Capital One-Discover purchase may open path to more bank mergers

WASHINGTON (TNND) — The merger of two of the United States’ biggest credit card companies is moving forward after federal regulators approved Capitol One’s $35 billion purchase of Discover in a deal that spurred criticism over fears of higher fees and less choices for consumers.

Once the deal goes through, Capital One will become the biggest credit card company in the country and also absorbed billions in assets, along with access to Discover’s payments network that is wide-reaching but still trails larger competitors.

The Federal Reserve Board and Office of the Comptroller of the Currency signed off on the deal that was originally announced last February on Friday. When the deal closes, which the banks expect to happen in the middle of next month, will significantly ramp up Capital One’s position as a major player in the industry.

Capital One is the ninth-largest bank in the U.S. with some $479 billion in assets and issues credit cards through Visa and Mastercard’s payment networks. With the acquisition of Discover, it will gain access to a card network of 305 million cardholders and its client base.

Critics of bank consolidation argue that less competition among the industry will allow major players to ramp up fees charged to merchants for access to payment networks, minimize the rewards companies offer their customers and eventually lead to higher costs for businesses and consumers.

The banks’ executives have argued that merging will allow them to create a bigger competitor to Visa and Mastercard that dominate the credit card and payment network industries. Visa and Mastercard’s prominence in payment networks has been subject to recent scrutiny among lawmakers that see a lack of competition driving up costs for consumers and merchants that are forced to absorb hits to accept credit cards.

“The combination of our two great companies will increase competition in payment networks, offer a wider range of products to our customers, increase our resources devoted to innovation and security, and bring meaningful community benefits,” Michael Shepherd, interim CEO and president of Discover, said in a statement.

Visa and Mastercard have been on defense against accusations that the fees they charge stores for processing credit cards are running up costs for businesses and consumers through outsized shares of the market.

The so-called swipe fees have become a more prominent issue for retailers spending habits changed from cash to debit and credit cards and racked up more purchases that require use of payment networks that take a cut of every sale.

“When you think about the platforms that Visa, MasterCard, and even AmEx, have created over time, having a fourth now in there that was that isn’t going to be just a distant fourth in the near future — but really be a main competitor, I think is going to be actually an enhancement to competition and rather a detractor of that,” said Cliff Rossi, a professor of finance at the University of Maryland’s Robert H. Smith School of Business who also worked in high levels of risk management for several large banks.

Consumer advocates have remained opposed to the Capital One-Discover merger since its announcement. Some lawmakers that have taken an adversarial approach to Wall Street and the banking industry have also been opposed to the deal going through.

Sen. Elizabeth Warren, the ranking member on the Senate Banking Committee and noted skeptic of the industry, said in a statement that the deal’s approval creates another “too big to fail” bank that will increase costs.

“President Trump promised to cap credit card interest rates, but his Administration just rubber-stamped the creation of the largest credit card company in the country, which will hurt consumers and small businesses with inevitably higher credit card interest rates, increased junk fees, and reduced availability of credit. Today Wall Street initiates the newest member of its Too-Big-To-Fail club at the expense of working Americans and our nation’s financial stability—a daily theme of the Trump Administration,” Warren said in a statement.

The approval of the merger comes on the heels of the administration walking back a number of consumer protection provisions put in place under the Biden administration, an effort to shutter the Consumer Financial Protection Bureau and a lighter regulatory approach to Wall Street.

Analysts had been watching the deal as a gauge about whether it would become easier for financial institutions to merge during the second Trump administration. The industry had been hit with a series of increased regulations and elimination of fees during the Biden administration, sparked in part by the collapse of Silicon Valley Bank and a handful of others that led to some concerns about keeping the banking industry on solid footing.

Among the priorities for the administration coming into office was making bank mergers less burdensome during the approval process.

“This is just another signal of what the administration has said all along, that they were going to cut red tape and reduce regulation on industry,” Rossi said. “If economic conditions are robust over the course of the next couple years, I think we could continue to see more of these kinds of bank acquisitions going on.”