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Capital One to acquire Discover, becoming nation’s largest credit card company

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Mergers & Acquistions, Nonbank Financial
Tuesday, February 20, 2024

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.

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