In a move that would make Capital One Financial Corp. the
largest credit card company in the U.S., the company announced it has entered
into a $35.3 million merger agreement with Discover Financial Services. If
approved by federal regulators, the combined entities would be positioned to
compete with the world’s largest payment providers.
The acquisition algins with Capital One’s long-term goal of
expanding the reach of its “digital first” approach to payments and banking,
according to a press release. It also would come with several regulatory
considerations, as the combined entity’s increased size, complexity and increased
market share would likely lead to heightened regulatory scrutiny.
“From Capital One’s founding days, we set out to build a
payments and banking company powered by modern technology,” Capital One
Chairman, CEO and founder Richard Fairbank said in the release. “Our
acquisition of Discover is a singular opportunity to bring together two very
successful companies with complementary capabilities and franchises, and to
build a payments network that can compete with the largest payments networks
and payments companies.”
Fairbank further explained that the company views the
acquisition as an opportunity to create “a company that is exceptionally
well-positioned to create significant value for consumers, small businesses,
merchants, and shareholders” in the ever-evolving financial modern marketplace,
driven by constant technological innovations.
Although Discover’s global payments network of 70 million
merchants in 200 countries makes it the smallest of the four largest U.S.-based
payments networks, the acquisition would be significant enough to make Capital
One the largest credit card company in the country. Currently, it is the
nation’s third-largest, trailing JPMorgan Chase and Citigroup.
The merger would increase Capital One’s scale and investment
capabilities, which aligns with its goal of establishing a global payments
company and enhancing merchant collaboration ability by leveraging emerging technology
to better serve consumers and small businesses, the release states.
“The transaction with Capital One brings together two strong
brands with enhanced ability to accelerate growth and maximizes value for our
shareholders, enabling them to participate in the tremendous upside of the
combined company,” Discover President and CEO Michael Rhodes said in the
release. “This agreement underscores the strength of our business and is a
testament to the hard work of Discover employees. We look forward to a bright
future as part of the Capital One family and to providing expanded opportunities
for our loyal customers.”
Capital One also said acquiring Discover’s direct savings
bank and other resources would bolster its “digital first” approach to banking,
enhancing its customer experience and expanding the company’s reach and
competitiveness against major banks. By expanding its ability to leverage
emerging technology, the company expects to increase its innovation potential, improve
its risk management capabilities and enhance its growth potential.
The combined entity also acknowledged the merger would likely
cause it to increase its focus on Federal Reserve, legislative and
regulatory actions and reforms pertaining to: changes in asset quality and
credit risk; changes in interest rates and capital markets; inflation; customer
borrowing, repayment, investment and deposit practices; the impact, extent and
timing of technological changes; capital management activities.
The transaction is expected to close in late 2024 or early
2025, subject to regulatory approvals, as well as board and shareholder
approvals at each company.