Capital One Financial announced this week that it would buy Discover Financial Services for $35 billion. The combination could potentially shake up the payments industry, which is largely dominated by Visa and Mastercard.
For customers of the companies, it might eventually mean bigger perks and more merchant acceptance of Discover cards, and potentially lead to more competition in the payments industry. But most of the benefits will be going to the companies themselves, as well as the merchants who accept these cards.
WHY IS THE DEAL IMPORTANT?
Some of the biggest issuers of credit cards are banks, like JPMorgan Chase and Citigroup. But Capital One and Discover are first and foremost credit card companies — like American Express, but with different clientele. They have tens of millions of customers and target their products at Americans who do not travel heavily outside the U.S. and would like to get more value out of their everyday purchases like gas, groceries and domestic travel. In other words, people who typically don’t carry premium credit cards.
The combined company will have more loans to customers on its credit cards than JPMorgan and Citigroup combined. The merger also gives the Discover network the ability to fight on more equal footing with Mastercard and American Express in a way that it simply hasn’t been able to in its 40-year history.
“You want the customer or merchant to choose you as a company, either for your products or for your brand, and this deal gives them plenty of opportunity to make that case,” said Sanjay Sakhrani, a payments industry analyst with Keefe, Bruyette & Woods.
WHO USES CAPITAL ONE AND DISCOVER?
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