything, from luxury perks to credit card fees, will depend on the transaction being approved by regulators.
If it happens, Capital One and Discover said they expect the deal to close late this year or early next year.
“Both sides seem pretty confident that it will be approved,” Schultz said. “However, a deal of this size in an industry that is the focus of intense scrutiny from the Biden administration and the CFPB (Consumer Financial Protection Bureau) will certainly receive a thorough review before signing.” On off. ”
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
