Expert Quotes: Why Capital One Buying Discover Could Change Credit Cards

Capital One buying Discover® for $35.3 billion is one of the biggest news stories in the credit card industry. The deal is still in the early stages, and has not yet been approved by company shareholders or federal regulators. No one knows for sure what the implications will be for credit card customers.

But based on a few overall industry trends, and what we're hearing from Capital One about its plans for the Discover brand and payment network, we have a few ideas. Capital One buying Discover could ultimately be good news for credit card customers.

We talked with credit card loyalty program expert Dave Grossman, the CEO and founder of MilesTalk, to see what might be coming next for credit card customers as a result of Capital One buying Discover.

Let's look at a few high-level predictions and insights for the possible future of the Capital One/Discover merger, and big changes in the world of credit cards.

1. Capital One is buying the Discover payment network, not just the brand

The biggest reason why Capital One wants to buy Discover is not just the Discover brand, Discover credit cards, or Discover's online banking platform. Ultimately, the real reason for this deal is that Capital One wants Discover's payment network.

Many credit card customers might not realize this, but Discover is not just a credit card company -- it also owns a payment network, the behind-the-scenes "rails" that send payments back and forth between banks and merchants. Every time you swipe your Discover card at a store or buy something online, Discover makes a little bit of extra money because it doesn't have to pay credit card processing fees to Visa or Mastercard's payment networks. Because it owns its payment network, Discover has some extra financial flexibility to offer perks and rewards that not every credit card company can match.

Dave Grossman agrees that owning Discover's payment network is the biggest "deal sweetener" for Capital One buying Discover.

"In my opinion, this deal wouldn't make sense at the valuation that Capital One is paying without the payment network," Dave Grossman said. "Discover has a fair bit of overlap between its customers and a portion of Capital One's customer base. The payment network is the main win, especially given it was the only possible legacy card payment network to acquire."

The other three major payment networks are (from largest to smallest): Visa, Mastercard, and American Express. Owning Discover's payment network will give Capital One the ability to compete with Visa and Mastercard, and potentially offer new credit or debit card products.

2. Discover cards are not going away

If Capital One's purchase of Discover goes through, current customers won't see any big changes overnight. If you currently have Discover cards or Capital One cards in your wallet, there's nothing to worry about. The Discover brand is not going away, and Dave Grossman believes that Capital One is likely to keep offering the same Discover card rewards and perks that Discover customers love.

"I think that Capital One will pull Discover more into the fold of Capital One cards rather than vice versa, but without taking away what Discover customers like most," Dave Grossman said. "For example, I think Capital One will keep the 5% quarterly bonus categories like Discover has now and likely maintain many of the same Discover products that exist now -- although they could decide certain cards are too similar and consolidate those."

If you are a Discover customer, just sit tight and keep using your cards as usual. Any changes will be communicated to you in the future, but it's unlikely that your Discover card's features are going to get "worse" as a result of this deal.

3. Discover card customers could see new benefits and rewards

At some point, as Capital One works to integrate Discover's products and accounts into the larger bank, both brands' credit card and debit card customers could start to see new benefits and rewards. This might not happen immediately (if at all), but Dave Grossman believes that there is an opportunity for Capital One to combine Discover's cash back rewards with Capital One Venture miles rewards.

"It would be exciting to see Capital One add the ability to convert Discover cash back into Capital One Venture miles that can be transferred to airline and hotel partners," Dave Grossman said. "That could be a nice upgrade for current Discover customers, especially if it's simply an option layered on top of the current cash back with nothing taken away from the current ways that Discover customers can redeem for cash."

Owning the Discover payment network will likely help Capital One open up additional opportunities to offer credit card rewards, Discover-style debit card rewards, and customer loyalty incentive programs from your favorite restaurants and retailers. There could be exciting new rewards coming for Capital One customers -- current and future.

Bottom line

Capital One buying Discover could be a good thing for credit card customers. Your favorite Discover perks like cash back rewards on debit cards are not going away. Instead, Capital One might even decide to combine its rewards programs with Discover, and give customers new ways to redeem their rewards from everyday spending. It's still in the early days of the merger, but there are big opportunities here for Capital One to strengthen its leadership as one of the best credit card companies.