Capital One has received approval from the Federal Reserve’s Board of Governors and the Office of the Comptroller of the Currency to acquire Discover Financial Services, potentially creating the largest credit card company in the U.S. This merger, an all-stock deal announced over a year ago, could significantly strengthen Capital One’s position against major competitors like JPMorgan Chase, Bank of America, and Citigroup, especially since Capital One processes its own transactions.
For Capital One, the acquisition would provide a new revenue stream from merchant fees, while also increasing merchant acceptance rates for Discover’s customers. However, there is a concern that Discover’s customers may face higher credit card interest rates after the merger. Capital One has been known for catering to subprime customers—those with credit scores in the 600s—which typically results in higher interest rates due to the increased risk.
As part of the deal, the Federal Reserve issued a consent order with Discover, imposing a $100 million fine for overcharging interchange fees from 2007 to 2023. Although the Biden administration had a tougher stance on mergers, particularly due to antitrust concerns, approval for this deal seems more likely following the Trump administration’s more merger-friendly policies.
Shares of Capital One and Discover saw a boost following President Trump’s November election victory, as did other companies seeking or revisiting merger opportunities.
