4 Ways the Capital One/Discover Merger Could Affect You

The dust has settled a little after the momentous announcement that Capital One will acquire Discover. The deal still needs regulatory approval, which is by no means a certainty. If it goes through, it will change more than just the services offered by the two banks. The merger could shake up the country's entire card payment network.

If you're wondering whether the merger is good or bad for consumers, there are strong views on both sides. Join me as we head into the land of ifs, buts, and maybes to learn about what the merger might mean for you.

1. Customers may get even better perks

Discover and Capital One both boast a mix of credit cards with top-notch benefits. Discover® credit card benefits include competitive rewards and no-fee commitment. Capital One's credit card benefits include outstanding travel perks as well as a broad range of products to suit different needs. Some analysts think bringing the two companies together could give customers the best of both worlds.

Credit cards aside, both companies offer a range of banking services. Both offer competitive high-interest savings accounts, so we can't expect much to change there. Capital One may incorporate Discover's wider range of CDs. And combining Capital One's physical branches with Discover's fully online banking system might also be a win-win for consumers.

2. It could increase fees and credit card interest rates

Senator Elizabeth Warren and 12 members of Congress have written to regulators urging them to block the merger. The group believes that bringing together two major credit card issuers would create a "colossus" that would be bad for consumers. The fear is that consolidation will lead to higher fees, higher APRs, and less access to credit.

Recent research from the Consumer Financial Protection Bureau shows that the gap between the rates charged by credit card companies and the base rate has never been higher. It also estimates this gap cost the average American over $250 last year. If Warren is right, concentrating banking power even more could see rates climb even higher.

3. It could mean more options for lower earners

Contrary to the concerns of the Congress representatives, PYMTS argues the merger could be good for consumers, particularly those with limited funds. The company, which specializes in data insights on payment platforms, argues that the unification of the two companies would create a banking giant with "particular expertise in serving the paycheck-to-paycheck consumer." It says consumers in lower income brackets would get access to a wider range of products because of the deal.

4. It could shake up the U.S. credit card networks

Right now, Visa and Mastercard are the dominant credit card networks in the U.S. They process the lion's share of payments -- and take the majority of fees when they do so. The other two players (American Express and Discover) lag a long way behind, which means there's not a lot of competition.

Richard Fairbank, Capital One's CEO, says the merger will mean investment to grow Discover's payment network. He said together the two companies will "create significant value for consumers, small businesses, merchants, and shareholders as technology continues to transform the payments and banking marketplace."

In plain English? Stronger competition within the payment marketplace could translate to lower costs for consumers and businesses.

Picking the right credit card

Ultimately, the Capital One/Discover deal is going to take a while to play out. Capital One says it hopes to get the regulatory approvals in late 2024 or early 2025. That's assuming the deal gets the green light at all. But if you're looking for a better credit card, you don't need to wait until then.

In terms of credit cards, check your credit score so you can focus on cards you are likely to qualify for. Then think about what type of card will work best for you. For example:

• If you regularly carry a balance: Look for a low interest rate credit card, or even one with an introductory 0% interest rate on balance transfers.
• If your credit score isn't where you'd like it to be: Look for a card that's aimed at building your score, such as a secured credit card.
• If you thrive on credit card rewards: Look for a card that pays the highest rewards in the categories you spend most in. You might consider adding more than one rewards credit card to your wallet to score the most bonuses.
• If you travel often: Look for a credit card that does not charge fees on foreign transactions. A good travel credit card will also offer travel-related perks, such as lounge access or generous rewards on flights and hotel bookings.

Bottom line

It isn't clear whether the Capital One/Discover merger will be good for consumers, if indeed it gets approved by financial regulators. In the meantime, you can score lower fees and better credit card perks by shopping around for the best card or banking product.