Capital One announced Monday that it would buy
The deal marries two of the largest credit card companies that aren't banks first, like
“This marketplace that’s dominated by the big players is going to shrink a little bit more now,” said
In a call with investors Tuesday morning, Capital One executives said they planned to invest heavily into expanding the acceptance of Discover by consumers. While Discover is “almost universally” accepted by merchants, there’s a perception by consumers that Discover is less accepted in the
Capital One expects Americans to keep using their credit cards and maintain balances on those accounts to collect interest. In the fourth quarter of 2023, Americans held
As they run up their card balances, consumers are also paying higher interest rates. The average interest rate on a bank credit card is roughly 21.5%, the highest it’s been since the
Capital One has long has a business model looking for customers who will keep a balance on their cards, aiming for customers with lower credit scores than
The deal also gives Discover's payment network a major credit card partner in a way that could make the payment network a major competitor once again. The
Owning Discover's network would enable Capital One to get revenue from fees charged for every merchant transaction that runs on the network.
The run-up in consumers' credit card balances is not all good news. After battling inflation for more than two years, many lower- and middle-income Americans have run through their savings and are increasingly running up their credit card balances and taking on personal loans.
As a result the two lenders have added to the pool of money set aside to guard against defaults. Last year, Capital One's provisions for loan losses rose 78% to
Discover’s customers are carrying
Consumer groups are expected to put heavy pressure on the
“The deal also poses massive anti-trust concerns, given the vertical integration of Capital One’s credit card lending with Discover’s credit card network,” said
It’s unclear whether the deal will pass regulatory scrutiny. Nearly every bank issues a credit card to customers but few companies are credit card companies first, and banks second. Both Discover — which was long ago the Sears Card — and Capital One started off as credit card companies that expanded into other financial offerings like checking and savings accounts.
“The path to approval is a key question mark as banking regulators are scrutinizing large bank transactions closely and this transaction would create a banking institution with over
Under the terms of the all-stock transaction, Discover Financial shareholders will receive Capital One shares valued at nearly
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