Capital One, one of the major banks in America, just acquired the Discover financial brand. Unique among competitors, Discover is both a credit card backer and an entire network like Visa and Mastercard.
If the merger went through, Capital One would have its own payment network it could leverage to escape the Mastercard-Visa duopoly. In addition, it would still have banking services that would differentiate it from other credit card networks.CNBC says:
The merger of the two companies, which are among the largest credit card issuers in the U.S., would expand Capital One’s credit card offerings and its deposit base. The company bought digital concierge service Velocity Black, a premium credit card and luxury market platform, in June of last year.
The Wall Street Journal reported that Capital One, which already uses Visa and Mastercardnetworks, plans to keep the Discover brand.
Although the deal is far from finalized, its unfolding would be fairly predictable. Switching to its own credit card network would save Capital One from many middlemen fees. A closed ecosystem like Amex could transform Capital One into an international powerhouse. CNN continues:
For starters, all Capital One debit cards will be switched from Mastercard to the Discover network “within the first few years” from when the deal is finalized, Richard Fairbank, founder and CEO of Capital One, said in a Tuesday morning investor call.
Discover cards are already accepted at 99% of all US merchants that allow customers to make credit card purchases, according to the company. But Fairbank said people mistakenly believe that share is a lot lower.
As banks become bigger and consolidate smaller firms together, every company will attempt to cut costs. This would offer bigger incentives for new customers, whose acquisition cost is very high among credit card providers.
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