News that Capital One has struck a deal to buy Discover brought a stir on Monday’s usually quiet Presidents Day banking holiday, raising the prospect of making Capital One the nation’s largest credit card issuer.
The Wall Street Journal reported on the potential merger on Monday, followed by other outlets such as Bloomberg and the New York Times. Capital One then issued a statement confirming the planned acquisition.
Capital One Financial Corp., based in McLean, Virginia, is the nation’s ninth-largest bank by total assets, with 259 physical branch locations across the country, 55 “Capital One Cafés”, and a major online banking operation. Discover Financial, based in Riverwoods, Illinois, is a mostly online bank with a single branch in Delaware. The all-stock deal is valued at $35.3 billion.
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Is Discover on board?
Discover CEO and Chairman Michael Rhodes said in Capital One’s press release about the deal: “The transaction with Capital One brings together two strong brands with the potential to accelerate growth and maximize value for our shareholders. brings, enabling them to participate in the tremendous upside of the combined company.”
what happens next?
Bank mergers must be approved by bank regulators and each company’s shareholders. If the deal goes through, Capital One estimates it will close in late 2024 or early 2025.
What will this mean for customers?
During the approval process, very little change is expected as the companies will continue to operate independently. However, even if the deal is approved, it may see little impact on existing customers.
“I think it won’t be a huge change for credit card customers,” says David Robertson, editor and owner of the Nielsen Report, a payment card industry trade magazine. He says, Discover cards are primarily cash-back cardWhile Capital One offers a variety rewards card, Robinson says the merger “could allow for a better rewards program for both companies.”
While the Wall Street Journal reported that Capital One plans to put the Discover name on at least some cards, details have not been confirmed by either company. Similarly, there are no details yet on how banking customers will be affected.
Why merger?
Item No. 1: Discover’s payment network.
Transactions on the Capital One card are processed on the Visa and MasterCard payment networks. However, find operates its own network, making it both a card issuer and payment processor similar to American Express. Robertson says acquiring a payments network and building direct relationships with more merchants is a driving factor in Capital One’s acquisition, which puts a 26.9% premium on Discover’s Feb. 16 closing stock price.
“From the day we founded Capital One, we set out to build a payments and banking company powered by modern technology,” Richard Fairbank, Capital One founder and CEO, said in the news release. Our acquisition of Discover is a unique opportunity. Bringing together two very successful companies with complementary capabilities and franchises and creating a payments network that can compete with the largest payment networks and payment companies.
Beyond that, Robertson says, there isn’t much overlap between the customer bases of the two banks. “One would assume that anyone who has a Discover card also has a Visa or MasterCard,” he says. “Capital One can get access to that expense.”
Capital One is the fourth largest credit card issuer by loan volume in the United States; According to Nielsen report data, Discover is at sixth position. Combined, they will overtake Chase to become the largest card issuer.
Sheer economies of scale are another factor. “If (the merger) happens, Capital One will be the largest credit card issuer” as measured by outstanding loans, Robertson says.
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