In a high-profile merger, Capital One Financial and Discover Financial Services have joined forces in a deal valued at a remarkable $35 billion. As part of this merger, Discover Financial’s shareholders will receive Capital One shares, each worth approximately $140.
This consolidation of two major credit card providers is expected to bring significant changes to the payments sector, previously dominated by giants such as Visa and Mastercard. The combined power of Capital One and Discover, known for their modest rewards, could challenge the competition and diversify the market.
However, this merger could lead to a contraction in the credit card market, predicts Matt Schulz, LendingTree’s top credit card analyst. The consolidation could potentially strengthen Discover’s payment network, enhancing its competitive edge. Whether Capital One will retain Discover’s current payment system or introduce a new one, perhaps featuring a broader network like Visa, is yet to be seen.
Richard Fairbank, Chairman and CEO of Capital One, expressed positivity for the future of the payment industry following the merger. He is confident in the potential for expanded customer offerings and increasing their agility and operational efficiency.
The merger supports the current trend of US consumers increasingly relying on credit cards. In 2023, credit card debt in America surged to $1.13 trillion, with household debt also showing substantial growth. The credit services industry is responding to the increase in consumer debt with new financial product offerings and digital advancements, while also working to improve consumer financial protection.
Both Capital One and Discover have increased reserves in response to a potential increase in borrower defaults. Capital One’s net income available to regular shareholders decreased by 35% over the last year, and its allocations for loan losses swelled by 78% to $10.4 billion. Similarly, Discover’s profits declined by 33.6%, with its provisions for credit losses doubling to $6.02 billion. Although the resulting merger is expected to strengthen bank deposits and loan accounts, the companies may need to reassess their strategies to support their customers better.
