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KU Business faculty experts discuss: Credit card company mergers

KU School of Business
3 min readMay 9, 2024

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In February 2024, credit card company Capital One announced that it planned to acquire Discover in an all-equity transaction valued at $35 billion. The merger raises many questions about how the transaction could affect consumers, businesses and the credit card institutions.

Shradha Bindal

Shradha Bindal, assistant professor in the Finance academic area, provides her insights on the merging of the two companies and what it could mean for consumers. Bindal holds a doctorate in business administration–finance from Texas A&M University, an MBA from the Indian Institute of Technology, Madras, and a bachelor’s in computer science from University of Rajasthan, India. Her research interests include empirical corporate finance, product market competition, institutional investors and behavioral biases.

Why would these two companies want to merge?

Companies merge for several reasons, such as expansion and diversification into new markets, economies of scale, synergies due to complementary capabilities, and an increase in market power. U.S. News reports that Capital One ranks among the top-five U.S. banks by purchase volume, and access to Discover’s payment network seems to be one of the main reasons for this merger. In the deal announcement, Capital One highlights that it has the resources to scale Discover’s global payment platform and compete efficiently with other payment networks. It anticipates the deal to generate $2.7 billion in pre-tax synergies.

What are some of the advantages and disadvantages of the merger?

Merchants pay a fee to the bank and payment network every time you use your credit card, and part of this fee is returned to consumers as reward points. Visa and Mastercard dominate this market with roughly 75% share, according to WalletHub. The merger between Capital One and Discover could increase competition, potentially leading to lower swipe fees as Visa and Mastercard strive to maintain their market share. However, there is a risk that payment networks might pass higher costs onto merchants, as found in recent research from Lulu Wang, a finance professor at Northwestern’s Kellogg School of Management.

How would this affect customers?

While lower swipe fees could benefit consumers, if the payment networks pass the higher cost to merchants, it will be particularly bad for small businesses.

Why is the merger considered controversial?

S&P Global cites that this is the biggest deal in terms of deal value since the financial crises. It combines two of the top five institutions by credit card loan size, as reported by Reuters. If it goes through, Capital One will become the sixth-largest bank in the U.S. and will get access to its very own payment network. This may disrupt the existing industry dynamic where Visa and Mastercard are currently a duopoly. Any merger that has the potential to reduce competition is controversial because a reduction in competition adversely affects consumers.

Why should people pay attention to this merger?

According to Motley Fool, in 2022, 214 million adults in the U.S. had a credit card. Given this deal’s potential to alter the payment network industry dynamics and credit card rewards offerings, the outcome will affect both the customers and the merchants.

Is there anything else to add?

The completion of the deal is uncertain, as it requires approval from both shareholders and regulators. While Discover shareholders are likely to approve the merger given the substantial premium, the stance of regulators remains unclear, and politicians from both parties, like Congresswoman Waters (D-CA) and Senator Hawley (R-MO), have expressed opposition to the deal, as reported by pymnts.com. It will be interesting to see how this all pans out.

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KU School of Business

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