Last month’s announcement that Capital One Financial will acquire Discover Financial for $35.3 billion was major news in the banking industry because it represents the biggest-ever deal in the credit card industry. On a smaller scale, the merger could also impact customers of both companies if it is approved by regulators.
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In an article following the announcement, Money reported that a Capital One-Discover merger is likely to be a “mixed bag” for consumers. On the positive side, customers at both banks might see more robust rewards programs — but they also could see higher credit card fees and annual percentage rates.
As previously reported by GOBankingRates, synergies gained through the proposed merger have been estimated at $2.7 billion pre-tax. This could translate into cost savings and more efficient operations, which could then be passed on in the form of better rewards and other perks.
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How Would a Merger Impact Credit Card Rates?
The impact on credit card rates is a little trickier to predict. A merger with Capital One means Discover will become a much bigger threat to Visa and Mastercard. In addition, the deal would let Capital One “leapfrog” JPMorgan as the biggest credit card company by loans while also solidifying its position as the third-largest by purchase volume, CNBC reported.
More competition usually leads to lower prices as companies scramble to defend their market share or gain new share. This could lead to lower APRs industrywide, at least over the near term.
But longer term, Discover customers might see their rates increase. Adam Rust, director of financial services at the nonprofit Consumer Federation of America, told Money that Capital One’s credit cards tend to have higher maximum APRs and fees than Discover’s.
“In terms of interest rates, I don’t think we know, for now, what will happen,” Rust said. “But we can be concerned that Capital One’s approach will become the new norm at Discover.”
Meanwhile, Capital One customers will also have access to Discover’s payment network. In the United States, switching to a new Capital One card on Discover’s network from Mastercard or Visa would “not be very noticeable” because most U.S. businesses accept payments via all three, Money reported. However, it could limit shoppers’ payment options overseas, where Mastercard and Visa have bigger footprints than Discover.
Of course, none of this will matter if regulators give the deal a thumbs down. Because of the size of the buyout and its potential impact on the financial industry, it will likely face heavy antitrust scrutiny. As Reuters reported, the Biden administration has focused on boosting competition in “all areas of the economy” — particularly banking. Regulators are not expected to decide on the deal until late 2024 or early 2025, meaning that Capital One and Discover customers won’t see changes anytime soon.
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This article originally appeared on GOBankingRates.com: Capital One Is Buying Discover: What Happens if You Bank With Either, or Both?
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