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Capital One recently announced a $35 billion acquisition of Discover Financial. The proposed merger would create the largest credit card issuer in the world. It’s also sparked questions among customers and cardholders about how their money could be affected.
Capital One hopes to access Discover’s card portfolio and payment network, which ranks fourth in the U.S. behind Visa, Mastercard, and American Express. Payment networks process transfers between merchants and card companies, charging 1.5%-3.5% of every transaction.
This move could be a game-changer for Capital One, potentially leading to reduced fees and increased profits from credit card transactions. The deal is expected to be finalized by late 2024 or early 2025 if federal regulators allow it.
But what does this mean exactly for consumers? If you have a credit card or bank account with either Capital One or Discover, it’s natural to have some questions. Here’s how the merger could affect your wallet.
What could change with credit cards
Don’t expect any immediate changes, as this deal will likely take at least a year to go through. Once that happens, Capital One is expected to be the surviving brand.
Capital One said it would keep the branding on Discover credit cards. Your credit card number would stay the same, so you wouldn’t have to update any services currently tied to your card.
Over time, we could see Capital One make changes to the rewards, benefits, and features offered on Discover cards. Discover cards may be accepted by more merchants, especially internationally.
As for Capital One cardholders, your card would likely stay unaffected by the merger, besides becoming a product of an even larger financial institution.
Will credit card interest rates go up?
Some regulators and politicians have expressed concern that the merger could increase interest rates.
It’s not clear what the impact will be. But generally, large banks charge higher interest rates, according to a Consumer Financial Protection Bureau survey.
The survey found that the 25 largest credit card issuers charged interest rates 8-10 points higher than small banks and credit unions. That translates to $400-$500 in annual interest for the average cardholder.
Consumers have struggled with the rising cost of living, turning to credit cards to make ends meet. Americans held $1.13 trillion in credit card debt at the end of 2023, compared to $930 billion in 2019, according to the Federal Reserve Bank of New York. Still, it’s too early to tell how the merger will impact consumer’s APRs.
What will happen to my credit card rewards?
Both Discover and Capital One offer a full suite of rewards credit cards. Combining these rewards programs opens questions about what would happen to cardholders’ rewards.
Will they be merged into one central program for all customers? How would two programs with fundamentally different reward structures integrate reward balances?
The deal aims to give Discover customers access to Capital One’s perks, like travel booking and online shopping deals, Capital One executives said on a call with investors. In an ideal scenario, cardholders’ existing rewards would be grandfathered in without devaluation. Some perks could be phased out or converted to a unified program that aligns with Capital One’s model and benefits the larger customer base.
Notably, Discover cards don’t charge an annual fee, which could change under the merger.
Here’s a breakdown of Discover and Capital One’s rewards programs — including their key differences.
| Reward Type | Discover | Capital One |
|---|---|---|
| Rewards flexibility | Discover offers mostly cash back rewards and limits how you can redeem rewards. | Capital One offers various rewards, including points, cash back, and miles that can be transferred to various travel partners. |
| Travel features | Discover prioritizes cash back rewards over travel-specific perks. | Some Capital One cards offer premium travel benefits like airport lounge access |
| Other specific needs | Discover offers a broad range of cards, including secured cards, student cards, and cash back cards. | Capital One offers a broad range of cards, including secured cards, student cards, cash back cards, and premium travel cards. |
What if I have a bank account with Discover or Capital One?
On the banking side, Discover’s bank accounts, online services, and personal loans would be merged into Capital One’s offerings.
Capital One 360 could get a big boost by absorbing Discover Bank’s base of high-yield savings accounts, money market accounts, checking accounts, and certificates of deposits (CDs). Combined, they would form the sixth-largest bank in the country.
Current Discover customers would become Capital One 360 accounts customers after the merger. You may need to sign up for online banking with Capital One 360 and could expect to see tweaks to account features or interest rates over time.
There are some potential upsides for customers that come from merging, like:
- Access to more ATMs without fees
- Added banking features
- Improved credit card rewards
- Better rates on lending products
Both Discover and Capital One are among the largest personal loan lenders. Consolidating could strengthen Capital One’s positioning in consumer lending. Rate reductions seem unlikely, given the competitive space.
How can you prepare now?
Speculation may swirl until regulators approve the potential deal, so Discover and Capital One customers shouldn’t make any sudden moves yet. But you can take proactive steps to evaluate your credit card and bank accounts.
- Review your current cards: Research other card options, reviewing their interest rates, fees, and rewards to see if there are better deals that align with your spending patterns and financial goals.
- Stay informed: Monitor communications from your bank about the merger and its potential impact on your cards or bank account. It may even be helpful to set alerts and reminders on your phone. These updates might come through email, website announcements, or even mailed notices.
- Prepare for potential changes: If your current card or account is affected by the merger in the coming year, be ready to adapt. This might involve switching to a different product within the merged company, negotiating new terms with the issuer, or even closing the account and starting fresh with another provider.
Opinions expressed are author’s alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.