Here's How Capital One Buying Discover Affects Average Credit Users Like You

Capital One sent shockwaves through the credit card industry on Feb. 19, 2024 when it announced that it is buying Discover®. The deal is expected to close in late 2024 or early 2025, and would make Capital One the biggest credit card company by loan volume.

This $35.3 billion acquisition could bring big changes to credit card customers. Capital One says it intends to keep the Discover brand, so your Discover cards are not likely to go away. Instead, the biggest implications of this deal are on credit card payment networks, like Mastercard and Visa. This means that if you're a credit card customer with Discover or Capital One, you might soon see a new logo on the front of your cards because of this deal.

Let's look at a few fast facts about Capital One buying Discover, and what it means for credit card users like you.

1. Discover credit cards are not going to disappear

If you love your Discover credit cards and don't want to lose them, don't worry. The Wall Street Journal reports that Capital One intends to keep the Discover brand alive. Both Capital One and Discover credit cards will keep being issued under their own brand names, even if both brands are owned by a single company.

2. Capital One wants to own payment "rails" to compete with Visa and Mastercard

Capital One wanted to buy Discover not just for its credit card brand, but for its payment network. This is part of the credit card business that many people don't see and might not know about, but Discover is not just a credit card company; it also controls its own network for processing payments. That means Discover (unlike most banks) can make extra money from credit card processing fees that are paid by merchants (restaurants, stores, and other retailers).

There are only four major credit card networks in the U.S.: Mastercard and Visa are the largest, American Express is third-largest, and Discover is the fourth. You know how most banks have a Visa or Mastercard logo on front of the bank's credit card? That's because most banks have to partner with (and pay fees to) Mastercard or Visa's network in order to process credit card payments. Working with a credit card network is a cost of doing business for banks that issue credit cards. By buying Discover, Capital One is trying to buy its own payment network -- and make more money from credit card transactions than it could before.

Payment networks are sometimes called "rails," because they move payments back and forth between banks, like train tracks. By buying Discover, Capital One has a chance to make money not just from processing credit card payments and earning interest and fees from customers, but from owning the "railroad" itself.

3. Capital One might launch new customer loyalty programs

One of the biggest implications of Capital One buying Discover is focused on rewards credit cards. Capital One has not announced any new products yet, and no one knows for sure what new credit cards or other products might come from this deal. But based on analysis from CNBC, Capital One could use the additional fees it earns from Discover's payment "rails" to offer new kinds of customer loyalty programs for cardholders.

For example, Capital One might offer new debit card rewards, or new incentives for customers to shop at certain retailers. Owning Discover might also put Capital One in a better position to keep offering generous rewards credit cards. That's because the U.S. Congress is considering a bill called the Credit Card Competition Act (CCCA) which might drastically change credit card rewards by driving down fees that credit card companies charge to merchants.

Discover's payment network is not included in the proposed limitations of the CCCA. So if the bill passes, Capital One might be able to offer better-than-average credit card rewards, even if other credit card companies have to cut back.

4. This is not a done deal -- antitrust regulators could block it

Although Capital One hopes to close on the deal by the end of 2024 or early 2025, there is no guarantee that the deal will be allowed to go through. Federal antitrust regulators could block the deal, if they determine that this new company would be "too big."

The Federal Trade Commission (FTC) sometimes blocks mergers from going through, because it believes that the big companies getting bigger would be bad for free market competition, or bad for consumers. In the same way that bank regulators don't want to see more U.S. banks getting "too big to fail," having one credit card company get "too big" could be viewed as bad for consumers.

U.S. Senator Elizabeth Warren has already spoken out against the Capital One-Discover purchase, encouraging regulators to block the deal. U.S. Senator Sherrod Brown issued a statement saying that he didn't want the merger to come at "the expense of consumers and small businesses."

Bottom line

The news about Capital One buying Discover is a big story for the credit card industry, but the actual effects for credit card customers are yet to be seen. There's no guarantee that this deal will go through -- the FTC could sue to stop it. But if Capital One does succeed in buying Discover, credit card customers should stay tuned to see if the bank starts to offer exciting new rewards credit cards, debit cards, or other financial products.