tl;dr – Earlier today Capital One Bank received approval from the Federal Reserve’s Board of Governors and the Office of the Comptroller of the Currency to acquire and merge with Discover Financial Services. The deal is set to formally close on May 18.
Last year, we learned of proposed merger between Capital One Bank and Discover Financial services, a deal which, if approved, would create the nation’s largest credit card issuer. Well, as of Friday, various outlets have reported a major win for Capital One, as the bank has received regulatory approval from the Fed for this merger. All combined, the deal is valued at $35 billion. In order to consummate this shacking up, the entities will have to comply with some stipulations, including a consent order the government entered into with Discover over the overcharging of fees to customers. No doubt, the chances for this deal happening greatly increased as administrations changed in the US.
In a lot of ways this makes sense. These two card issuers have a lot of overlap in their traditional ideal customer profiles, at least historically. Capital One made a lot of headway by offering credit to customers with less-then-excellent credit ratings, usually at higher interest rates. That strategy has evolved to some degree over the years, as the bank leaned heavily into travel rewards. Meanwhile Discover is known more for its cashback focused rewards. Many of its customers are students looking to build credit, small business owners, retail customers, online shoppers, and travelers, looking for simplicity and above all else, credit cards with no annual fees. Finally, both banks over the years have leaned heavily into the realm of technology and innovation to head off administrative costs. Capital One, after acquiring ING Direct back in 2012, brought online checking and savings accounts to the mainstream for many young customers seeking greater flexibility. Discover has experimented with a lot of different zero interest rate offers for balance transfers, often as a mechanism for gaining new customers, in hopes of extending to them the bank’s more traditional cashback cards.
For me, this news isn’t all that exciting. I’m a longtime Discover customer from a card I opened years ago, and use infrequently, more so just to keep the credit line open. It might come as a surprise but I haven’t been a Capital One cardholder in years. Ironically, it was the first credit card I ever had, way back in my college days but I haven’t ever gotten onboard with the Venture Team. Perhaps, I’m in the minority but I think Capital One’s transfer partner game is a bit lacking.
As for the synergies one can expect? For one thing, Discover customers can probably expect better acceptance and geographic coverage. I’d imagine that Capital One customers might also have more options when seeking to product change a card. Time will tell if these two banks can put together some compelling offering that shake up the credit card industry.
