How Consumers Could Gain from the Discover and Capital One Merger: 3 Potential Advantages
Capital One Financial made waves in the payments industry by announcing its acquisition of Discover Financial Services for $35.3 billion last month. This merger will combine two of the largest lenders and credit card issuers in the country, potentially benefiting both companies, their stakeholders, and their customers.
If the deal gets regulatory approval and Capital One effectively leverages Discover’s payment network, the new entity could compete with the top three credit card companies in the U.S.: American Express, Mastercard, and Visa. Capital One will also expand its global payments network and gain access to Discover’s 305 million cardholders. The company is counting on American account holders to continue using their credit cards and maintaining high-interest balances.
Richard Fairbank, chairman and CEO of Capital One, stated that the acquisition is a unique opportunity to merge two successful companies with complementary strengths, aiming to build a payments network that can rival the largest in the industry.
For cardholders, the merger could mean a host of new perks. While it’s not yet clear how customers will benefit or if the deal will pass regulatory hurdles and opposition from Congress, there are potential advantages if the acquisition is deemed beneficial for shareholders and consumers.
**1. Increased Competition and Benefits:**
Capital One will be better positioned to compete with the Visa-Mastercard duopoly. Although less competition can sometimes negatively impact customers, this acquisition might lead to enhanced perks or rewards for Capital One cardholders. Other major players like Visa, Mastercard, and American Express might also improve their offerings to stay competitive.
**2. Premium Perks:**
By acquiring Discover’s high-credit-quality customers, Capital One will need to offer premium perks to stay competitive. This could include luxury airport lounges, better service, and other high-end benefits. Customers with high balances or credit may enjoy exclusive services like shopping discounts and travel portals, which Discover customers already appreciate.
**3. New Cards and Rewards:**
With its own payment network, Capital One won’t need to pay fees to other networks, potentially leading to better or new reward programs for both existing customers and new ones from Discover. The merger could offer customers the best of both companies’ rewards and perks. Eric Cohen, CEO of Merchant Advocate, suggested that the consolidation might bring personalized loyalty discounts, brand-specific rewards, and other creative incentive programs. Capital One could enhance its current programs and attract new customers by offering competitive perks similar to or better than those from Visa and Mastercard.